10-Q 1 btb_10q.htm FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 28, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 333-233233 BT BRANDS, INC. (Exact name of registrant as specified in its charter) | --- | --- | |---------------- ...

[Part I — Financial Information](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) For Q1 2020, the company reported an improved net loss and positive operating cash flow, with increased assets and liabilities, and a growing shareholders' deficit Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 29, 2020 ($) | December 29, 2019 ($) | | :--- | :--- | :--- | | Total current assets | $374,186 | $336,825 | | Total assets | $2,654,081 | $2,633,539 | | Total current liabilities | $909,387 | $805,151 | | Total liabilities | $4,166,640 | $4,029,854 | | Total shareholders' deficit | $(1,512,559) | $(1,396,315) | Condensed Consolidated Statement of Income Highlights (Unaudited) | Account | 13 Weeks Ended Mar 29, 2020 ($) | 13 Weeks Ended Mar 31, 2019 ($) | | :--- | :--- | :--- | | Sales | $1,303,430 | $1,377,833 | | Income (loss) from operations | $(79,777) | $(129,177) | | Net Loss | $(116,244) | $(170,490) | | Loss Per Common Share | $(0.01) | $(0.02) | Condensed Consolidated Statement of Cash Flows Highlights (Unaudited) | Account | 13 Weeks Ended Mar 29, 2020 ($) | 13 Weeks Ended Mar 31, 2019 ($) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $81,438 | $(25,640) | | Net cash used in investing activities | $(28,000) | $0 | | Net cash used in financing activities | $(1,405) | $(63,293) | | Change in Cash | $52,033 | $(88,933) | | Cash, End of Period | $310,134 | $574,578 | - The company operates nine company-owned Burger Time fast-food restaurants and one International Dairy Queen franchisee, totaling **ten operating restaurants** as of March 29, 2020[22](index=22&type=chunk) - The company's financial statements are prepared on a going concern basis, despite a net loss of **$116,244** and a working capital deficit of **$535,201**, with management expecting sufficient cash for the next **12 months** due to PPP loans and emergency relief[37](index=37&type=chunk)[38](index=38&type=chunk) - Subsequent to quarter-end in May 2020, the company received **$460,400** in PPP loans and a **$27,500** interest-free loan from the Minnesota Small Business Emergency Loan Program to mitigate COVID-19 impacts[51](index=51&type=chunk)[52](index=52&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation](index=11&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATION) Q1 2020 net sales decreased, but operating loss improved due to reduced G&A expenses, with the company pursuing acquisitions and securing government loans to address COVID-19 impacts [Business Trends and Growth Strategy](index=11&type=section&id=Business%20Trends%20and%20Growth%20Strategy) COVID-19 led to operational adjustments and CARES Act loan applications, while the company's growth strategy focuses on acquiring multi-unit restaurant concepts to expand and boost comparable store sales - In response to COVID-19, all locations continued to operate on a drive-through basis only, with walk-up windows and indoor/outdoor seating closed[57](index=57&type=chunk) - The company applied for and received loans totaling **$460,400** under the Paycheck Protection Program (PPP) and a **$27,500** loan from a Minnesota state program to fund payroll and other expenses[58](index=58&type=chunk) - The company's growth strategy is to acquire multi-unit restaurant concepts and individual properties, then expand the number of locations and increase comparable store sales and profits[60](index=60&type=chunk)[61](index=61&type=chunk) [Results of Operations](index=12&type=section&id=Results%20of%20Operations) Q1 2020 net sales decreased by **5.4%** due to a store closure, but operating loss improved significantly due to a **51.8%** reduction in G&A costs, despite increased food costs and a negative restaurant-level EBITDA Q1 2020 vs Q1 2019 Performance | Metric | Q1 2020 ($) | Q1 2019 ($) | | :--- | :--- | :--- | | Net Sales | $1,303,430 | $1,377,833 | | % Change | -5.4% | N/A | | Loss from Operations | $(79,777) | $(129,177) | | G&A Costs | $66,216 | $127,784 | | Restaurant-level EBITDA | $(1,598) | $59,119 | - The decrease in sales was principally the result of the West St Paul location being closed for approximately **seven weeks** due to a fire[66](index=66&type=chunk) - Food and paper costs increased as a percentage of sales (**41.4%** vs **40.7%**) mainly due to an **18%** increase in average beef prices[69](index=69&type=chunk) - General and administrative costs decreased by **51.8%**, primarily due to a **$37,500** reduction in officer salary and the elimination of a general manager position[74](index=74&type=chunk) [Liquidity and Capital Resources](index=14&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 29, 2020, the company had a working capital deficit and **$310,134** in cash, but positive operating cash flow and **$460,400** in PPP loans are expected to provide sufficient liquidity for the next **twelve months** - The company had a working capital deficit of **$535,201** as of March 29, 2020, an increase from the year-end deficit of **$468,326**[80](index=80&type=chunk) - Cash flow from operating activities was a positive **$81,438** in Q1 2020, compared to a negative **$25,640** in Q1 2019, mainly due to increased vendor accounts payable[80](index=80&type=chunk) - The company's principal lenders agreed to abate all loan payments for **three months** (March-May 2020) in response to the COVID-19 pandemic[81](index=81&type=chunk) - The company secured loans totaling **$460,400** under the PPP and a **$27,500** no-interest loan from a Minnesota state program, which are expected to provide sufficient cash for the next **twelve months**[81](index=81&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=15&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) As a smaller reporting company, BT Brands, Inc. is exempt from this disclosure, but notes market risks related to commodity prices, especially beef, and revenue seasonality - The company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item[96](index=96&type=chunk) - The company is subject to volatility in food costs, especially beef, where a **ten percent** increase would result in approximately **$98,000** of additional annual food costs[84](index=84&type=chunk) - The company's revenue is subject to seasonality, with typically lower revenue in the first and fourth quarters due to holiday closures and cold weather impacting outdoor seating[85](index=85&type=chunk) [Item 4. Controls and Procedures](index=16&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES.) Management concluded that the company's disclosure controls and procedures were effective as of quarter-end, with no material changes to internal control over financial reporting during the period - Based on an evaluation as of the end of the reporting period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[97](index=97&type=chunk) - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[99](index=99&type=chunk) [Part II — Other Information](index=16&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=16&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company reports no pending or threatened legal proceedings to which it or its property is subject - There are presently no pending legal proceedings to which the Company is a party or as to which any of its property is subject[102](index=102&type=chunk) [Item 1A. Risk Factors](index=16&type=section&id=ITEM%201A.%20RISK%20FACTORS) As a smaller reporting company, BT Brands, Inc. is not required to provide risk factor disclosures under this item - As a smaller reporting company, BT Brands, Inc. is not required to provide the information required under Item 1A Risk Factors[103](index=103&type=chunk) [Other Items (2-6)](index=16&type=section&id=Other%20Items%20(2-6)) The company reported no unregistered equity sales, no defaults on senior securities, and no other material information, with relevant exhibits filed - Item 2: The Company did not sell any securities since its last annual report[104](index=104&type=chunk) - Item 3: There were no defaults upon senior securities[105](index=105&type=chunk) - Item 5: There is no other information to report[107](index=107&type=chunk)

PART I [Business](index=3&type=section&id=Item%201%2E%20Business%2E) BT Brands, Inc. operates nine Burger Time and one Dairy Queen restaurant, focusing on drive-thru and take-out, with growth strategies centered on acquisitions and new locations, supported by its real estate ownership model - The company owns and operates nine Burger Time restaurants and one Dairy Queen franchise, located in North Dakota, South Dakota, and Minnesota[23](index=23&type=chunk) - The core business strategy is to serve the drive-thru and take-out segment of the quick-service restaurant (QSR) industry, focusing on value, quality, and speed[24](index=24&type=chunk) - Future growth is planned through acquisitions in the foodservice industry and developing more Burger Time locations, which will require additional capital[27](index=27&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) - The company owns the trademarks for "It's Burger Time" and "Hot 'n Now"[87](index=87&type=chunk) - As of December 29, 2019, the company had approximately **107 employees**, with **17 full-time** and **90 part-time**[92](index=92&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A%2E%20Risk%20Factors%2E) As a smaller reporting company, BT Brands, Inc. has elected to comply with scaled disclosure obligations and is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide risk factor disclosures in this report[94](index=94&type=chunk) [Unresolved Staff Comments](index=12&type=section&id=Item%201B%2E%20Unresolved%20Staff%20Comments%2E) The company reports no unresolved staff comments - There are no unresolved staff comments[95](index=95&type=chunk) [Properties](index=12&type=section&id=Item%202%2E%20Properties%2E) The company owns real estate for most of its ten restaurants, with approximately **$3.35 million** in mortgage debt as of December 29, 2019, while leasing one restaurant and its executive offices - The company owns the real estate for most of its restaurants, with one location in Sioux Falls, SD, leased on a month-to-month basis for **$1,600**[43](index=43&type=chunk)[99](index=99&type=chunk) - As of December 29, 2019, the total mortgage debt on its properties was approximately **$3,350,000**, with total monthly payments of **$31,128**[97](index=97&type=chunk) - The company's operations are subject to a wide range of governmental regulations, including health, safety, labor, and environmental laws, with new restaurant development subject to zoning and land use regulations[100](index=100&type=chunk)[101](index=101&type=chunk)[107](index=107&type=chunk) [Legal Proceedings](index=13&type=section&id=Item%203%2E%20Legal%20Proceedings%2E) The company is not currently a party to any material litigation, and management is not aware of any threatened litigation that could have a material effect - The company reports no material legal proceedings[109](index=109&type=chunk) [Mine Safety Disclosures](index=13&type=section&id=Item%204%2E%20Mine%20Safety%20Disclosures%2E) This item is not applicable to the company - Not applicable[111](index=111&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=13&type=section&id=Item%205%2E%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities%2E) The company's common stock has no public trading market, though OTC quotation is sought, with **8,095,004 shares outstanding** as of March 24, 2020, and no anticipated cash dividends - There is no public trading market for the company's common stock, but it plans to seek quotation on the OTC Markets[114](index=114&type=chunk) - As of March 24, 2020, there were **8,095,004 shares** of common stock outstanding held by **53 record holders**[117](index=117&type=chunk) - The company has never paid cash dividends and does not plan to in the foreseeable future[118](index=118&type=chunk) [Selected Financial Data](index=14&type=section&id=Item%206%2E%20Selected%20Financial%20Data%2E) As a smaller reporting company, BT Brands, Inc. is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide selected financial data[122](index=122&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=14&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%2E) Fiscal year 2019 saw an **8.1% decrease in net sales to $6.48 million** and a **net loss of $368,577**, driven by a store closure, increased costs, and competitive pressures, though management anticipates sufficient liquidity for the next year Fiscal Year 2019 vs 2018 Performance | Metric | Fiscal 2019 | Fiscal 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $6,480,564 | $7,051,467 | -8.1% | | Income (Loss) from Operations | ($220,048) | $240,158 | - | | Net Income (Loss) | ($368,577) | $20,803 | - | | Restaurant-level EBITDA | $693,612 | $802,358 | -13.5% | | Restaurant-level EBITDA Margin | 10.7% | 11.3% | -0.6 p.p. | - The decrease in 2019 sales was principally the result of closing the Richmond, Indiana location at the end of 2018[147](index=147&type=chunk) - Labor costs increased as a percentage of sales from **31.7% in 2018 to 33.0% in 2019**, driven by tight labor markets and higher starting wages, despite the closure of one location[152](index=152&type=chunk) - General and administrative costs increased by **22.4% in 2019**, primarily due to a **$40,000 write-off** in deferred offering costs and a **$48,500 impairment** in Goodwill[155](index=155&type=chunk) - The company faces material trends including the rapid adoption of technology and mobile delivery by competitors, and intense price competition from major QSRs[132](index=132&type=chunk) - The COVID-19 pandemic has disrupted normal operations, but all stores have remained open for drive-through business, with the ultimate impact on the business being unpredictable[136](index=136&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) - At December 29, 2019, the Company had **$258,101 in cash** and a working capital deficit of **$468,326**, but management believes it can meet its obligations for the next year, aided by temporary loan payment abatements from its principal lenders[165](index=165&type=chunk)[166](index=166&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=20&type=section&id=Item%207A%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk%2E) As a smaller reporting company, BT Brands, Inc. is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide these disclosures[179](index=179&type=chunk) [Financial Statements and Supplementary Data](index=21&type=section&id=Item%208%2E%20Financial%20Statements%20and%20Supplementary%20Data%2E) Fiscal year 2019 financial statements report a **net loss of $368,577**, a **shareholders' deficit of $1.40 million**, and a decline in total assets to **$2.63 million**, with significant debt and related party transactions detailed in the notes Consolidated Balance Sheet Data (as of year-end) | Account | Dec 29, 2019 | Dec 30, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $258,101 | $663,511 | | Total Current Assets | $336,825 | $790,547 | | Total Assets | $2,633,539 | $3,264,837 | | **Liabilities & Equity** | | | | Total Current Liabilities | $805,151 | $731,767 | | Long-Term Debt | $3,221,035 | $3,516,028 | | Total Liabilities | $4,029,854 | $4,306,075 | | Total Shareholders' Deficit | ($1,396,315) | ($1,041,238) | Consolidated Statement of Income Data (for fiscal year) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Sales | $6,480,564 | $7,051,467 | | Total Costs and Expenses | $6,702,612 | $6,810,652 | | Loss from Operations | ($222,048) | $240,815 | | Net Income (Loss) | ($368,577) | $20,803 | | Net Income (Loss) Per Share | ($0.05) | $0.00 | Consolidated Statement of Cash Flows Data (for fiscal year) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $50,489 | $49,116 | | Net cash provided by (used in) investing activities | ($179,000) | $216,578 | | Net cash provided by (used in) financing activities | ($276,899) | $156,767 | | Change in Cash | ($405,410) | $422,461 | - The company's long-term debt as of December 29, 2019, was approximately **$3.56 million** before unamortized costs, with various notes secured by restaurant locations and personal guarantees from a shareholder[236](index=236&type=chunk)[237](index=237&type=chunk) - Approximately **83%** of the company's purchases in both 2019 and 2018 were from a single vendor, Sysco Corporation[58](index=58&type=chunk)[243](index=243&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=31&type=section&id=Item%209%2E%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure%2E) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[251](index=251&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%209A%2E%20Controls%20and%20Procedures%2E) Management concluded that disclosure controls and procedures were effective as of December 29, 2019, with no material changes to internal control over financial reporting during the fiscal year - Management concluded that as of December 29, 2019, disclosure controls and procedures were effective[253](index=253&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal year ended December 29, 2019[254](index=254&type=chunk) [Other Information](index=32&type=section&id=Item%209B%2E%20Other%20Information%2E) The company reports no other information for this item - None[257](index=257&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=32&type=section&id=Item%2010%2E%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance%2E) The company's three-member board, including CEO Gary Copperud and COO Kenneth Brimmer, lacks independent directors and operates without separate committees, though a code of ethics has been adopted - The executive officers are Gary Copperud (CEO and Director) and Kenneth Brimmer (COO and Chairman); Jeffrey A. Zinnecker also serves as a Director[258](index=258&type=chunk) - The Board of Directors consists of three members, none of whom qualify as independent under NASDAQ listing requirements[270](index=270&type=chunk) - The company does not have separate audit, compensation, or nominating committees; these functions are performed by the entire Board of Directors[273](index=273&type=chunk) - The company has adopted a code of business conduct and ethics applicable to all employees, officers, and directors[282](index=282&type=chunk) [Executive Compensation](index=36&type=section&id=Item%2011%2E%20Executive%20Compensation%2E) In fiscal year 2019, CEO Gary Copperud received **$150,000** in salary, COO Kenneth Brimmer received **$4,500**, and the company adopted a 2019 Incentive Plan reserving **500,000 shares** for awards, with **9,000 shares** granted Summary Compensation Table (Fiscal 2019) | Name and Principal Position | Year | Salary ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Gary Copperud, CEO | 2019 | 150,000 | 0 | 150,000 | | Kenneth Brimmer, COO | 2019 | 0 | 4,500 | 4,500 | - In October 2019, the company adopted the 2019 Incentive Plan, reserving **500,000 shares** of common stock for issuance, with an aggregate of **9,000 shares** awarded as stock bonuses to **30 senior employees**[295](index=295&type=chunk) - No compensation was paid to directors for their service since January 1, 2018[290](index=290&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=38&type=section&id=Item%2013%2E%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence%2E) The company has significant related party transactions, including a **$207,265** loan from an affiliate, CEO Gary Copperud's personal guarantees on real estate loans, and a **$179,000** investment in Next Gen Ice, Inc., an entity controlled by the CEO, with no independent directors - The company has a promissory note with BTND Trading, LLC, an affiliated entity, with an outstanding balance of **$207,265** as of December 29, 2019[310](index=310&type=chunk) - CEO Gary Copperud has personally guaranteed all promissory notes for loans on the company's real properties[311](index=311&type=chunk) - In 2019, the company invested **$179,000** in Next Gen Ice, Inc. (NGI), an entity where CEO Gary Copperud is Chairman and a controlling shareholder, with loan terms subsequently modified in March 2020[314](index=314&type=chunk) - The Board of Directors has determined that none of its members are independent according to NASDAQ standards[315](index=315&type=chunk) [Principal Accounting Fees and Services](index=40&type=section&id=Item%2014%2E%20Principal%20Accounting%20Fees%20and%20Services%2E) For fiscal year 2019, the company incurred **$35,696** in total fees from Boulay, PLLP, primarily **$34,756** for audit services, all pre-approved by the Board of Directors Accounting Fees (Boulay, PLLP) | Fee Category | 2019 | 2018 | | :--- | :--- | :--- | | Audit Fees | $34,756 | $26,400 | | Audit-Related Fees | $940 | $3,663 | | Tax Fees | - | - | | All Other Fees | - | - | | **Total Fees** | **$35,696** | **$30,063** | - All fees were pre-approved by the company's entire Board of Directors[318](index=318&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=40&type=section&id=Item%2015%2E%20Exhibits%2C%20Financial%20Statement%20Schedules%2E) This section lists required exhibits, including corporate governance documents and material agreements, while financial statement schedules are omitted as the information is either not required or already presented in the financial statements or notes - The financial statements required are included in Item 8 of Part II[320](index=320&type=chunk) - A list of exhibits filed with the report is provided, including corporate governance documents, material agreements, and executive certifications[322](index=322&type=chunk)[323](index=323&type=chunk) - No financial statement schedules are provided as they are not required or the information is already present in the financial statements or notes[321](index=321&type=chunk)[323](index=323&type=chunk) [Form 10–K Summary](index=41&type=section&id=Item%2016%2E%20Form%2010%E2%80%93K%20Summary%2E) No Form 10-K summary is provided - None[323](index=323&type=chunk)