BT Brands(BTBD) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information This quarterly report for BT BRANDS, INC covers the period ended June 30, 2024, detailing its filing status and shares outstanding - This is a Quarterly Report (Form 10-Q) for BT BRANDS, INC for the period ended June 30, 2024[1] - The registrant is a Non-accelerated filer and a Smaller reporting company[3] - As of August 1, 2024, there were 6,195,682 shares of common stock outstanding[3] Cautionary Statement Regarding Risks and Uncertainties The report contains forward-looking statements subject to significant risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements identifiable by terms like 'believes,' 'expects,' 'may,' 'estimates,' and 'plans,' which are inherently subject to risks and uncertainties[4] - Key risk factors include capital requirements, growth strategy execution, public health matters, employee retention, food safety, supply chain issues, competition, and economic conditions[5] - The Company cautions that actual results may differ materially from expectations and undertakes no obligation to publicly update forward-looking statements[6][7][8] PART I FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ITEM 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period Condensed Consolidated Balance Sheets | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $14,030,625 | $14,609,212 | | Total Liabilities | $5,323,538 | $5,420,483 | | Total Shareholders' Equity | $8,707,087 | $9,188,729 | - Total assets decreased by approximately $578,587 from December 31, 2023, to June 30, 2024, while total liabilities also saw a slight decrease[10] Condensed Consolidated Statements of Operations | Metric (Unaudited) | 26 Weeks Ended, June 30, 2024 | 26 Weeks Ended, July 2, 2023 | 13 Weeks Ended, June 30, 2024 | 13 Weeks Ended, July 2, 2023 | | :--- | :--- | :--- | :--- | :--- | | SALES | $7,300,786 | $7,070,763 | $4,110,639 | $3,999,965 | | Loss from operations | $(819,372) | $(330,306) | $(188,543) | $(79,548) | | NET LOSS | $(515,652) | $(375,520) | $(69,952) | $(233,734) | | NET LOSS PER COMMON SHARE - Basic and Diluted | $(0.08) | $(0.06) | $(0.01) | $(0.04) | - Sales increased for both the 13-week and 26-week periods year-over-year, but net loss widened for the 26-week period while narrowing for the 13-week period[11] Condensed Consolidated Statements of Shareholders' Equity | Item | 26 Weeks Ended, June 30, 2024 | 26 Weeks Ended, July 2, 2023 | | :--- | :--- | :--- | | Balances, Beginning of Period | $9,188,729 | $10,152,622 | | Stock-based compensation | $110,000 | $77,300 | | Treasury stock purchase | $(75,990) | $(250,225) | | Net loss | $(515,652) | $(375,520) | | Balances, End of Period | $8,707,087 | $9,604,177 | - Total shareholders' equity decreased from $9,188,729 to $8,707,087 during the first half of 2024, driven by net loss and treasury stock purchases[12] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | 26 Weeks Ended, June 30, 2024 | 26 Weeks Ended, July 2, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(326,369) | $(111,747) | | Net cash provided (used) in investing activities | $(956,384) | $4,996,865 | | Net cash used in financing activities | $(282,384) | $(1,330,817) | | Change in cash and cash equivalents | $(1,565,137) | $3,554,301 | | Cash and cash equivalents, End of Period | $3,735,309 | $5,704,879 | - The company experienced a significant decrease in cash and cash equivalents, with net cash used in operating, investing, and financing activities for the 26 weeks ended June 30, 2024[14][15] Notes to Condensed Consolidated Financial Statements NOTE 1 - Summary of Significant Accounting Policies - The financial statements are prepared in accordance with US GAAP for interim financial information and SEC requirements for Form 10-Q[16] - As of June 30, 2024, the Company operated eighteen restaurants, including eight Burger Time locations and a 40% ownership in six Bagger Dave's locations[19][21] - Noncurrent investments include a $544,023 equity method investment in Bagger Dave's and a $304,000 investment in NGI Corporation[25] NOTE 2 – Intangible Assets | Intangible Asset | June 30, 2024 Carrying Value | December 31, 2023 Net Carrying Value | | :--- | :--- | :--- | | Covenants not to Compete | $102,375 | $46,972 | | Tradenames | $340,455 | $348,141 | | Total | $442,830 | $395,113 | - Total amortization expense for intangible assets was $63,950 for the 26-week period ending June 30, 2024[37] NOTE 3 – Property and Equipment | Category | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total property and equipment | $7,687,758 | $6,893,550 | | Accumulated depreciation | $(3,655,737) | $(3,387,786) | | Net property and equipment | $3,773,270 | $3,247,013 | - Depreciation expense for the 26-week period in 2024 was $267,943, a decrease from $313,762 in the comparable 2023 period[41] NOTE 4 - Accrued Expenses | Accrued Expense | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Accrued real estate taxes | $34,760 | $49,357 | | Accrued bonus compensation | - | $119,139 | | Accrued payroll | $229,573 | $149,587 | | Accrued sales taxes payable | $111,907 | $81,683 | | Total Accrued Expenses | $452,680 | $480,289 | - Total accrued expenses decreased slightly, with a notable elimination of accrued bonus compensation and an increase in accrued payroll[42] NOTE 5 - Long Term Debt | Debt Component | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Three notes payable to a bank | $2,398,804 | $2,489,299 | | Less - unamortized debt issuance costs | $(33,499) | $(36,199) | | Current maturities | $(164,408) | $(183,329) | | Total Long-Term Debt, less current portion | $2,200,897 | $2,269,771 | - Long-term debt consists of three bank notes secured by mortgages on eight BTND operating locations, with a fixed interest rate of 3.45% until July 2031[43] NOTE 6 - Stock-Based Compensation - As of June 30, 2024, 765,750 shares were available for grant under the 2019 Incentive Plan[44] - Total equity-based compensation expenses for stock options and warrants were $110,000 for the 26-week period ended June 30, 2024[12][47] | Stock Options Activity (26 Weeks Ended June 30, 2024) | Number of Options | Weighted Average Exercise Price | | :--- | :--- | :--- | | Options outstanding at December 31, 2023 | 319,250 | $2.62 | | Granted | 15,000 | $1.61 | | Options outstanding at June 30, 2024 | 334,250 | $2.57 | | Options exercisable at June 30, 2024 | 109,802 | $2.70 | - A Contingent Incentive Share Award for 250,000 common shares to senior executives was established, contingent on the share price reaching $8.50 for 20 consecutive trading days[49][50] NOTE 7 – Leases - The Company has operating leases for four restaurant locations with a weighted average remaining lease term of approximately 3.5 years[51][52][53][54] | Future Minimum Lease Payments (as of June 30, 2024) | Amount | | :--- | :--- | | Remainder 2024 | $172,274 | | 2025 | $351,626 | | 2026 | $362,188 | | 2027 | $317,768 | | 2028 | $208,895 | | 2029 and thereafter | $828,390 | | Total future minimum lease payments | $2,241,141 | | Less - interest | $(348,173) | | Present Value of Lease Obligations | $1,892,968 | - Total operating lease expenses were $154,500 for the 26-week period in 2024, up from $97,900 in 2023[54] NOTE 8 - Related Party Transaction - The Company's CEO and CFO also serve as Chairman and CFO of NGI Corporation, in which BT Brands holds 336,496 common shares and warrants[56] - In June 2024, BT Brands advanced $25,000 to NGI on a demand note[56] NOTE 9 – Acquisition - On May 13, 2024, the Company's subsidiary acquired the assets of Schnitzel Haus, a German-themed restaurant in Hobe Sound, Florida[57] | Acquired Assets (Schnitzel Haus) | Amount | | :--- | :--- | | Property, including leasehold improvements and equipment | $625,000 | | Intangible covenant not to compete | $100,000 | | Inventory | $65,000 | | Vehicle and other | $28,000 | | Operating lease right-of-use asset | $182,878 | | Total assets acquired | $1,000,878 | | Operating lease liability | $(182,878) | | Net assets acquired | $818,000 | | Goodwill | $125,000 | | Net purchase price | $943,000 | NOTE 10 – Contingencies - The Company is unaware of any significant asserted or potential legal claims that could impact its financial position[57] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Management discusses the company's financial condition, operational results, liquidity, and capital resources for the reporting period Introduction - As of June 30, 2024, the Company owned and operated eighteen restaurants across multiple brands and geographic locations[61] - The business environment is challenging due to intense competition, but the Company operates with a central management organization for efficiency[61] Notable Recent Events - Recent acquisitions have diversified operations into new restaurant segments and geographic regions, reducing dependency on Burger Time restaurants[62] - During the second quarter of 2024, the Company acquired assets and assumed lease obligations for the Schnitzel Haus restaurant[62] Material Trends and Uncertainties - Industry trends include difficulties attracting food service workers, rapid inflation in input costs, and the rapid adoption of technology by competitors[63] - Food costs have increased over the last two years, and raising menu prices to fully cover these costs remains challenging due to competition[64] - The current labor market presents challenges in securing and retaining staff, leading to higher wages and increased competition for employees[65] Results of Operations (13 Weeks) 13 Weeks Ended Financial Performance | Metric (Unaudited) | June 30, 2024 Amount | June 30, 2024 % | July 2, 2023 Amount | July 2, 2023 % | | :--- | :--- | :--- | :--- | :--- | | SALES | $4,110,639 | 100.0% | $3,999,965 | 100.0% | | Food and paper costs | $1,565,070 | 38.1% | $1,608,175 | 40.2% | | Labor costs | $1,551,762 | 37.7% | $1,412,376 | 35.3% | | Occupancy costs | $344,356 | 8.4% | $148,736 | 3.7% | | Loss from operations | $(188,543) | (4.6)% | $(79,548) | (2.0)% | | NET LOSS | $(69,952) | (1.7)% | $(233,734) | (5.8)% | | Restaurant-level EBITDA | $437,613 | 10.6% | $632,049 | 15.8% | - Net sales increased by $110,674 (2.8%) to $4,110,639, driven by improved Burger Time sales and the addition of Schnitzel Haus[67][68] - Food and paper costs decreased as a percentage of sales (38.1% vs 40.2%), while labor costs increased (37.7% vs 35.3%) due to tight labor markets[69][71] - Occupancy and other expenses increased significantly (13.6% vs 8.7%) due to maintenance, utility inflation, and new lease expenses[72] Results of Operations (26 Weeks) 26 Weeks Ended Financial Performance | Metric (Unaudited) | June 30, 2024 Amount | June 30, 2024 % | July 2, 2023 Amount | July 2, 2023 % | | :--- | :--- | :--- | :--- | :--- | | SALES | $7,300,786 | 100.0% | $7,070,763 | 100.0% | | Food and paper costs | $2,844,028 | 39.0% | $2,898,498 | 41.0% | | Labor costs | $2,938,448 | 40.2% | $2,615,136 | 37.0% | | Occupancy costs | $680,631 | 9.3% | $505,861 | 7.2% | | Loss from operations | $(819,372) | (11.2)% | $(330,306) | (4.7)% | | NET LOSS | $(515,652) | (7.1)% | $(375,520) | (5.3)% | | Restaurant-level EBITDA | $421,941 | 5.8% | $657,025 | 9.3% | - Net sales increased by $230,023 (3.2%) to $7,300,786, primarily due to improved Burger Time sales[78][79] - Operating loss widened to $(819,372) from $(330,306) in the prior year, largely due to increased labor and occupancy costs[83] - Restaurant-level EBITDA decreased to $421,941 (5.8% margin) from $657,025 (9.3% margin) in the prior year, reflecting higher operating costs[86] Liquidity and Capital Resources - As of June 30, 2024, the Company had $5.2 million in cash, cash equivalents, and marketable securities, with net working capital of $4.4 million[87] - Primary liquidity sources are operating cash flows and cash on hand, used for working capital, capital expenditures, and business acquisitions[88] - Operating cash flow for the 26 weeks ended June 30, 2024, was negative $326,369, impacted by seasonal patterns and increased costs[89] ITEM 3. Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, BT Brands, Inc is exempt from providing detailed quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and has elected to comply with scaled disclosure reporting obligations, thus not required to provide information on market risk[90] ITEM 4. Controls and Procedures This section addresses the effectiveness of disclosure controls and procedures, noting a material weakness in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - As of June 30, 2024, management concluded that the Company's disclosure controls and procedures were not effective at a reasonable assurance level[91] - This ineffectiveness is due to a material weakness in internal control over financial reporting, as disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2023[91] Changes in Internal Control over Financial Reporting - A consultant was identified as an extension of management to assist in the accounting for acquisitions[92] - No other material changes were made to the Company's internal control over financial reporting during the quarter ended June 30, 2024[92] PART II - OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, and other required disclosures ITEM 1. Legal Proceedings The Company reports no pending or threatened legal proceedings that would materially impact its financial position - There are no pending legal proceedings to which the Company is a party, nor are any known to be threatened or contemplated against it[93] ITEM 1A. Risk Factors As a smaller reporting company, BT Brands, Inc is not required to provide specific risk factor disclosures under this item - The Company is a smaller reporting company and is not required to provide the information required under this item[94] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details recent equity grants and outlines the utilization of proceeds from the Company's initial public offering - A Contingent Incentive Share Award of 250,000 common shares was approved for the CEO and CFO, contingent on the stock price reaching $8.50[95] - A seven-year warrant to purchase 100,000 shares at $2.50 per share was granted to a consultant[95] - IPO proceeds have been used for general working capital and acquisitions, including Keegan's Seafood Grille, Pie in the Sky, Bagger Dave's, Village Bier Garten, and Schnitzel Haus[96] ITEM 3. Defaults Upon Senior Securities The Company reports no defaults upon senior securities - None[97] ITEM 4. Mine Safety Disclosures This item is not applicable to the Company's operations - Not applicable[97] ITEM 5. Other Information The Company has no other information to report under this item - None[97] ITEM 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including acquisition agreements and officer certifications - Exhibits include the Business Asset Purchase Agreement for Schnitzel Haus, officer certifications, and Inline XBRL documents[97] Signatures The report is duly signed on behalf of BT Brands, Inc by its Chief Operating Officer and Principal Financial Officer - The report was signed on August 14, 2024, by Kenneth Brimmer, Chief Operating Officer and Principal Financial Officer of BT Brands, Inc[99]