BT Brands(BTBD) - 2022 Q4 - Annual Report

Part I Business BT Brands, Inc. operates nine Burger Time and one Dairy Queen restaurant, with a core strategy to acquire multi-unit restaurant concepts, supported by its November 2021 public offering - The company operates nine Burger Time restaurants and one Dairy Queen franchise, primarily in Minnesota, North Dakota, and South Dakota[21] - The core business strategy is to acquire multi-unit restaurant concepts and individual restaurant properties at attractive earnings multiples[24][61] - In November 2021, the company completed a public offering, raising net proceeds of approximately $10.7 million to fund growth and acquisitions[27] Restaurant Locations Overview | Location | Open Since | Approx. Sq. Ft. | Real Estate Owner | | :--- | :--- | :--- | :--- | | Fargo, North Dakota | 1987 | 600 | BTND, LLC | | Moorhead, Minnesota | 1988 | 600 | BTND, LLC | | Grand Forks, North Dakota | 1989 | 650 | BTND, LLC | | Waite Park, Minnesota | 1989 | 700 | BTND, LLC | | Bismarck, North Dakota | 1989 | 600 | BTND, LLC | | Sioux Falls, South Dakota | 1991 | 650 | BTND, LLC | | Sioux Falls, South Dakota | 1991 | 650 | Leased | | Minot, North Dakota | 1992 | 800 | BTND, LLC | | Ham Lake, Minnesota (Dairy Queen) | 2015 | 1,664 | BTND DQ, LLC | | West St. Paul, Minnesota | 2016 | 1,020 | BTND, LLC | Risk Factors As a smaller reporting company, BT Brands, Inc. is not required to provide specific risk factor disclosures - The company is not required to provide Risk Factors disclosure as it qualifies as a smaller reporting company[79] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[81] Properties The company owns real estate for nine of its ten restaurants, with $3.05 million in mortgage obligations at a fixed 3.45% interest rate, and leases executive office space - The company owns the real estate for nine of its ten operating restaurants[35] - As of January 2, 2022, the company had $3,049,971 in mortgage obligations, refinanced in June 2021 to a lower fixed interest rate of 3.45% for ten years[83] - Executive offices in West Fargo, ND, and Minnetonka, MN, are leased on a month-to-month basis for a combined total of approximately $1,800 per month[82][85] Legal Proceedings The company is not currently involved in any material legal proceedings or aware of any threatened litigation - The company reports no material legal proceedings[94] Mine Safety Disclosures Mine safety disclosures are not applicable to the company's business operations - Mine safety disclosures are not applicable[96] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants began trading on Nasdaq in November 2021, with 6,461,118 shares outstanding as of March 15, 2022, and no plans for future cash dividends - Common stock (BTBD) and warrants (BTBDW) began trading on Nasdaq on November 12, 2021[100] - As of March 15, 2022, there were 6,461,118 shares of common stock outstanding[101] - The company has never paid cash dividends and does not plan to in the foreseeable future[102] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 saw a 3.5% increase in net sales to $8.45 million, but net income declined due to a prior-year PPP loan forgiveness, while the company maintains strong liquidity post-IPO despite inflationary pressures Fiscal Year 2021 vs 2020 Performance | Metric | Fiscal 2021 (52 Weeks) | Fiscal 2020 (53 Weeks) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $8,451,870 | $8,159,796 | +3.5% | | Income from Operations | $980,712 | $529,368 | +85.3% | | Net Income | $607,851 | $791,992 | -23.2% | | Food & Paper Costs (% of Sales) | 38.9% | 37.9% | +1.0 ppt | | Labor Costs (% of Sales) | 28.2% | 28.6% | -0.4 ppt | - The decrease in net income in 2021 was primarily due to the inclusion of $460,400 in forgiven PPP loan income in 2020, which was not repeated in 2021[144][145] - The company's liquidity significantly improved due to its November 2021 public offering, resulting in a cash balance of $12,385,632 and working capital of $11,639,269 at year-end[149][155] - Key challenges include inflationary pressure on food costs (especially beef, which rose 4% per pound in 2021) and labor shortages leading to higher wages[117][118] Financial Statements and Supplementary Data This section provides the company's audited consolidated financial statements for fiscal years 2021 and 2020, including balance sheets, income statements, statements of shareholders' equity, and cash flows Consolidated Balance Sheets As of January 2, 2022, total assets increased to $14.5 million and shareholders' equity turned positive to $10.6 million due to the IPO, while total liabilities decreased Consolidated Balance Sheet Highlights (as of year-end) | Account | Jan 2, 2022 | Jan 3, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $12,385,632 | $1,321,244 | | Total Current Assets | $12,564,579 | $1,406,198 | | Total Assets | $14,505,727 | $3,389,165 | | Liabilities & Equity | | | | Total Current Liabilities | $925,310 | $1,034,505 | | Total Liabilities | $3,877,347 | $4,091,488 | | Total Shareholders' Equity (Deficit) | $10,628,353 | ($702,323) | Consolidated Statements of Income Fiscal 2021 sales increased to $8.45 million, with income from operations growing significantly, though net income declined to $607,851 due to the absence of prior-year PPP loan forgiveness Consolidated Statement of Income Summary | Account | 52 Weeks Ended Jan 2, 2022 | 53 Weeks Ended Jan 3, 2021 | | :--- | :--- | :--- | | Sales | $8,451,870 | $8,159,796 | | Total Costs and Expenses | $7,471,158 | $7,630,428 | | Income from Operations | $980,712 | $529,368 | | Other Income | $0 | $466,758 | | Net Income | $607,851 | $791,992 | | Net Income Per Share (Basic & Diluted) | $0.14 | $0.20 | Consolidated Statements of Cash Flows Fiscal 2021 saw $813,955 in operating cash flow, $207,920 used in investing, and $10.46 million provided by financing, primarily from the public offering, leading to an $11.06 million net cash increase Consolidated Statement of Cash Flows Summary | Cash Flow Category | 52 Weeks Ended Jan 2, 2022 | 53 Weeks Ended Jan 3, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $813,955 | $1,397,519 | | Net cash (used in) provided by investing activities | ($207,920) | $24,580 | | Net cash provided by (used in) financing activities | $10,458,353 | ($358,956) | | Change in Cash | $11,064,388 | $1,063,143 | Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of January 2, 2022, due to an unremediated material weakness in internal control over financial reporting related to income tax accounting for acquired assets - Management concluded that as of January 2, 2022, the company's disclosure controls and procedures were not effective at a reasonable assurance level[243] - A material weakness exists in internal control over financial reporting related to the failure to correctly calculate deferred income taxes associated with acquired assets[247] - The company is in the process of remediating the material weakness but concluded it did not maintain effective internal control over financial reporting as of the end of the fiscal year[248] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes CEO Gary Copperud and COO Kenneth Brimmer, with a five-member Board of Directors, a majority of whom are independent, overseeing Audit and Compensation Committees and adhering to a Code of Ethics Executive Officers and Directors | Name | Age | Position | | :--- | :--- | :--- | | Gary Copperud | 63 | Chief Executive Officer and Director | | Kenneth Brimmer | 66 | Chief Operating Officer and Chairman | | Allan Anderson | 68 | Director | | Terri Tochihara-Dirks | 60 | Director | | Steven W. Schussler | 66 | Director | - The Board of Directors is composed of five members, with a majority of three independent directors[263][266] - The board has an Audit Committee chaired by Allan Anderson and a Compensation Committee chaired by Terri Tochihara-Dirks[274][276] Executive Compensation In fiscal 2021, CEO Gary Copperud received $250,000 in total compensation, while non-employee directors were granted options to purchase 5,000 shares each, under the company's 2019 Incentive Plan Summary Compensation Table (2021) | Name and Principal Position | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Gary Copperud, CEO | 150,000 | 100,000 | 0 | 250,000 | | Kenneth W. Brimmer, COO | 0 | 100,000 | 66,000 | 166,000 | - Effective January 1, 2022, Mr. Brimmer became a full-time employee with an annual salary of $150,000[285] - Upon joining the board in Q4 2021, each of the three non-employee directors was issued options to purchase 5,000 shares of common stock at an exercise price of $5.00 per share[288] Security Ownership of Certain Beneficial Owners and Management As of March 15, 2022, CEO Gary Copperud beneficially owned 17.21% of common stock, with all officers and directors collectively owning 18.67%, and other significant stockholders holding 11.70% each Beneficial Ownership (as of March 15, 2022) | Name of Beneficial Owner | Number of Shares | Percentage | | :--- | :--- | :--- | | Officers and Directors | | | | Gary Copperud | 1,118,340 | 17.21% | | All Officers and Directors as a group | 1,218,340 | 18.67% | | 5% Stockholders | | | | Sally Copperud | 758,540 | 11.70% | | Jeffrey A. Zinnecker | 760,540 | 11.70% | | Samuel Vandeputte | 346,290 | 5.34% | | Trost Family Trust | 346,290 | 5.34% | Certain Relationships and Related Transactions, and Director Independence The company engages in related-party transactions, notably with Next Gen Ice, Inc. (NGI), where CEO Gary Copperud holds a controlling interest, and he personally guarantees the company's real estate loans - CEO Gary Copperud personally guarantees all promissory notes for the company's real estate loans[313] - The company has engaged in multiple transactions with Next Gen Ice, Inc. (NGI), a company where BT Brands' CEO is Chairman and a controlling shareholder. This included receiving NGI equity for a loan modification and a subsequent investment of $229,000 in NGI preferred stock in February 2022[314] Principal Accounting Fees and Services Boulay, PLLP served as the independent accounting firm, with total fees of $92,465 in fiscal 2021, primarily for audit services, an increase from $53,576 in fiscal 2020 Accountant Fees | Fee Category | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $92,465 | $50,450 | | All Other Fees | $0 | $3,126 | | Total Fees | $92,465 | $53,576 | Part IV Exhibits, Financial Statement Schedules This section lists Form 10-K exhibits, including governance documents and certifications, noting that no financial statement schedules are provided as they are either not required or presented elsewhere - The financial statements required are included in Item 8 of Part II[325] - No financial statement schedules are provided[326]