BT Brands(BTBD) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements of BT Brands, Inc. and its subsidiaries, including balance sheets, statements of income, cash flows, and shareholders' equity, along with accompanying notes detailing significant accounting policies, business operations, and financial instrument disclosures Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets | ASSETS | October 1, 2023 ($) | January 1, 2023 ($) | | :----------------------------------------- | :-------------- | :-------------- | | Cash and cash equivalents | 5,546,874 | 2,150,578 | | Marketable securities | 1,366,973 | 5,994,295 | | Total current assets | 7,458,234 | 8,864,093 | | Total assets | 14,911,180 | 16,769,697 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total current liabilities | 1,287,414 | 2,133,541 | | Total liabilities | 5,269,789 | 6,617,075 | | Total shareholders' equity | 9,641,391 | 10,152,622 | Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (13 weeks ended) | Metric | October 1, 2023 ($) | October 2, 2022 ($) | | :---------------------- | :-------------- | :-------------- | | SALES | 4,007,656 | 4,023,920 | | Income from operations | 40,615 | 8,991 | | NET LOSS | (3,486) | (174,906) | | NET LOSS PER COMMON SHARE | (0.00) | (0.04) | Condensed Consolidated Statements of Income (39 weeks ended) | Metric | October 1, 2023 ($) | October 2, 2022 ($) | | :---------------------- | :-------------- | :-------------- | | SALES | 11,078,419 | 9,621,996 | | Income from operations | (289,691) | 93,765 | | NET LOSS | (379,006) | (224,531) | | NET LOSS PER COMMON SHARE | (0.06) | (0.03) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (39 weeks ended) | Cash Flow Activity | October 1, 2023 ($) | October 2, 2022 ($) | | :---------------------------------- | :-------------- | :-------------- | | Net cash provided by (used in) operating activities | (74,732) | 484,504 | | Net cash provided by (used in) investing activities | 4,845,886 | (5,653,560) | | Net cash used in financing activities | (1,374,858) | (50,872) | | CHANGE IN CASH AND CASH EQUIVALENTS | 3,396,296 | (5,219,928) | | CASH AND CASH EQUIVALENTS, END OF PERIOD | 5,546,874 | 7,165,704 | Condensed Consolidated Statements of Shareholders' Equity Condensed Consolidated Statements of Shareholders' Equity (39 weeks ended) | Shareholder Equity | January 1, 2023 ($) | October 1, 2023 ($) | | :---------------------------------- | :-------------- | :-------------- | | Common Stock Amount | 12,792 | 12,492 | | Additional Paid-in Capital | 11,409,235 | 11,527,235 | | Accumulated (Deficit) | (1,162,523) | (1,541,529) | | Treasury Stock | (106,882) | (356,807) | | Total | 10,152,622 | 9,641,391 | - Stock-based compensation for the 39 weeks ended October 1, 2023, was $118,000, contributing to additional paid-in capital[187] - The company purchased treasury stock totaling $250,225 during the 39 weeks ended October 1, 2023[187] Notes to Condensed Consolidated Financial Statements Basis of Presentation and Use of Estimates The condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information, requiring management to make estimates and assumptions that affect reported amounts - Financial statements are prepared in conformity with GAAP for interim financial information and SEC requirements for Form 10-Q[188] - Management's estimates and assumptions affect reported asset, liability, revenue, and expense amounts, with potential for material differences in actual results[29] The Company and Business Overview BT Brands, Inc. operates a diverse portfolio of eighteen restaurants across the US, including Burger Time, Dairy Queen, Keegan's Seafood Grille, Pie In The Sky Coffee and Bakery, Village Bier Garten, and a 41.2% interest in Bagger Dave's Burger Tavern, with plans to sell its Dairy Queen business - As of October 1, 2023, BT Brands operates eighteen restaurants, including eight Burger Time, one Dairy Queen, Keegan's Seafood Grille, Pie In The Sky Coffee and Bakery, Village Bier Garten, and a 41.2% interest in Bagger Dave's Burger Tavern[74][119][191] - The company plans to sell its Dairy Queen business, which has a book value of $440,384 as of October 1, 2023, following an agreement to terminate the franchise[190] - BT Brands acquired 41.2% of Bagger Dave's Burger Tavern, Inc. on June 2, 2022, for $1,390,000[49] Fiscal Year Periods BT Brands' fiscal year is a 52/53-week year, ending on the Sunday closest to December 31, with fiscal 2023 being a 52-week year ending December 31, 2023 - The company's fiscal year is a 52/53-week year, ending on the Sunday closest to December 31[192] - Fiscal 2023 is a 52-week year ending December 31, 2023[192] Cash and Cash Equivalents Cash and cash equivalents include United States Treasury Bills with original maturities of 90 days or less, with the company maintaining cash deposits in bank and brokerage accounts, sometimes exceeding insured amounts, but not believing there is significant risk - Cash includes US Treasury Bills with original maturities of 90 days or less[75] - Bank and brokerage deposits may exceed insured amounts, but the company assesses the risk as not significant[75] Investments Noncurrent investments as of October 1, 2023, include an $811,615 equity method investment in Bagger Dave's and a $304,000 total investment in NGI Corporation, which includes common shares and preferred stock with warrants - Noncurrent investments as of October 1, 2023, include[76] Investment Breakdown (October 1, 2023) | Investment | Amount (October 1, 2023) ($) | | :--------- | :----------------------- | | Bagger Dave's Burger Tavern, Inc. (equity method) | 811,615 | | NGI Corporation (total investment) | 304,000 | - BT Brands holds 330,418 common shares and warrants for 358,000 common shares at $1.00 (expiring March 31, 2028) and 34,697 warrants at $1.65 in NGI Corporation[37] - For the 39 weeks ending October 1, 2023, Bagger Dave's had sales of $5,009,164 and a net loss of $617,164, resulting in BT Brands' 41.2% equity share of loss being approximately $254,272[52] Fair Value of Financial Instruments The company adheres to the FASB fair value hierarchy (Level 1, 2, 3) for measuring assets and liabilities, with marketable securities, including a bond fund and common stocks, valued at Level 1 quoted market prices - The company follows FASB fair value hierarchy (Level 1, 2, 3) for fair value measurements[78][79] - As of October 1, 2023, marketable securities (bond fund and common stocks) had a total cost of $1,366,973, reflected at Level 1 quoted market price[79] Receivables, Inventory, Property and Equipment Receivables are estimated rebates, inventory is valued at the lower of cost or net realizable value (FIFO), and property and equipment are stated at cost, depreciated using the straight-line method, with long-lived assets reviewed for impairment based on estimated cash flows - Receivables consist of estimated rebates due from a primary vendor[56] - Inventory (food, beverages, supplies) is stated at the lower of cost (FIFO) or net realizable value[57] - Property and equipment are stated at cost and depreciated using the straight-line method over 3 to 30 years[58] - Long-lived assets are reviewed for impairment based on estimated cash flows at the restaurant level[80] Goodwill and Other Intangible Assets, Income Taxes Goodwill is not amortized but tested for impairment annually, while other intangible assets are amortized over their useful lives, and the company uses a net combined federal and state tax rate of approximately 27.5% for deferred taxes with no accrued interest or penalties related to income tax obligations - Goodwill is not amortized and is tested for impairment annually[81] - Other intangible assets, such as covenants not to compete and trademarks, are amortized over their expected useful lives (e.g., tradename assets over 15 years)[81][86][87] - Total amortization expense for intangible assets was $12,221 for 13 weeks and $54,486 for 39 weeks ending October 1, 2023[61] - The company uses a net combined federal and state tax rate of approximately 27.5% for estimating current tax benefit[59] - No accrued interest or penalties relating to income tax obligations; all periods since inception remain open for inspection[84] Per Common Share Amounts Net income per common share is calculated by dividing net income or loss by the weighted average number of common shares outstanding, with no dilutive shares for the periods ending in 2023 and 2022 - Net income per common share is computed by dividing net income or loss by the weighted average number of common stock outstanding[85] - There were no dilutive shares for the periods ending in 2023 and 2022[85] NOTE 3 – PROPERTY AND EQUIPMENT & Asset Held for Sale Property and equipment include land, equipment, and buildings, with the company completing the sale of its West St. Paul Burger Time location in February 2023 for a gain of $313,688 and disposing of the St. Louis property, eliminating $180,000 in accrued property taxes, while the Richmond location is currently offered for sale Property and Equipment | Property and Equipment | October 1, 2023 ($) | January 1, 2023 ($) | | :--------------------- | :-------------- | :-------------- | | Land | 435,239 | 485,239 | | Equipment | 3,875,840 | 3,893,274 | | Buildings and leasehold improvements | 2,453,547 | 2,402,157 | | Total property and equipment | 6,764,626 | 6,780,670 | | Accumulated depreciation | (3,267,565) | 3,741,170 | | Less - property held for sale | (258,751) | (446,526) | | Net property and equipment | 3,238,310 | 3,294,644 | - Depreciation expense for the 39-week periods was $416,315 in 2023 and $306,584 in 2022[63] - Sale of West St. Paul location in February 2023 resulted in a gain of $313,688[82] - Disposition of St. Louis property eliminated approximately $180,000 of previously accrued property taxes[82] NOTE 4 - ACCRUED EXPENSES Accrued expenses include real estate taxes, bonus compensation, payroll, payroll taxes, sales taxes payable, vacation pay, gift card liability, and other accrued expenses Accrued Expenses | Accrued Expense | October 1, 2023 ($) | January 1, 2023 ($) | | :------------------------ | :-------------- | :-------------- | | Accrued real estate taxes | 33,487 | 202,436 | | Accrued bonus compensation | 59,139 | 59,139 | | Accrued payroll | 190,747 | 143,481 | | Accrued payroll taxes | 12,926 | 12,764 | | Accrued sales taxes payable | 99,330 | 70,270 | | Accrued vacation pay | 17,663 | 17,663 | | Accrued gift card liability | 19,705 | 25,965 | | Other accrued expenses | 43,038 | 802 | | Total | 476,035 | 532,520 | NOTE 5 - LONG TERM DEBT Long-term debt primarily consists of three bank notes totaling $2,533,971 as of October 1, 2023, secured by mortgages on ten BTND operating locations and guaranteed by BT Brands, Inc. and a shareholder, also including a Minnesota Small Business Emergency Loan Long-Term Debt | Long-Term Debt Item | October 1, 2023 ($) | January 1, 2023 ($) | | :------------------------ | :-------------- | :-------------- | | Three notes payable to a bank | 2,533,971 | 2,864,484 | | Minnesota Small Business Emergency Loan | 458 | 3,208 | | Total | 2,534,429 | 2,867,692 | | Less - unamortized debt issuance costs | (37,549) | (41,599) | | Current maturities | (164,866) | (167,616) | | Net Long-Term Debt | 2,332,014 | 2,658,477 | - Bank notes are due in monthly installments, including principal and interest at a fixed rate of 3.45% through June 28, 2031, then variable[89] NOTE 6 - STOCK-BASED COMPENSATION The company grants stock options and contingent incentive share awards to employees and executives, with total equity-based compensation expenses of $118,000 through Q3 2023 and an estimated $372,000 projected over the next five years, including a Contingent Incentive Share Award for 250,000 shares contingent on the share price reaching $8.50 - Total equity-based compensation expenses through Q3 2023 were $118,000, compared to $102,300 through Q3 2022[90] - Approximately $372,000 in stock-based compensation expense for current grants is projected over the next five years ($200,000 in 2024, $95,000 in 2025, $35,000 in 2026, $28,000 in 2027, and $14,000 in 2028)[90] - A Contingent Incentive Share Award for 250,000 common shares was finalized for senior executives, contingent on the share price reaching $8.50 for 20 consecutive trading days[92] - $77,000 of stock-based compensation was recognized for the Contingent Incentive Share Award for the 39 weeks of 2023[92] Stock Options Activity (October 1, 2023) | Stock Options Activity | Number of Options | Weighted Average Exercise Price ($) | | :--------------------------------------- | :---------------- | :------------------------------ | | Options outstanding at January 1, 2023 | 220,250 | 2.74 | | Granted | 100,000 | 2.50 | | Canceled, forfeited, or expired | (750) | 0 | | Options outstanding at October 1, 2023 | 319,500 | 2.74 | | Options exercisable at October 1, 2023 | 106,802 | 3.18 | NOTE 7 – LEASES The company has operating leases for Keegan's, PIE, and VBG, with varying terms and annual escalations, and lease obligations are discounted using incremental borrowing rates (4-5%) due to the absence of implicit interest rates, resulting in total future minimum lease payments of $2,272,158 and a present value of $1,865,687 as of October 1, 2023 - Operating leases for Keegan's, PIE, and VBG are accounted for, with initial lease obligations and right-of-use assets recorded at inception[93][94][117] - Incremental borrowing rates (4% for Keegan's, 5% for PIE and VBG) are used to determine the present value of future lease payments[115][116][117] Future Minimum Lease Payments (as of Oct 1, 2023) | Future Minimum Lease Payments | Amount ($) | | :------------------------------------------------ | :-------------- | | Remainder 2023 | 70,788 | | 2024 | 289,076 | | 2025 | 297,745 | | 2026 | 306,674 | | 2027 | 268,437 | | 2028 and thereafter | 1,039,438 | | Total future minimum lease payments | 2,272,158 | | Less - interest | (406,471) | | Present Value of Lease Payments | 1,865,687 | - The weighted average remaining lease term is approximately 5.3 years[36] NOTE 8 - RELATED PARTY TRANSACTION The company's CEO and CFO also serve as Chairman and CFO, respectively, of NGI Corporation, with BT Brands holding common shares and warrants in NGI, and the investment carried at a cost of $75,000 due to the lack of a readily determinable market value - BT Brands' CEO and CFO also hold leadership positions at NGI Corporation[37] - BT Brands owns 330,418 common shares and holds warrants for 358,000 common shares at $1.00 and 34,697 warrants at $1.65 in NGI[37] - The investment in NGI is carried at a cost of $75,000, as it does not have a readily determinable market value[37] NOTE 9 – CONTINGENCIES The company is not aware of any significant asserted or potential claims or legal/regulatory actions that could impact its financial position - The company is unaware of any significant asserted or potential claims that could impact its financial position[38] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION This section provides an overview of BT Brands' financial condition, results of operations, liquidity, and capital resources, highlighting recent acquisitions, industry trends, and detailed financial performance for the thirteen and thirty-nine weeks ended October 1, 2023, compared to the prior year Introduction and Company Overview BT Brands, Inc. operates Burger Time restaurants, established in 1987, focusing on grilled hamburgers and affordable foods through a drive-thru and take-out strategy, with the average customer transaction increasing by approximately 20% in fiscal 2023 to $15.60 due to menu price increases - Burger Time restaurants, established in 1987, focus on grilled hamburgers and affordable foods, primarily serving the drive-thru and take-out segment[6] - Average customer transaction at Burger Time increased by approximately 20% in fiscal 2023 compared to 2022, reaching approximately $15.60, mainly due to menu price increases[7] Notable Recent Events Recent acquisitions in 2022, including three operating restaurants and a 41.2% ownership in BD (Bagger Dave's), have diversified BT Brands' operations into new restaurant segments and geographic regions, reducing dependency on Burger Time's financial performance, with the company planning to consider future acquisition opportunities - Recent acquisitions in 2022, including three operating restaurants and a 41.2% ownership in BD, diversified operations into new restaurant segments and geographic regions[9] - The company expects to consider new acquisition opportunities in the future[9] Industry Trends and Uncertainties The restaurant industry faces challenges including intense competition, difficulties attracting food service workers, and rapid inflation in input costs, though beef and egg costs have trended down slightly in 2023, fully covering cost increases through menu price hikes remains challenging, with margin improvements expected through operational enhancements, equipment advances, and increased volumes - Current industry trends include difficulties attracting food service workers and rapid inflation in input costs[10] - Beef and egg costs have trended down slightly in 2023, but raising menu prices to fully cover cost increases remains challenging due to intense competition[11] - Future margin improvements are expected through operational enhancements, equipment advances, and increased volumes[11] - The labor market is challenging, leading to higher wages and increased competition for employees[121] Results of Operations for the Thirteen Weeks Ended October 1, 2023, and October 2, 2022 For the third fiscal quarter of 2023, net sales slightly decreased, primarily due to the closure of the West St. Paul location and a return to pre-pandemic customer purchasing patterns, while income from operations improved significantly, driven by moderating inflation and declining food and paper costs, despite increased labor and general and administrative expenses Net Revenues (13 weeks) Net Revenues (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 ($) | 13 weeks ended Oct 2, 2022 ($) | Change ($) | Change (%) | | :----- | :------------------------- | :------------------------- | :--------- | :--------- | | Sales | 4,007,656 | 4,023,920 | (16,264) | (0.4%) | - Sales declined due to the closure of the West St. Paul location and a return to pre-pandemic customer purchasing patterns, along with staffing challenges at Burger Time[133] - PIE's sales for the quarter were $1,292,740, an increase of 2.9% from the prior year, benefiting from lower input costs[135] Costs of Sales - Food and Paper (13 weeks) Costs of Sales - Food and Paper (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 (%) | 13 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Food and paper costs (% of sales) | 36.2 | 39.9 | (3.7) | - The decrease in food and paper costs as a percentage of sales was primarily due to moderating inflationary pressures and declining prices for several key inputs[136] Restaurant Operating Costs (13 weeks) Restaurant Operating Costs (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 (%) | 13 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Restaurant operating costs (% of sales) | 88.6 | 88.4 | 0.2 | - The slight decrease in restaurant operating costs as a percentage of sales was attributed to declining and stabilizing commodity costs, particularly at PIE[137] Labor Costs (13 weeks) Labor Costs (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 (%) | 13 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Labor costs (% of sales) | 37.7 | 33.2 | 4.5 | - The increase in labor costs as a percentage of sales was due to tighter labor markets, higher hourly wage costs, and higher labor costs associated with the PIE acquisition[138][139] Occupancy and Other Operating Expenses (13 weeks) Occupancy and Other Operating Expenses (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 (%) | 13 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Occupancy and other expenses (% of sales) | 8.5 | 9.1 | (0.6) | - The decrease in occupancy and other expenses as a percentage of sales was influenced by the closure of the West St. Paul location, partially offset by rent and utility cost increases[140] Depreciation and Amortization Expense (13 weeks) Depreciation and Amortization Expense (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 ($) | 13 weeks ended Oct 2, 2022 ($) | Change ($) | Change (pp) | | :----- | :------------------------- | :------------------------- | :--------- | :---------- | | Depreciation and amortization expense | 114,774 | 168,855 | (54,081) | (1.3) | - The decrease in depreciation and amortization expense was due to reduced depreciation and amortization associated with recent acquisitions[141] General and Administrative Costs (13 weeks) General and Administrative Costs (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 ($) | 13 weeks ended Oct 2, 2022 ($) | Change ($) | Change (pp) | | :----- | :------------------------- | :------------------------- | :--------- | :---------- | | General and administrative costs | 343,027 | 288,922 | 54,105 | 1.4 | - The increase was associated with public company transition expenses, long-term management agreements, incentive stock options, and approximately $100,000 in legal expenses for a proxy solicitation contest[142] Income from Operations (13 weeks) Income from Operations (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 ($) | 13 weeks ended Oct 2, 2022 ($) | Change ($) | Change (pp) | | :----- | :------------------------- | :------------------------- | :--------- | :---------- | | Income from operations | 40,615 | 8,991 | 31,624 | 0.8 | - The improvement in income from operations was due to moderating inflation, partially offset by higher general and administrative expenses[143] Restaurant-level EBITDA (13 weeks) - Restaurant-level EBITDA is a non-GAAP measure used to gauge the profitability of core restaurant operations, excluding corporate-level expenses, depreciation, amortization, and impairment charges[144][145] Restaurant-level EBITDA (13 weeks) | Metric | 13 weeks ended Oct 1, 2023 ($) | 13 weeks ended Oct 2, 2022 ($) | Change ($) | | :----- | :------------------------- | :------------------------- | :--------- | | Revenues | 4,007,656 | 4,023,920 | (16,264) | | Income from operations | 40,615 | 8,991 | 31,624 | | Depreciation and amortization | 114,774 | 168,855 | (54,081) | | General and administrative, corporate-level expenses | 343,027 | 288,922 | 54,105 | | Restaurant-level EBITDA | 498,416 | 466,768 | 31,648 | Results of Operations for the Thirty-nine Weeks Ended October 1, 2023, and October 2, 2022 For the first 39 weeks of fiscal 2023, net sales increased significantly due to acquired restaurants, offsetting a decline in BTND revenue, however, the company reported an operating loss, primarily driven by increased general and administrative expenses, higher labor costs, and increased food and paper costs Net Revenues (39 weeks) Net Revenues (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 ($) | 39 weeks ended Oct 2, 2022 ($) | Change ($) | Change (%) | | :----- | :------------------------- | :------------------------- | :--------- | :--------- | | Sales | 11,078,419 | 9,621,996 | 1,456,423 | 15.1% | - The increase in sales was principally due to approximately $1.9 million in incremental sales from acquired restaurants, offsetting a 4.5% decline in BTND revenue[68] - Average sales for each Burger Time unit were approximately $625,000 in 2023, a decline from $626,000 in 2022, attributed to a return to pre-COVID patterns, labor challenges, and poorer weather[102] Costs of Sales - Food and Paper (39 weeks) Costs of Sales - Food and Paper (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 (%) | 39 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Food and paper costs (% of sales) | 39.3 | 37.8 | 1.5 | - The increase was due to inflation early in the year, especially for Keegan's fresh seafood and meat costs at Burger Time[124] Restaurant Operating Costs (39 weeks) Restaurant Operating Costs (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 (%) | 39 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Restaurant operating costs (% of sales) | 89.6 | 84.6 | 5.0 | - The increase was due to rising hourly wages and commodity food costs[125] Labor Costs (39 weeks) Labor Costs (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 (%) | 39 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Labor and benefits costs (% of sales) | 37.2 | 32.5 | 4.7 | - Significantly higher hourly wage rates at all locations and challenging hiring markets contributed to the increase[147] Occupancy and Other Operating Expenses (39 weeks) Occupancy and Other Operating Expenses (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 (%) | 39 weeks ended Oct 2, 2022 (%) | Change (pp) | | :----- | :------------------------- | :------------------------- | :---------- | | Occupancy and other expenses (% of sales) | 7.6 | 8.4 | (0.8) | - The decrease was principally due to reversing previously accrued property taxes, partially offset by higher lease occupancy costs at new locations[104] Depreciation and Amortization Expenses (39 weeks) Depreciation and Amortization Expenses (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 ($) | 39 weeks ended Oct 2, 2022 ($) | Change ($) | Change (pp) | | :----- | :------------------------- | :------------------------- | :--------- | :---------- | | Depreciation and amortization expenses | 470,801 | 351,084 | 119,717 | 0.6 | - The increase resulted from the purchase of three new restaurants and capital improvements at several locations[105] General and Administrative Costs (39 weeks) General and Administrative Costs (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 ($) | 39 weeks ended Oct 2, 2022 ($) | Change ($) | Change (pp) | | :----- | :------------------------- | :------------------------- | :--------- | :---------- | | General and administrative costs | 1,288,019 | 1,035,639 | 252,380 | 0.8 | - The increase was due to approximately $100,000 in legal and other costs associated with a proxy solicitation effort, public reporting expenses, stock-based compensation, and long-term management employment agreements[127] Income from Operations (39 weeks) Income from Operations (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 ($) | 39 weeks ended Oct 2, 2022 ($) | Change ($) | | :----- | :------------------------- | :------------------------- | :--------- | | Income from operations | (289,691) | 93,765 | (383,456) | - The shift from operating profit to loss was primarily due to the increase in general and administrative expenses and other factors discussed in revenue and operating costs[149] Restaurant-level EBITDA (39 weeks) - Restaurant-level EBITDA is a non-GAAP measure used to assess the profitability of core restaurant operations, excluding corporate-level expenses, depreciation, amortization, and impairment charges[129][150] Restaurant-level EBITDA (39 weeks) | Metric | 39 weeks ended Oct 1, 2023 ($) | 39 weeks ended Oct 2, 2022 ($) | Change ($) | | :----- | :------------------------- | :------------------------- | :--------- | | Revenues | 11,078,419 | 9,621,996 | 1,456,423 | | Income (loss) from operations | (289,691) | 93,765 | (383,456) | | Depreciation and amortization | 470,801 | 351,084 | 119,717 | | General and administrative, corporate-level expenses | 1,288,019 | 1,035,639 | 252,380 | | Restaurant-level EBITDA | 1,469,129 | 1,480,488 | (11,359) | | Restaurant-level EBITDA margin | 13.3% | 15.4% | (2.1) pp | Liquidity and Capital Resources As of October 1, 2023, BT Brands had $6.9 million in cash and marketable securities and $6.2 million in net working capital, a decrease of $0.6 million from January 1, 2023, with primary liquidity sources being operating cash flows and cash on hand, used to fund working capital, capital expenditures, and acquisitions, and operating cash flow for the 39 weeks was negative $74,732, impacted by public company expenses and proxy solicitation costs - As of October 1, 2023, the company had $6.9 million in cash and cash equivalents and marketable securities, and net working capital of $6.2 million, a decrease of $0.6 million from January 1, 2023[151] - Primary liquidity requirements are to fund working capital, capital expenditures, general corporate needs, and business investments/acquisitions[152] - Operating cash flow for the 39 weeks ending October 1, 2023, was a negative $74,732, negatively impacted by public company expenses and costs related to proxy solicitation[132] Summary of Cash Flows - Operating cash flow for the 39 weeks ending October 1, 2023, was a negative $74,732[132] Cash Flows Provided by Operating Activities - Operating cash flow was negatively impacted by ongoing public company expenses, including stock-based compensation and costs associated with contested proxy solicitation[132] Cash Flows Used in Investing Activities - During fiscal 2023, the company continued to seek acquisitions, purchasing two operating restaurants and a 41.2% interest in a publicly traded casual dining business[156] Cash Flows Used in Financing Activities - A significant portion of cash flow used in financing activities is allocated to debt service[157] Contractual Obligations - As of October 1, 2023, contractual obligations totaled $4.4 million, including amounts due under mortgages and $1.9 million in capitalized lease obligations[158] - Monthly required payments on lease and mortgage obligations are approximately $47,000[158] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As a smaller reporting company, BT Brands, Inc. is not required to provide the information typically mandated under this item - The registrant is a smaller reporting company and is not required to provide information under this item[164] ITEM 4. CONTROLS AND PROCEDURES The company's CEO and CFO concluded that disclosure controls and procedures were not effective as of October 1, 2023, due to a material weakness in internal control over financial reporting related to lack of segregation of duties and inadequate risk assessment, with no significant changes in internal control over financial reporting occurring during the quarter, apart from integrating controls into recent acquisitions Evaluation of Disclosure Controls and Procedures - As of October 1, 2023, the CEO and CFO concluded that disclosure controls and procedures were not effective at a reasonable assurance level[160] - 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 January 1, 2023[160] Changes in Internal Control over Financial Reporting - A material weakness for lack of segregation of duties and inadequate risk assessment on monitoring internal controls was disclosed in the prior 10-K[161] - No significant change in internal control over financial reporting occurred during the most recent fiscal quarter, apart from integrating controls into recent acquisitions[161] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no pending legal proceedings to which BT Brands, Inc. is a party, nor are any such proceedings known to be threatened or contemplated against it - There are no pending legal proceedings to which the Company is a party or as to which any of its property is subject[163] - No such proceedings are known to be threatened or contemplated against the Company[163] ITEM 1A. RISK FACTORS As a smaller reporting company, BT Brands, Inc. is not required to provide the information typically mandated under this item - The registrant is a smaller reporting company and is not required to provide information under this item[164] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Since its initial public offering in November 2021, the company has used proceeds for general working capital and to acquire Keegan's Seafood Grille, Pie in the Sky Bakery and Coffee Shop, a 41.2% interest in Bagger Dave's, and Village Bier Garten, with no other unregistered sales of equity securities occurring during the reporting period Unregistered Sales of Equity Securities - Other than previously set forth, no securities were sold since the filing of the Annual Report on Form 10-K through the date of this quarterly report[165] Use of Proceeds - Proceeds from the November 2021 IPO were used for general working capital and acquisitions[166] Acquisition Item and Amount Used from Proceeds | Acquisition Item | Amount Used from Proceeds ($) | | :-------------------------------- | :------------------------ | | Keegan's Seafood Grille | 1,150,000 | | Pie in the Sky Bakery and Coffee Shop | 1,160,000 | | Bagger Dave's (41.2% interest) | 1,390,000 | | Village Bier Garten | (Amount not specified in chunk) | ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the reporting period - None[167] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to BT Brands, Inc - Not applicable[168] ITEM 5. OTHER INFORMATION There is no other information to report under this item - None[169] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits include certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002 from the Company's Principal Executive Officer and Principal Financial Officer[169][170] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Labels, Presentation Linkbase Documents, and Cover Page Interactive Data File) are also included[170] SIGNATURES The report is duly signed on behalf of BT Brands, Inc. by Kenneth Brimmer, Chief Operating Officer and Principal Financial Officer, on November 15, 2023 - The report is signed by Kenneth Brimmer, Chief Operating Officer and Principal Financial Officer[171] - The report was signed on November 15, 2023[177]