BT Brands(BTBD) - 2025 Q1 - Quarterly Report

FORM 10-Q Filing Information Filing Details BT Brands, Inc. filed a Form 10-Q for Q1 2024, identifying as a non-accelerated, smaller reporting company incorporated in Wyoming - BT Brands, Inc. filed a Quarterly Report on Form 10-Q for the period ended March 31, 2024[1] Filing Details | Detail | Value | | :--- | :--- | | State of Incorporation | Wyoming | | IRS Employer Identification No. | 90-1495764 | | Trading Symbol | BTBD | | Exchange | The NASDAQ Stock Market LLC | | Filer Status | Non-accelerated filer, Smaller reporting company | | Common Stock Outstanding (May 1, 2024) | 6,246,118 shares | Cautionary Statement Regarding Risks and Uncertainties Forward-Looking Information Forward-looking statements are subject to material risks and uncertainties, and the company disclaims any obligation to update them - Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from expectations[5][10][26] - The company does not undertake to publicly update or revise any forward-looking statements, except as required by law[12][28] Key Risk Factors Key risks encompass capital, growth execution, public health, labor, food safety, supply chain, competition, economic shifts, and rising costs - Capital requirements and availability of capital to fund growth - Difficulties executing growth strategy, including completing profitable acquisitions - Impact of public health matters - Challenges related to hiring and retaining store employees at competitive wage rates - Failure to prevent food safety and foodborne illness incidents - Shortages or interruptions in the supply or delivery of food products - Dependence on a small number of suppliers and a single distribution company - Negative publicity relating to any one of our restaurants - Competition from other restaurant chains with significantly greater resources - Changes in economic conditions, consumer confidence, and discretionary spending - Changes in consumer tastes and nutritional/dietary trends - Inability to manage growth - Loss of key personnel - Labor shortages and increased labor costs - Vulnerability to increased food, commodity, and energy costs - Impact of governmental laws and regulations - Failure to obtain and maintain required licenses and permits - Inadequately protecting intellectual property - Breaches of security of confidential consumer information PART I— FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section provides unaudited condensed consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes Consolidated Condensed Balance Sheets Total assets, liabilities, and shareholders' equity decreased from December 2023 to March 2024, with cash declining and marketable securities rising | Metric | March 31, 2024 ($) | December 31, 2023 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $4,668,295 | $5,300,446 | | Marketable equity securities | $1,458,213 | $1,392,060 | | Total current assets | $6,702,564 | $7,228,573 | | Total assets | $14,001,317 | $14,609,212 | | Total current liabilities | $1,415,187 | $1,550,090 | | Total liabilities | $5,204,288 | $5,420,483 | | Total shareholders' equity | $8,797,029 | $9,188,729 | Consolidated Condensed Statements of Operations Q1 2024 saw a net loss of $(445,700), significantly higher than Q1 2023, driven by increased labor and other costs despite higher sales | Metric | 13 Weeks Ended March 31, 2024 ($) | 13 Weeks Ended April 2, 2023 ($) | | :--- | :--- | :--- | | Sales | $3,190,147 | $3,070,798 | | Food and paper costs | $1,278,958 | $1,290,323 | | Labor costs | $1,386,686 | $1,202,760 | | Occupancy costs | $336,275 | $357,125 | | Other operating expenses | $203,900 | $195,614 | | Depreciation and amortization expenses | $160,542 | $163,507 | | General and administrative expenses | $454,615 | $425,915 | | Total costs and expenses | $3,820,976 | $3,321,556 | | Loss from operations | $(630,829) | $(250,758) | | Net Loss | $(445,700) | $(141,786) | | Net Loss Per Common Share - Basic and Diluted ($) | $(0.07) | $(0.02) | | Weighted Average Shares Outstanding (shares) | 6,246,118 | 6,280,729 | Consolidated Condensed Statements of Shareholders' Equity Shareholders' equity decreased to $8,797,029 by March 31, 2024, mainly due to a net loss, partially offset by stock-based compensation | Metric | December 31, 2023 ($) | March 31, 2024 ($) | | :--- | :--- | :--- | | Total Shareholders' Equity | $9,188,729 | $8,797,029 | | Net Loss | - | $(445,700) | | Stock-based compensation | - | $54,000 | Consolidated Condensed Statements of Cash Flows Net cash decreased by $(632,151) in Q1 2024, primarily due to cash used in operating, financing, and investing activities | Cash Flow Activity | 13 Weeks Ended March 31, 2024 ($) | 13 Weeks Ended April 2, 2023 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(408,875) | $(474,259) | | Net cash provided by (used in) investing activities | $(62,319) | $5,103,974 | | Net cash used in financing activities | $(160,957) | $(1,285,892) | | Change in cash | $(632,151) | $3,343,823 | | Cash, end of period | $4,668,295 | $5,494,401 | Notes to Consolidated Condensed Financial Statements These notes detail accounting policies, operations, asset valuations, debt, compensation, leases, related parties, and recent acquisitions like Schnitzel Haus NOTE 1 - Summary of Significant Accounting Policies This note details the basis of financial statement presentation, restaurant operations, and accounting policies for various assets and liabilities - The financial statements are prepared in accordance with US GAAP for interim financial information and SEC requirements for Form 10-Q[16] - Operates 18 restaurants as of March 31, 2024, including 11 owned and operated by BT Brands and 6 Bagger Dave's (40% owned affiliate)[17][18][39][40][43][66][68][69][116] - Owned restaurants include seven Burger Time, one Dairy Queen (to be redeveloped into Burger Time), Keegan's Seafood Grille, Pie In The Sky Coffee and Bakery, and Village Bier Garten - Dairy Queen franchise agreement terminated effective May 1, 2024, with plans to redevelop the Ham Lake, Minnesota property into a Burger Time location by June 2024 - Equity method investment in Bagger Dave's Burger Tavern, Inc. (41.2% ownership) and NGI Corporation (less than 2% ownership) Fair Value of Level 1 Investments | Investment Type | March 31, 2024 Fair Value ($) | December 31, 2023 Fair Value ($) | | :--- | :--- | :--- | | Corporate bond fund | $0 | $178,500 | | Common stocks | $1,458,213 | $1,213,560 | | Total | $1,458,213 | $1,392,060 | NOTE 2 – Intangible Assets Intangible assets include trademarks and covenants, with goodwill tested annually for impairment; Q1 2024 amortization expense was $26,143 Intangible Assets (March 31, 2024) | Asset Type | Estimated Life (Years) | Original Cost ($) | Accumulated Amortization ($) | Net Carrying Value ($) | | :--- | :--- | :--- | :--- | :--- | | Covenants not to Compete | 3 | $98,000 | $(73,326) | $24,674 | | Trademarks, Tradenames, websites | 15 | $393,000 | $(48,704) | $344,296 | | Total | | $491,000 | $(122,030) | $368,970 | - Total amortization expense for intangible assets was $26,143 for the first quarter of 2024, compared to $14,718 for the same period in 2023[81] - Projected total amortization of intangible assets: $58,900 in 2024, $40,500 in 2025, and approximately $26,200 per year thereafter through 2036, and $7,500 in 2037[57] NOTE 3 – Property and Equipment Net property and equipment slightly decreased to $3,225,456 by March 31, 2024, with impairment reviews based on cash flows Property and Equipment | Category | March 31, 2024 ($) | December 31, 2023 ($) | | :--- | :--- | :--- | | Land | $435,239 | $435,239 | | Equipment | $4,101,014 | $3,994,685 | | Buildings and leasehold improvements | $2,469,715 | $2,463,626 | | Total property and equipment | $7,005,968 | $6,893,550 | | Accumulated depreciation | $(3,521,761) | $(3,387,786) | | Less - property held for sale | $(258,751) | $(258,751) | | Net property and equipment | $3,225,456 | $3,247,013 | - Depreciation expense for the first 13-week periods in 2024 and 2023 was $133,975 and $148,364, respectively[99] NOTE 4 - Accrued Expenses Total accrued expenses decreased to $399,906 by March 31, 2024, mainly due to lower real estate taxes and bonus compensation Accrued Expenses | Category | March 31, 2024 ($) | December 31, 2023 ($) | | :--- | :--- | :--- | | Accrued real estate taxes | $23,733 | $49,357 | | Accrued bonus compensation | $0 | $119,139 | | Accrued payroll | $199,201 | $149,587 | | Accrued payroll taxes | $7,989 | $11,343 | | Accrued sales taxes payable | $103,914 | $81,683 | | Accrued vacation pay | $17,663 | $17,663 | | Accrued gift card liability | $23,819 | $26,844 | | Other accrued expenses | $23,587 | $24,673 | | Total | $399,906 | $480,289 | NOTE 5 - Long Term Debt Long-term debt decreased slightly to $2,237,610 by March 31, 2024, primarily comprising three bank notes secured by ten BTND locations Long-Term Debt | Category | March 31, 2024 ($) | December 31, 2023 ($) | | :--- | :--- | :--- | | Three notes payable to a bank | $2,444,241 | $2,489,299 | | Less - unamortized debt issuance costs | $(34,849) | $(36,199) | | Current maturities | $(171,782) | $(183,329) | | Long-term debt, less current portion | $2,237,610 | $2,269,771 | - The notes are secured by mortgages covering ten BTND operating locations and guaranteed by BT Brands, Inc. and a shareholder[83] NOTE 6 - Stock-Based Compensation Q1 2024 equity-based compensation was $23,000, with future projections for stock options and Contingent Incentive Share Awards Stock Options Outstanding | Metric | March 31, 2024 | April 2, 2023 | | :--- | :--- | :--- | | Options outstanding | 319,500 | 220,250 | | Weighted Average Exercise Price ($) | $2.62 | $2.74 | | Weighted Average Remaining Term (Years) | 7.4 | 8.9 | | Options exercisable | 106,802 | 94,950 | - Total equity-based compensation expenses for stock options and warrants were $23,000 in Q1 2024 and $26,400 in Q1 2023[61] - Projected stock-based compensation for stock options: $57,000 in 2024, $57,000 in 2025, $6,000 in 2026[61][84] - Projected stock-based compensation for consultant warrant: $32,000 per year for the first four years, $16,000 in 2028 - Projected stock-based compensation for Contingent Incentive Share Awards: $126,000 in 2024, $36,000 in 2025[86] NOTE 7 – Leases Operating leases for restaurant spaces have a weighted average remaining term of 5.0 years and a discount rate of 4.32%, with Q1 2024 expenses at $85,000 Approximate Minimum Future Lease Payments (as of March 31, 2024) | Year | Amount ($) | | :--- | :--- | | Remainder 2024 | $217,679 | | 2025 | $297,436 | | 2026 | $306,356 | | 2027 | $258,512 | | 2028 | $209,233 | | 2029 and thereafter | $816,797 | | Total future minimum lease payments | $2,106,013 | | Less - interest | $(340,527) | | Present Value of Lease Obligation | $1,765,486 | - Keegan's lease: 131 months, initial rent $5,000/month, annual escalation greater of 3% or CPI, discounted at 3.75%[64] - PIE lease: 60 months, initial rent $10,000/month, 3% annual escalation after 24 months, discounted at 5%[87] - VBG lease: 60 months, initial rent $8,200/month, 3% annual escalation, discounted at 4.5%[88] - Weighted average remaining lease term: approximately 5.0 years[107] - Weighted average discount rate: approximately 4.32%[108] - Total operating lease expenses: $85,000 in Q1 2024 vs. $81,000 in Q1 2023[109] NOTE 8 - Related Party Transaction BT Brands holds an investment in NGI Corporation, a related party, carried at cost due to the absence of a readily determinable market value - BT Brands owns 330,418 common shares and warrants to purchase 358,000 common shares at $1.00 (expiring March 31, 2028) and 34,697 warrants at $1.65 in NGI Corporation[112] - The investment in NGI is carried at a cost determined by BT Brands due to the absence of a readily determinable market value[112] NOTE 9 – Contingencies The company is unaware of any significant asserted or potential claims that could materially impact its financial position - The company is unaware of any significant asserted or potential claims that could impact its financial position[113] NOTE 10 – Subsequent Event – Asset Acquisition Post-quarter, BT Brands acquired Schnitzel Haus for approximately $875,000 in cash, assuming its remaining 44-month lease obligation - On May 13, 2024, BT Brands acquired Schnitzel Haus, a restaurant near Stuart, Florida, for approximately $875,000 in cash[114] - The acquisition included assuming the remaining 44 months on the restaurant's lease obligation at approximately $5,400 per month[114] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION This section analyzes BT Brands' financial condition, operations, liquidity, and capital resources for Q1 2024, focusing on sales, costs, and industry challenges Introduction BT Brands operates seventeen restaurants, focusing on quick-service drive-thru and take-out, with recent diversification through acquisitions - Operates 17 restaurants, including Burger Time, Village Bier Garten, Keegan's Seafood Grille, Pie In The Sky, and a 40% owned Bagger Dave's[116][118] - Primary strategy: serve the drive-thru and take-out segment of the quick-service restaurant industry - Recent acquisitions have diversified operations into new restaurant segments and geographic regions, reducing dependency on Burger Time restaurants - Average customer transaction at Burger Time restaurants increased by approximately 8% in 2023, with an average check amount of about $15.00, primarily due to menu price increases[93] Material Trends and Uncertainties The company faces challenges from rising food and labor costs, impacting margins, while adapting to technology and delivery trends in the restaurant industry - Food costs have increased, with some moderating inflationary pressure expected in 2024; beef and egg costs trended down slightly in 2023[94] - Difficulties attracting and retaining food service workers, leading to higher hourly wage costs[119] - Margin improvements are challenging due to competitive pricing and cost increases, requiring operational enhancements, equipment advances, and increased volumes - Industry trends include rapid adoption of smartphone/mobile delivery apps, expanded drive-through operations, loyalty programs, and database marketing[141] Results of Operations for the Thirteen Weeks Ended March 31, 2024, and the Thirteen Weeks Ended April 2, 2023 Q1 2024 net sales increased, but higher labor and G&A expenses led to a greater operating and net loss compared to Q1 2023 Key Financial Results (13 Weeks Ended) | Metric | March 31, 2024 ($) | % of Sales | April 2, 2023 ($) | % of Sales | | :--- | :--- | :--- | :--- | :--- | | Sales | $3,190,147 | 100.0% | $3,070,798 | 100.0% | | Food and paper costs | $1,278,958 | 40.1% | $1,290,323 | 42.0% | | Labor costs | $1,386,686 | 43.5% | $1,202,760 | 39.2% | | Occupancy costs | $336,275 | 10.5% | $357,125 | 11.6% | | Other operating expenses | $203,900 | 6.4% | $195,614 | 6.4% | | Depreciation and amortization | $160,542 | 5.0% | $163,507 | 5.3% | | General and administrative | $454,615 | 14.3% | $425,915 | 13.9% | | Total costs and expenses | $3,820,976 | 119.8% | $3,321,556 | 108.2% | | Loss from operations | $(630,829) | (19.8)% | $(250,758) | (8.2)% | | Net Loss | $(445,700) | (14.0)% | $(141,786) | (4.6)% | - Net sales increased by $119,349 (3.9%) to $3,190,147 in Q1 2024[142] - Burger Time average sales per unit increased to approximately $209,000 in Q1 2024, up $29,000 from Q1 2023[96] - Food and paper costs decreased as a percentage of sales to 40.1% (from 42.0%) due to moderating inflationary pressures[97] - Labor and benefits costs increased as a percentage of sales to 43.5% (from 39.2%) due to tighter labor markets and higher hourly wages, and PIE acquisition[98] - Occupancy and other expenses decreased to 16.9% of sales (from 18.0%) due to sales increase leveraging fixed costs[143] - General and administrative costs increased by $28,700 to $454,615, representing 14.3% of sales (up from 13.9%)[144][145] Restaurant-level EBITDA Q1 2024 restaurant-level EBITDA was negative $(15,672) or (0.5)% of sales, a decline from positive results in Q1 2023 Restaurant-level EBITDA Reconciliation | Metric | 13 Weeks Ended March 31, 2024 ($) | 13 Weeks Ended April 2, 2023 ($) | | :--- | :--- | :--- | | Sales | $3,190,147 | $3,070,798 | | Loss from operations | $(630,829) | $(250,788) | | Gain on asset sale | $0 | $(313,688) | | Depreciation and amortization | $160,542 | $163,507 | | General and administrative, corporate-level expenses | $454,615 | $425,915 | | Restaurant-level EBITDA | $(15,672) | $24,946 | | Restaurant-level EBITDA as a percentage of sales | (0.5)% | 0.8% | - Restaurant-level EBITDA is a non-GAAP measure used to gauge the overall profitability of recurring and controllable core restaurant operations, excluding corporate-level expenses, depreciation, amortization, and impairment charges[127][147] Liquidity and Capital Resources As of March 31, 2024, the company had $6.1 million in cash and marketable securities, with negative operating cash flow, funding needs for working capital, capital expenditures, and acquisitions - Cash and marketable securities: $6.1 million as of March 31, 2024[130] - Net working capital: $5.3 million as of March 31, 2024, a decrease of $0.4 million from December 31, 2023[133] - Operating cash flow for Q1 2024: negative $(408,875), impacted by seasonal business patterns[148] - Primary liquidity requirements: funding working capital, capital expenditures, general corporate needs, and business acquisitions - Contractual obligations: $4.2 million relating to mortgages and $1.8 million in capitalized lease obligations, with monthly payments of approximately $49,000[149] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As a smaller reporting company, BT Brands, Inc. is exempt from providing quantitative and qualitative market risk disclosures - As a smaller reporting company, BT Brands, Inc. is not required to provide quantitative and qualitative disclosure about market risk[134][150] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls and procedures were deemed ineffective as of March 31, 2024, due to a material weakness in internal control over financial reporting - As of March 31, 2024, the CEO and CFO concluded that disclosure controls and procedures were not effective at a reasonable assurance level due to a material weakness in internal control over financial reporting[151] - No other material changes in internal control over financial reporting occurred during the quarter, except for identifying a consultant to assist in accounting for acquisitions[152] PART II—OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS BT Brands, Inc. is not currently involved in any pending or threatened legal proceedings - There are no pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to be threatened or contemplated against it[154] ITEM 1A. RISK FACTORS As a smaller reporting company, BT Brands, Inc. is exempt from providing risk factor disclosures under this item - As a smaller reporting company, BT Brands, Inc. is not required to provide risk factors under this item[155][162] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company granted stock awards and options, and IPO proceeds funded working capital and restaurant acquisitions - Contingent Incentive Share Award: 250,000 common shares to senior executives if common stock trades at $8.50 for 20 consecutive days[156] - Consultant warrant: 100,000 shares at $2.50 per share, expiring in 7 years, vesting monthly over 5 years - Director options: 15,000 shares at $1.61 per share to three independent directors, vesting 20% upon grant and annually over four years[163] - Proceeds from IPO (November 2021) used for general working capital and acquisitions: Keegan's Seafood Grille ($1,150,000), Pie in the Sky Bakery and Coffee Shop ($1,160,000), 41.2% of Bagger Dave's ($1,390,000), and Village Bier Garten[164] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to BT Brands, Inc - This item is not applicable[158] ITEM 4. MINE SAFETY DISCLOSURES BT Brands, Inc. has no mine safety disclosures - None[165] ITEM 5. OTHER INFORMATION This item reports no other information - None[139] ITEM 6. EXHIBITS This section lists Form 10-Q exhibits, including SOX certifications and Inline XBRL documents - Certification of Principal Executive Officer (Section 302 of Sarbanes-Oxley Act of 2002) - Certification of Principal Financial Officer (Section 302 of Sarbanes-Oxley Act of 2002) - Certification of Principal Executive Officer and Principal Financial Officer (18 USC Section 1350, Section 906 of Sarbanes-Oxley Act of 2002) - Inline XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Labels Linkbase Document, Presentation Linkbase Document - Cover Page Interactive Data File[159] SIGNATURES Signature of Authorized Officer The report was signed by Kenneth Brimmer, COO and PFO of BT Brands, Inc., on May 15, 2024 - The report was signed by Kenneth Brimmer, Chief Operating Officer and Principal Financial Officer, on May 15, 2024[161][166][167]