SEC Form 10-Q filed by BT Brands Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number: 333-233233

(307) 274-3055

(Registrant’s telephone number, including area code)

NONE

(Former name former address and former fiscal year if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether any error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).  ☐                

At August 16, 2023, there were 6,246,118 shares of common stock outstanding.

CAUTIONARY STATEMENT REGARDING RISKS

AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Information

This quarterly report contains forward-looking statements about the business, financial condition and prospects of BT Brands, Inc. and its wholly-owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations, and future plans. Forward-looking statements can also be identified by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.

While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances that such expectations will prove to be accurate. Security holders are cautioned that such forward-looking statements involve risks and uncertainties. You should evaluate all forward-looking statements made in this report in the context of the factors that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to:

We caution you that the factors referenced above may not contain all the important factors to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we update one or more forward-looking statements, no inference should be made that we will make additional updates regarding those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q, and 8-K, our Schedule 14A, our press releases and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable, any or all of the forward-looking statements may prove to be incorrect. This may occur due to inaccurate assumptions or due to known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports filed with the Securities and Exchange Commission.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

BT BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Condensed Financial Statements

See Notes to Consolidated Condensed Financial Statements

See Notes to Consolidated Condensed Financial Statements

See Notes to Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

RESULTS OF OPERATION

The following discussion of the financial condition, results of operations, liquidity and capital resources of BT Brands, Inc. and its wholly-owned subsidiaries (together, the “Company”) should be read in conjunction with the Company’s condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K for the year ended January 1, 2023.

Introduction

As of July 2, 2023, including our partially owned Bagger Dave’s business, we owned and operated eighteen restaurants comprising the following:

 Burger Time opened its first restaurant in Fargo, North Dakota, in 1987. Burger Time restaurants feature grilled hamburgers and other affordable foods such as chicken sandwiches, pulled pork sandwiches, sides, and soft drinks. Burger Time’s operating principles include (i) offering bigger burgers and more value for the money; (ii) offering a limited menu to permit attention to quality and speed of preparation; (iii) providing fast service by way of single and double drive-thru designs and a point-of-sale system that expedites the ordering and preparation process, and (iv) great tasting and quality food made fresh to order at a fair price. Our primary strategy is to serve the drive-thru and take-out segment of the quick-service restaurant industry.

The average customer transaction price at our Burger Time restaurants increased by approximately 20% in fiscal 2023 compared to 2022 and currently is about $15.60. This recent increase is principally the result of menu price increases implemented in 2022. Many factors influence our sales trends. Our business environment is challenging as competition is intense.

We operate through a central management organization that provides continuity across our restaurant base by utilizing the efficiencies of a central management team.

Notable Recent Events

Our recent acquisitions have allowed us to diversify our operations into new restaurant segments and new geographic regions, reducing our dependency on the financial performance of our Burger Time restaurants. During the 2022 fiscal year, we acquired three operating restaurants and a 41.2% ownership interest in BD, an operator of six casual restaurants. We expect to consider new acquisition opportunities in the future.  

Material Trends and Uncertainties

Industry trends have a direct impact on our business. Current trends include difficulties attracting food service workers and rapid inflation in the cost of input items. Recent trends also include the rapidly changing area of technology and food delivery. The major companies in the restaurant industry have rapidly adopted and developed smartphone and mobile delivery applications, aggressively expanded drive-through operations, and developed loyalty programs and database marketing supported by a robust technology platform. We expect these trends to continue as restaurants aggressively compete for customers. Competitors will continue to discount prices through aggressive promotions.

Food costs have increased over the last two years, and we expect to see some moderating inflationary pressure during the remainder of 2023. Beef and egg costs have trended down slightly in 2023. Given the competitive nature of the restaurant industry, it may be challenging to raise menu prices to cover cost increases fully. As a result, future margin improvements may be difficult to achieve. Margin improvement will be achieved through operational enhancements, equipment advances, and increased volumes offsetting food cost increases.

Labor is a critical factor in operating our stores. Securing staff to run our locations at full capacity has become more challenging in most areas where we operate our restaurants. The current labor market has resulted in higher wages as the competition for employees intensifies, not only in the restaurant industry but in practically all retail and service industries. To succeed, we must identify, develop and retain quality employees.   

Result of operations for the 13 weeks ending July 2, 2023, compared to the 13 weeks ending July 3, 2022.

The following table sets forth, for the periods indicated, our Consolidated Statements of Operations expressed as a percentage of total revenues. The percentages may not reconcile because of rounding.

Net Revenues:

Net sales for the second quarter of 2023 increased $475,084 or 13.5% to $3,999,965 from $3,524,881 in 2022. The sales increase resulted from acquiring three restaurants in 2022, contributing $2,025,000 in revenue during the quarter. Sales also reflect the closing of the West St Paul Burger Time location in the fourth quarter of 2022.

For BTND locations open at quarter-end, second-quarter restaurant sales ranged from a low of $113,000 to a high of $333,000. The average sales for each Burger Time unit open at quarter-end were approximately $225,000 in 2023, an increase of approximately 2.94% from $219,000 in 2022.

Restaurant Operating Costs:

During 2023, restaurant operating costs (which refer to all the costs associated with operating our restaurants but do not include general and administrative expenses and depreciation and amortization and the gain on the sale of property and equipment) increased to 84.2% in restaurant sales in 2023 from 84.1% in 2022. For all of our locations, we continued to see price inflation on input costs, including food and labor, and the matters discussed in the “Cost of Sales,” “Labor Costs,” and “Occupancy and Other Operating Costs” sections below.  

The impact of cost increases and the addition of three non-BTND restaurants during the year may be detailed as follows:

Costs of Sales - food and paper:

Cost of sales - food and paper - for 2023 increased to 40.2% of restaurant sales from 37.2% of restaurant sales in 2022. For all of our locations, we continued to see price inflation on input costs, including food costs, where ground beef costs are approximately 40% higher compared to the second quarter of 2022. The increase also results from including Keegan’s, which operates at a higher food cost than our remaining stores. This overall increase is offset by results from PIE which, because of its coffee-focused menu, has significantly lower food and paper costs than BTND, Keegan’s and Village Bier Garten.

Labor Costs:

In 2023, labor and benefits cost increased to 35.3% of restaurant sales from 33.5% in 2022. The increase is the net result of higher BTND activity in 2023 and higher wages because of labor shortages in some of our markets, contributing to an unfavorable utilization of the fixed portion of labor costs. PIE and Keegan’s businesses run at higher labor costs than BTND. We benefit from minimal turnover in unit restaurant management. Payroll costs are semi-variable, meaning that they do not decrease proportionally to decreases in revenue; thus, they increase as a percentage of restaurant sales when there is a decrease in restaurant sales.

Occupancy and Other Operating Costs:

For 2023, occupancy and other costs decreased to 8.7% of sales or $347,365 compared to $473,596, or 13.4% of restaurant sales in 2022, principally because of a reversal in previously accrued property taxes related to a property in St. Louis, Missouri.  The property was deeded to the taxing authority in lieu of payment and any further liability. These costs were also impacted by three new leased restaurant locations added in 2022, which operate at a higher occupancy cost than our BTND locations, where we own most of the real estate.

Depreciation and Amortization Costs:

For 2023, depreciation and amortization costs increased by $83,234 to $192,520 (4.8% of sales) from $109,286 (3.1% of sales) in 2022. Depreciation and amortization costs increased principally due to the purchase of three restaurants during 2022 for approximately $2.4 million and capital additions in the last two years, including major parking lot repairs and significant replacement of HVAC equipment at several locations. These capital additions offset the decrease in depreciation and amortization resulting from a significant amount of our equipment reaching a fully depreciated status.

General and Administrative Costs

General and administrative costs in 2023 increased 0.1% of sales, or $63,421, to $519,077 (13.0%) from $455,656 (12.9% of sales) in 2022. The dollar amount increase was due to our acquiring three businesses during 2022 and the ongoing costs of operating as a public company, including administrative salaries and audit expenses.

Income (loss) from Operations:

The loss from operations was $79,548 in 2023 compared to a loss of $4,148 in 2022. The change in income from operations in 2023 compared to 2022 was primarily due to the decline in BTND sales and poor margins at Keegan’s, together with other matters discussed in the “Net Revenues,” “General and Administrative Costs,” and “Restaurant Operating Costs,” sections above.

Interest expense:

In 2023, our interest expense decreased by $1,814 to $24,376 (0.6% of restaurant sales) from $26,190 (1.4% of restaurant sales) in 2022. The decrease in the percentage of sales is due to the sales from the newly acquired businesses in 2022. The actual dollar value only decreased slightly.

Interest, Dividends and Other Income:

Interest and dividend income was $1,761 in 2023, resulting from income earned on the Company’s available cash balance.

Net Income (loss):

The net loss was $285,734 in 2023, compared to a net loss of $115,275 in 2022. The change in 2023 from 2022 was primarily attributable to the matters discussed in the “Net Revenues,” “Restaurant Operating Costs,” “General and Administrative Costs,” and “Other Income” sections.

Result of operations for the 26 weeks ending July 2, 2023, compared to the 26 weeks ending July 3, 2022.

The following table sets forth, for the periods indicated, our Consolidated Statements of Operations expressed as a percentage of total revenues. The percentages may not add because of rounding.