BT Brands, Inc. — Form 10-Q Summary
Business Context and Reporting Period
BT Brands operates quick-service and casual-dining restaurants in the eastern two-thirds of the United States. As of October 1, 2023, the Company owned and operated 13 restaurants, including eight Burger Time locations, one Dairy Queen, Keegan’s Seafood Grille, Pie In The Sky Coffee and Bakery, and Village Bier Garten. Including its 41.2%-owned Bagger Dave’s affiliate, the network comprised 18 restaurants.
The filing covers the 13 and 39 weeks ended October 1, 2023, compared with the periods ended October 2, 2022. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Performance and Key Metrics
| Metric | 13 Weeks Ended October 1, 2023 | 13 Weeks Ended October 2, 2022 | 39 Weeks Ended October 1, 2023 | 39 Weeks Ended October 2, 2022 |
|---|---|---|---|---|
| Sales | $4.008 million | $4.024 million | $11.078 million | $9.622 million |
| Income (loss) from operations | $40,615 | $8,991 | $(289,691) | $93,765 |
| Net income (loss) | $(3,486) | $(174,906) | $(379,006) | $(224,531) |
| Net loss per share | $(0.00) | $(0.04) | $(0.06) | $(0.03) |
| Restaurant-level EBITDA | $498,416 | $466,768 | $1.469 million | $1.480 million |
| Restaurant-level EBITDA margin | 12.4% | 11.6% | 13.3% | 15.4% |
Third-quarter sales were essentially flat year over year, while nine-month sales increased 15.1%, primarily from acquired restaurants. Nine-month restaurant-level EBITDA declined despite higher sales, reflecting labor and commodity-cost pressure and weaker performance at the legacy Burger Time operations.
Third-quarter operating margin improved to approximately 1.0% from 0.2%. For the nine-month period, operating margin declined to negative 2.6% from positive 1.0%. Nine-month food and paper costs increased to 39.3% of sales from 37.8%, and labor costs increased to 37.2% from 32.5%.
At October 1, 2023, cash and cash equivalents were $5.547 million and marketable securities were $1.367 million, for combined liquidity of approximately $6.9 million. Net working capital was approximately $6.2 million. Total liabilities were $5.270 million and shareholders’ equity was $9.641 million.
Gross long-term debt, including current maturities, was approximately $2.534 million before unamortized debt issuance costs. Lease obligations totaled approximately $1.866 million. Monthly mortgage and lease payments were approximately $47,000.
Operating cash flow was $(74,732) for the first 39 weeks of 2023, compared with $484,504 of cash provided in the prior-year period. Investing activities provided $4.846 million, mainly because of $5.641 million of marketable-securities sales and $496,000 of asset-sale proceeds. Financing activities used $1.375 million, including debt repayment, repayment of a broker margin loan, and $250,225 for treasury-share purchases.
Material Changes Versus the Prior Comparable Period
- Sales increased $1.456 million, or 15.1%, for the first 39 weeks, primarily from acquired restaurants; Burger Time revenue declined approximately 4.5%.
- Third-quarter sales declined slightly, and Burger Time sales were affected by staffing shortages, limited operating hours, store closures, and a return toward pre-pandemic customer patterns.
- Food and paper costs improved as a percentage of sales in the third quarter, falling to 36.2% from 39.9%, but remained higher for the nine-month period because of earlier inflation in meat and seafood costs.
- Labor costs increased materially as a percentage of sales in both the quarter and year-to-date period because of wage inflation, tighter labor markets, and costs associated with the acquired PIE operation.
- General and administrative expense increased 24.4% for the first 39 weeks to $1.288 million, including public-company costs, stock-based compensation, management agreements, and approximately $100,000 of legal expenses related to a proxy solicitation contest involving an investment.
- The Company recorded a $313,688 gain on the sale of the West St. Paul property and reduced occupancy costs by approximately $180,000 after transferring the St. Louis property in lieu of unpaid property taxes.
- The equity-method loss from Bagger Dave’s increased to $254,272 from $135,813. Bagger Dave’s reported nine-month sales of $5.009 million and a net loss of $617,164.
- The Company repurchased 150,000 common shares for $250,225. Shares outstanding were 6,246,118 at October 1, 2023, compared with 6,396,118 at January 1, 2023.
Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide formal quantitative revenue, earnings, or margin guidance. Management expects food-cost inflation to moderate during the remainder of 2023, but stated that competitive conditions may limit the ability to fully offset cost increases through menu pricing. Potential margin improvement is expected to depend on operating enhancements, equipment advances, and higher volumes.
- Key operating risks include inflation, food and supply costs, wage and benefit increases, labor availability and retention, intense restaurant competition, changing consumer behavior, technology and delivery trends, and potential public-health or COVID-related effects.
- On October 17, 2023, after the reporting period, the Company agreed with International Dairy Queen to terminate the franchise relationship and sell the Dairy Queen business to an approved buyer. The business had a reported book value of $440,384 at October 1, 2023, and the Company planned to continue operating it for six months while pursuing the sale.
- The Company expects approximately $372,000 of stock-based compensation expense over the next five years based on current estimates, including approximately $200,000 in 2024.
- Management reported no significant pending or threatened legal proceedings and no known significant claims affecting the Company’s financial position.
- Disclosure controls and procedures were deemed ineffective because of the previously reported material weakness involving segregation of duties and inadequate risk assessment and monitoring of internal controls over financial reporting. No significant change in internal controls was identified during the quarter.
Important Facts for Investors to Verify
- Whether the Dairy Queen sale is completed on expected terms and how any resulting gain or loss affects future results.
- Whether Burger Time sales stabilize after staffing constraints, reduced hours, and post-pandemic traffic normalization.
- Whether labor, food, and occupancy costs can be controlled sufficiently to restore positive consolidated operating margins.
- The sustainability of liquidity, given negative year-to-date operating cash flow and continuing debt, lease, acquisition, and capital-expenditure requirements.
- Bagger Dave’s operating performance and the effect of its continuing losses on BT Brands’ equity-method earnings.
- Progress in remediating the material weakness in internal control over financial reporting.
- The impact of nonrecurring items, including the property-sale gain, property-tax settlement, marketable-securities activity, and proxy-related legal costs, on reported results and cash flow.