BT Brands, Inc. Fiscal 2022 Form 10-K Summary
Business context and reporting period
BT Brands owns and operates quick-service, fast-casual, casual dining, bakery, seafood, bar and franchise restaurants. As of January 1, 2023, the company operated 12 consolidated restaurants and held a 41.2% equity-method investment in Bagger Dave’s, which operated six restaurants. Fiscal 2022 comprised 52 weeks ended January 1, 2023; fiscal 2021 comprised 52 weeks ended January 2, 2022. The filing is an annual report rather than a quarterly report.
During fiscal 2022, BT Brands acquired Keegan’s Seafood Grille for approximately $1.15 million, Pie In The Sky Coffee and Bakery for approximately $1.16 million, Village Bier Garten for $690,000, and a 41.2% interest in Bagger Dave’s for approximately $1.26 million.
Key financial metrics
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Sales | $12.60 million | $8.45 million | +49.1% |
| Income (loss) from operations | $(391,164) | $980,712 | Declined by $1.37 million |
| Net income (loss) | $(562,285) | $607,851 | Declined by $1.17 million |
| Basic and diluted loss per share | $(0.09) | $0.14 | Turned negative |
| Operating cash flow | $211,798 | $813,955 | Down $602,157 |
| Restaurant-level EBITDA | $1.69 million | $1.63 million | +3.7% |
| Restaurant-level EBITDA margin | 13.4% | 19.3% | Down 5.9 percentage points |
Restaurant operating costs increased to 86.6% of sales from 80.8%. Food and paper costs were 38.5% of sales versus 38.9% in 2021, while labor costs rose to 32.7% from 28.2%. Occupancy and other operating costs increased to 15.3% from 13.7%, primarily because the acquired restaurants were leased and had higher occupancy costs.
General and administrative expense increased 292.0% to $1.63 million, or 13.0% of sales, from $416,791, or 4.9% of sales. The increase reflected public-company costs, higher executive compensation and bonuses, listing and quarterly review fees, stock-based compensation, and costs associated with integrating the acquired businesses.
At January 1, 2023, cash was $2.15 million and marketable securities were $5.99 million, for cash and marketable securities of approximately $8.14 million. Net working capital was $6.73 million. Total assets were $16.77 million and total liabilities were $6.62 million.
Long-term debt, including current maturities and before unamortized debt issuance costs, was approximately $2.87 million. The principal mortgage debt bears fixed interest at 3.45% through June 2031 and is secured by mortgages on ten Burger Time locations. The company also had a $791,370 broker margin loan bearing a variable rate of 4.6% at year-end and payable on demand, collateralized by Treasury bills and other marginable securities.
Total future operating lease payments were approximately $2.47 million, with a present value of $2.02 million. Total contractual obligations, including restaurant leases and mortgage debt, were approximately $4.34 million.
Material changes versus the prior comparable period
- Sales increased primarily because the three acquired restaurants contributed approximately $5.60 million of revenue. BTND sales declined approximately $1.04 million, and same-store sales for BTND stores open at year-end decreased approximately 11.2%.
- Average Burger Time customer transactions increased approximately 30% to about $16.90, primarily due to menu price increases. However, average sales per Burger Time unit open at year-end declined approximately 6.1% to about $809,000.
- Restaurant-level EBITDA increased modestly, but the margin contracted substantially because of inflation, labor shortages, lower BTND sales, and the higher cost structure of the acquired restaurants.
- Depreciation and amortization increased 91.9% to $449,038 due to acquisitions and capital additions.
- Interest expense declined to $114,766 from $172,861 following refinancing and scheduled debt amortization.
- The company recorded an $86,422 unrealized loss on marketable securities and a $194,813 equity-method loss from Bagger Dave’s.
- Investing cash outflows were $11.04 million, including acquisitions, the Bagger Dave’s investment, capital expenditures, and purchases of marketable securities. Financing cash flow was positive $590,695, principally due to the margin loan and warrant exercises.
Guidance, outlook, management commentary, risks and unusual items
Management expects continued inflation in food, labor and other operating costs during 2023. Beef and egg costs increased during 2022, and management stated that competitive conditions may prevent the company from fully passing cost increases through to menu prices. Future margin improvement is expected to depend on operational enhancements, equipment improvements and increased volumes.
Labor availability remains a significant constraint. Labor shortages caused higher wages and, in some locations, reduced operating hours. The company also faces supply-chain risk and relies heavily on Sysco, which represented approximately 60% of fiscal 2022 food and paper cost of goods sold.
Management intends to continue pursuing restaurant acquisitions, geographic diversification, same-store sales growth, digital ordering, delivery, social-media marketing and brand development. The filing does not provide quantitative revenue or earnings guidance.
BT Brands reported a material weakness in internal control over financial reporting relating to controls over significant, non-recurring events and complex transactions. Management plans to engage an accounting expert in fiscal 2023, but stated that it cannot yet conclude whether remediation will be successful. The independent auditor issued an unqualified opinion on the consolidated financial statements but did not opine on internal control effectiveness.
Subsequent events include the February 2023 sale of the West St. Paul property for $496,000, with an expected gain of approximately $313,000 recognized in the first quarter of 2023. The company also expects to deed the St. Louis property to the taxing authority in lieu of approximately $180,000 of accrued property taxes, which it expects to recognize as a gain upon completion.
Principal risks include restaurant competition, consumer discretionary spending, food and energy inflation, labor shortages, dependence on key suppliers, food safety, adverse weather and seasonality, public health disruptions, acquisition integration, lease commitments, availability of acquisition financing, cybersecurity, regulatory compliance and the material weakness in internal controls. The company has no current plans to pay cash dividends.
Important facts for investors to verify
- Whether acquired restaurants can achieve sustainable profitability and whether the 2022 acquisitions will improve consolidated margins.
- The liquidity impact and demand features of the $791,370 broker margin loan, including collateral requirements and potential market-value exposure.
- Progress and testing of the fiscal 2023 remediation plan for the material weakness in internal control over financial reporting.
- BTND same-store sales trends, customer traffic, labor availability and the ability to offset commodity and wage inflation through pricing.
- The financial condition and operating performance of Bagger Dave’s, whose unaudited fiscal 2022 results showed revenue of $7.98 million and a net loss of $887,626.
- The timing and actual gains from the West St. Paul sale and St. Louis property disposition, as well as the outcome of the Richmond, Indiana property held for sale.
- The potential dilution from approximately 2.75 million public warrants, private-placement warrants, placement-agent warrants, stock options and the subsequent 250,000-share management award condition.
- The filing’s related-party exposure, including management’s roles and the company’s $229,000 investment in Next Gen Ice.