BT Brands, Inc. Fiscal 2021 Form 10-K Summary
Business Context and Reporting Period
BT Brands, Inc. owns and operates nine Burger Time restaurants and one Dairy Queen franchise in Minnesota, North Dakota, and South Dakota. The company is pursuing growth primarily through acquisitions of restaurant concepts and individual properties. Fiscal 2021 comprised 52 weeks ended January 2, 2022; fiscal 2020 comprised 53 weeks ended January 3, 2021. The company completed its initial public offering in November 2021 and began trading on Nasdaq under BTBD and BTBDW.
Financial Performance and Position
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Sales | $8.452 million | $8.160 million | Up 3.5% |
| Income from operations | $980,712 | $529,368 | Up $451,344 |
| Net income | $607,851 | $791,992 | Down $184,141 |
| Basic and diluted EPS | $0.14 | $0.20 | Down $0.06 |
| Operating margin | 11.6% | 6.5% | Up 5.1 percentage points |
| Net margin | 7.2% | 9.7% | Down 2.5 percentage points |
| Restaurant-level EBITDA | $1.632 million | $1.597 million | Up 2.2% |
| Restaurant-level EBITDA margin | 19.3% | 19.6% | Down 0.3 percentage points |
| Cash flow from operations | $813,955 | $1.398 million | Down $583,564 |
| Capital expenditures | $207,920 | $154,420 | Up $53,500 |
Food and paper costs increased to 38.9% of sales from 37.9%, reflecting inflation in beef and paper. Labor costs improved to 28.2% of sales from 28.6%, while occupancy costs declined to 8.1% from 8.7%. General and administrative expense fell 39.4% to $416,791, primarily because of lower executive compensation and a temporarily reduced corporate position. Depreciation and amortization increased 23.6% to $234,027.
Cash was $12.386 million at January 2, 2022, compared with $1.321 million at January 3, 2021. Working capital was $11.639 million. The increase primarily reflected $10.697 million of net proceeds from the November 2021 offering of 2.4 million shares and 2.76 million warrants.
Reported debt at year-end included $2.833 million of long-term debt, net of current maturities and debt issuance costs, plus $169,908 of current maturities. The debt notes were refinanced in June 2021 at a fixed nominal rate of 3.45% through 2031, compared with prior mortgage rates of approximately 4.75%. The filing contains inconsistent contractual-obligation amounts of approximately $3.028 million and $3.050 million; the detailed debt note reports total principal obligations of $3.050 million before issuance costs.
Material Changes Versus the Prior Comparable Period
- Sales increased 3.5%, despite fiscal 2021 having one fewer week than fiscal 2020.
- Operating income increased substantially because of higher sales, lower general and administrative expense, and the absence of the $190,493 asset-impairment charge recorded in 2020.
- Net income declined because fiscal 2020 included $466,758 of other income, principally forgiveness of a $460,400 PPP loan, and $103,623 of interest income. Fiscal 2021 included neither item.
- Restaurant-level EBITDA increased modestly, but its margin declined slightly because of higher food, labor, and other operating costs.
- The company completed its initial public offering, materially strengthening cash and shareholders’ equity. Year-end shareholders’ equity was $10.628 million compared with a $702,323 deficit at the prior year-end.
- Most existing mortgage debt was refinanced, and several older notes were repaid during 2021.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management provided no formal numerical revenue or earnings guidance. Its stated outlook emphasizes acquiring multi-unit restaurant concepts and individual restaurant properties, improving same-store sales, increasing brand awareness, expanding online ordering and mobile marketing, and potentially developing additional Burger Time locations in limited circumstances.
- Management expects continuing inflationary pressure in 2022. Beef prices increased approximately 4% per pound in 2021, and a 10% increase in beef costs would increase annual food expense by approximately $175,000.
- Labor shortages have caused higher wages, reduced operating hours, and occasional store closures. Management identified a potential $15 federal minimum wage as a significant margin risk.
- COVID-19-related restrictions, staffing disruptions, supply interruptions, and changes in customer behavior remain material uncertainties. Management cautioned that sales could decline as pandemic-related dining patterns normalize.
- The company depends heavily on suppliers: approximately 75% of fiscal 2021 product purchases were from one vendor, primarily Sysco. Its distribution agreement was scheduled to expire in May 2022, subject to automatic extensions and termination provisions.
- Competition includes larger national chains with substantially greater financial and marketing resources. Weather and seasonality typically reduce sales in the first and fourth quarters.
- The company had no material litigation and reported no off-balance-sheet arrangements. Two properties, in Richmond, Indiana and Hazelwood/St. Louis, Missouri, were held for sale.
- After year-end, on March 2, 2022, the company acquired the assets of Keegan’s Seafood Grille in Florida for $1.150 million in cash and entered into a 132-month triple-net lease. Purchase-price allocation had not been finalized.
- Management concluded that disclosure controls and internal control over financial reporting were not effective as of January 2, 2022 because of a material weakness involving the completeness and accuracy of deferred income-tax accounting for acquired assets. Management was pursuing remediation but could not conclude that remediation would be successful.
Most Important Facts for Investors to Verify
- Whether the substantial year-end cash balance is deployed successfully toward acquisitions and whether acquisitions generate acceptable returns.
- The reconciliation of contractual debt obligations, including the filing’s inconsistent approximately $3.028 million and $3.050 million amounts.
- The sustainability of sales gains achieved during the pandemic and the effect of normalization on comparable-store sales.
- The effect of beef, labor, wage, supply-chain, and other inflationary pressures on restaurant-level margins.
- The status and renewal terms of the major-vendor distribution agreement and the company’s ability to diversify suppliers.
- Progress in remediating the material weakness in internal control over financial reporting.
- The dilution potential from 2.76 million IPO warrants, 102,503 private-placement warrants, placement-agent warrants, and outstanding stock options.
- The financial performance, financing, and integration plans for the post-year-end Keegan’s Seafood Grille acquisition.