BT Brands, Inc. — Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
BT Brands operates ten company-owned fast-food restaurants as of October 3, 2021: nine Burger Time locations and one Dairy Queen location across Minnesota, North Dakota, and South Dakota. The fiscal third quarter covered 13 weeks ended October 3, 2021; year-to-date results covered 39 weeks. Comparative periods ended September 27, 2020. The filing is unaudited.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 39 Weeks 2021 | 39 Weeks 2020 |
|---|---|---|---|---|
| Sales | $2.281 million | $2.374 million | $6.605 million | $6.074 million |
| Income from operations | $358,743 | $355,865 | $969,415 | $626,244 |
| Net income | $235,827 | $254,184 | $583,267 | $815,362 |
| Net margin | 10.5% | 10.7% | 8.8% | 13.4% |
| Restaurant-level EBITDA | $493,563 | $593,825 | $1.439 million | $1.138 million |
| Restaurant-level EBITDA margin | 21.6% | 25.0% | 21.8% | 18.7% |
Q3 basic and diluted earnings per share were $0.06, compared with $0.06 in the prior-year quarter. Year-to-date basic and diluted earnings per share were $0.14 versus $0.20. The weighted-average share count was 4,047,506; 6,447,506 shares were outstanding as of November 16, 2021.
For the 39 weeks, net cash provided by operating activities was $931,332, compared with $1.389 million in the prior-year period. Capital expenditures were $85,821, compared with $57,736. Ending cash was $2.079 million, up from $1.321 million at January 3, 2021.
At October 3, 2021, total assets were $4.141 million and total liabilities were $4.260 million, resulting in shareholders’ deficit of $119,056. Current assets were $2.246 million and current liabilities were $1.079 million. Reported long-term debt, including current maturities, was approximately $3.184 million on the balance sheet; the debt note reports approximately $3.233 million before unamortized issuance costs. The filing text does not clearly reconcile this difference.
Material Changes Versus the Prior Comparable Period
- Q3 sales declined 3.9% year over year, while 39-week sales increased 8.7%.
- Q3 operating income was essentially flat in dollars but improved to a 15.8% margin from 15.0%, primarily because general and administrative expense fell to $74,415 from $188,292.
- Q3 food and paper costs increased to 41.4% of sales from 36.4%, reflecting inflation and higher beef costs. Labor costs rose modestly to 26.6% of sales from 26.3%.
- Year-to-date operating income increased 54.8%, benefiting from stronger sales, operating leverage, lower general and administrative costs, and the absence of the $100,000 asset impairment charge recorded in 2020.
- Year-to-date net income decreased 28.5%, principally because 2020 included $466,758 of other income related to Paycheck Protection Program loan forgiveness and $92,707 of interest income.
- The company refinanced substantially all mortgage debt in June 2021. The new notes bear interest at 3.45% through June 2031 and mature in 2036, compared with prior debt carrying rates of approximately 4.75% and other higher-rate obligations.
Outlook, Commentary, Risks, and Unusual Items
- Management reported that the pandemic continued to support drive-through sales, but noted uncertainty regarding future COVID-19 variants, governmental restrictions, customer traffic, staffing, and supplier availability.
- Beef prices increased approximately 13.7% per pound near the end of the reporting period. Management planned a menu price increase in the fourth quarter of 2021, although competitive pressures may prevent full recovery of cost increases.
- Management identified labor shortages, wage pressure, commodity inflation, competition from larger quick-service restaurant chains, technology and delivery expectations, seasonality, adverse weather, and supply-chain disruptions as key risks.
- The company intends to pursue opportunistic acquisitions, increase same-store sales, improve brand awareness, and potentially develop or convert additional Burger Time locations. No quantitative revenue or earnings guidance was provided.
- Winter months are historically the company’s weakest period for cash generation. Management expects liquidity to come primarily from operating cash flow and cash on hand, while cash requirements include working capital, capital expenditures, debt service, and potential acquisitions.
- Effective November 12, 2021, the company entered into an underwriting agreement for 2.4 million units, each consisting of one common share and one five-year warrant exercisable at $5.50. Estimated net proceeds were approximately $10.665 million, or approximately $12.321 million if the over-allotment was fully exercised. The filing contains inconsistent references to an over-allotment of 300,000 versus 360,000 units.
- The company reported no pending legal proceedings, no defaults, no unregistered securities sales during the quarter, and no material changes in internal control over financial reporting. Management concluded disclosure controls were effective.
Facts Investors Should Verify
- Reconcile the balance-sheet debt amount with the debt note’s reported total and confirm current versus long-term maturities.
- Confirm the final closing date, unit count, over-allotment size, proceeds, and resulting share and warrant dilution from the November 2021 offering.
- Assess whether higher beef, food, labor, and occupancy costs will compress margins despite the planned menu price increase.
- Separate recurring restaurant profitability from non-GAAP restaurant-level EBITDA, which excludes corporate expenses, depreciation, amortization, and impairment charges.
- Evaluate liquidity after the offering, including approximately $24,000 of monthly required debt payments and seasonal winter cash-flow weakness.
- Monitor the effect of COVID-19 developments, staffing constraints, supply availability, consumer traffic, and competition on comparable-store sales.