UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: October 1, 2023

or

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________ 

Commission File Number: 333-233233

BT BRANDS, INC.

(Exact name of registrant as specified in its charter)

Wyoming	90-1495764
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
405 Main Avenue West, Suite 2D, West Fargo, ND	58078
(Address of principal executive offices)	(Zip Code)

(307) 223-1663

(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:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.002 per share	BTBD	The NASDAQ Stock Market LLC
Warrant to Purchase Common Stock	BTBDW	The NASDAQ Stock Market LLC

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 a 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. ☐

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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 the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     ☒ No

At November 11, 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, "BT Brands" or 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 these statements do not relate strictly to historical or current matters. 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 we believe the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove accurate. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements in this quarterly report. Such factors may include, without limitation, the risks and uncertainties relating to (i) the adverse impact of current and future economic conditions, including inflation; (ii) our ability to attract and retain food service employees; (iii) an increase in food, beverage and supply costs; (iv) increases in wages and benefit costs; and (v) regulatory developments (vi) related to public health, which include risks and uncertainties related to COVID in its various forms, the impact of governmental regulations that have been and may in the future be, imposed in response to the pandemic which potentially could have an impact on discretionary consumer spending and (vii) the other risks and uncertainties discussed and described in our 2022 annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on April 18, 2023. Many of these risks and uncertainties are beyond our ability to control or predict; in many cases, the risks and uncertainties could cause actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report. We expressly disclaim any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in our expectations or any change in events, conditions, or circumstances on which any such statement is based, except as required by law.

2

TABLE OF CONTENTS

ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 4.	CONTROLS AND PROCEDURES.	21
PART II—OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	22
ITEM 1A.	RISK FACTORS	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	22
ITEM 4.	MINE SAFETY DISCLOSURES	22
ITEM 5.	OTHER INFORMATION	22
ITEM 6.	EXHIBITS.	23
SIGNATURES		24

3

PART I FINANCIAL INFORMATION

BT BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	October 1, 2023			January 1, 2023
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	5,546,874		$	2,150,578
Marketable securities		1,366,973			5,994,295
Receivables		55,200			76,948
Inventory		192,991			158,351
Prepaid expenses and other current assets		37,445			37,397
Assets held for sale		258,751			446,524
Total current assets		7,458,234			8,864,093
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET		3,238,310			3,294,644
OPERATING LEASES RIGHT-OF-USE ASSETS		1,834,408			2,004,673
INVESTMENTS		1,115,615			1,369,186
DEFERRED INCOME TAXES		143,000			61,000
GOODWILL		671,220			671,220
INTANGIBLE ASSETS, NET		400,766			453,978
OTHER ASSETS, NET		49,627			50,903
Total assets
	$	14,911,180		$	16,769,697
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	431,187		$	448,605
Broker margin loan		-			791,370
Current maturities of long-term debt		164,866			167,616
Current operating lease obligations		215,326			193,430
Accrued expenses		476,035			532,520
Total current liabilities		1,287,414			2,133,541
LONG-TERM DEBT, LESS CURRENT PORTION		2,332,014			2,658,477
NONCURRENT LEASE OBLIGATIONS		1,650,361			1,825,057
Total liabilities		5,269,789			6,617,075
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value, 2,000,000 shares authorized,
no shares outstanding at October 1, 2023 and January 1, 2023		-			-
Common stock, $0.002 par value, 50,000,000 authorized, 6,246,118
issued and outstanding at October 1, 2023, and 6,396,118 issued
and outstanding at January 1, 2023		12,492			12,792
Less cost of 215,000 and 65,000 common shares held in Treasury
at October 1, 2023 and January 1, 2023, respectively		(356,807	)		(106,882	)
Additional paid-in capital		11,527,235			11,409,235
Accumulated deficit		(1,541,529	)		(1,162,523	)
Total shareholders' equity		9,641,391			10,152,622
Total liabilities and shareholders' equity	$	14,911,180		$	16,769,697

See Notes to Consolidated Condensed Financial Statements

4

BT BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF  INCOME
(Unaudited)
	39 Weeks Ended			39 Weeks Ended,			13 Weeks Ended,			13 Weeks Ended,
	October 1, 2023			October 2, 2022			October 1, 2023			October 2, 2022
SALES	$	11,078,419		$	9,621,996		$	4,007,656		$	4,023,920
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs		4,348,294			3,637,814			1,449,796			1,604,858
Labor costs		4,124,857			3,122,867			1,509,721			1,336,039
Occupancy costs		845,863			803,792			340,002			367,872
Other operating expenses		603,964			577,035			209,721			248,383
Depreciation and amortization expenses		470,801			351,084			114,774			168,855
General and administrative expenses		1,288,019			1,035,639			343,027			288,921
Gain on sale of assets		(313,688	)		-			-			-
Total costs and expenses		11,368,110			9,528,231			3,967,041			4,014,928
Income (loss) from operations		(289,691	)		93,765			40,615			8,992
UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES		33,184			(155,220	)		56,248			(74,982	)
INTEREST AND OTHER INCOME		123,630			55,836			32,821			46,364
INTEREST EXPENSE		(73,857	)		(88,099	)		(23,948	)		(33,638	)
EQUITY IN NET LOSS OF AFFILIATE		(254,272	)		(135,813	)		(109,222	)		(121,641	)
LOSS BEFORE TAXES		(461,006	)		(229,531	)		(3,486	)		(174,905	)
INCOME TAX BENEFIT		82,000			5,000			-			-
NET LOSS	$	(379,006	)	$	(224,531	)	$	(3,486	)	$	(174,906	)
NET LOSS PER COMMON SHARE - Basic and Diluted	$	(0.06	)	$	(0.03	)	$	(0.00	)	$	(0.04	)
WEIGHTED AVERAGE SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted		6,257,652			6,459,223			6,246,118			6,461,118

See Notes to Consolidated Condensed Financial Statements

5

BT BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	39 Weeks ended,
	October 1, 2023			October 2, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(379,006	)	$	(224,531	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Depreciation and amortization of franchise cost		417,590			306,584
Amortization of intangible assets		53,212			44,500
Amortization of debt issuance premium included in interest expense		4,050			4,050
Deferred taxes		(82,000	)		(67,490	)
Stock-based compensation		118,000			102,300
Unrealized (gain) loss on marketable securities		(33,184	)		155,220
Loan forgiveness		-			(13,750	)
Investment gains		(51,603	)		-
Loss on equity method investment		253,571			135,813
Gain on sale of assets		(313,688	)		-
Non-cash operating lease expense		17,465			-
Property tax liability settlement		(181,339	)		-
Changes in operating assets and liabilities, net of acquisitions -
Receivables		21,748			14,648
Inventory		(34,640	)		(15,755	)
Prepaid expenses and other current assets		(48	)		(23,189	)
Accounts payable		(9,714	)		62,512
Accrued expenses		124,854			204,680
Income taxes payable		-			(201,088	)
Net cash provided by (used in) operating activities		(74,732	)		484,504
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of net assets of Keegan's Seafood Grille		-			(1,150,000	)
Acquisition of net assets of Pie In The Sky Coffee and Bakery		-			(1,159,600	)
Acquisition of net assets of Village Beer Garden					(690,000	)
Investment in Bagger Dave's Burger Tavern, Inc.		-			(1,260,000	)
Proceeds from sale of assets		496,000			-
Purchase of property and equipment		(362,223	)		(349,739	)
Investment in related company		-			(229,000	)
Purchase of marketable securities		(928,739	)		(808,619	)
Proceeds from the sale of marketable securities		5,640,848			-
Other assets		-			(6,602	)
Net cash provided by (used in) investing activities		4,845,886			(5,653,560	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of broker margin loan		(791,370	)
Principal payment on long-term debt		(333,263	)		(125,738	)
Proceeds from exercise of common stock warrants		-			74,866
Purchase of treasury shares		(250,225	)		-
Net cash used in financing activities		(1,374,858	)		(50,872	)
CHANGE IN CASH AND CASH EQUIVALENTS		3,396,296			(5,219,928	)
CASH and CASH EQUIVALVENTS, BEGINNING OF PERIOD		2,150,578			12,385,632
					-
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	5,546,874		$	7,165,704
SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$	69,807		$	84,049
Cash paid for income taxes	$	-		$	209,088
Purchase of property and equipment included in accounts payable	$	7,704		$	-

See Notes to Consolidated Condensed Financial Statements

6

BT BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
For the 39-week periods-				Common Stock			Additional Paid-in		Accumulated			Treaury
	Shares			Amount			Capital		(Deficit)			Stock			Total
Balances, January 1, 2023		6,396,118		$	12,792		$	11,409,235	$	(1,162,523	)	$	(106,882	)	$	10,152,622
Stock-based compensation		-			-			118,000		-			-			118,000
Treasury stock purchase		(150,000	)		(300	)				-			(249,925	)		(250,225	)
Net loss		-			-			-		(379,006	)		-			(379,006	)
Balances, October 1, 2023		6,246,118		$	12,492		$	11,527,235	$	(1,541,529	)	$	(356,807	)	$	9,641,391

			Common Stock		Additional Paid-in		Accumulated			Treaury
	Shares		Amount		Capital		(Deficit)			Stock		Total
Balances, January 2, 2022		6,447,506	$	12,895	$	11,215,696	$	(600,238	)	$	-	$	10,628,353
Stock-based compensation		-		-		102,300		-			-		102,300
Shares issued in exercise of warrants		13,612		27		74,839		-			-		74,866
Net loss		-		-		-		(224,531	)		-		(224,531	)
Balances, October 2, 2022		6,461,118	$	12,922	$	11,392,835	$	(824,769	)	$	-	$	10,580,988

For the 13-week periods-			Common Stock		Additional Paid-in		Accumulated			Treasury
	Shares		Amount		Capital		(Deficit)			Stock			Total
Balances, July 2, 2023		6,246,118	$	12,492	$	11,486,535	$	(1,538,043	)	$	(356,807	)	$	9,604,177
Stock-based compensation		-		-		40,700		-			-			40,700
Net loss		-		-		-		(3,486	)		-			(3,486	)
Balances, October 1, 2023		6,246,118	$	12,492	$	11,527,235	$	(1,541,529	)	$	(356,807	)	$	9,641,391

			Common Stock		Additional Paid-in		Accumulated			Treasury
	Shares		Amount		Capital		(Deficit)			Stock		Total
Balances, July 3, 2022		6,461,118	$	12,922	$	11,363,935	$	(649,863	)	$	-	$	10,726,994
Stock-based compensation		-		-		28,900		-			-		28,900
Net loss		-		-		-		(174,906	)		-		(174,906	)
Balances, October 2, 2022		6,461,118	$	12,922	$	11,392,835	$	(824,769	)	$	-	$	10,580,988

See Notes to Consolidated Condensed Financial Statements

7

BT BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of BT Brands, Inc. and its subsidiaries (the "Company," "we," "our," "us," "BT Brands," or "BT") and have been prepared in accordance with the US generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Securities and Exchange Commission ("SEC") requirements for Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated in consolidation. The financial statements have been prepared on a basis consistent in all material respects with the accounting policies for the fiscal year ending January 1, 2023. In our opinion, all regular and recurring adjustments necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

The accompanying Condensed Consolidated Balance Sheet as of October 1, 2023, does not include all the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of January 1, 2023, and the related notes included in our Form 10-K for the fiscal year ending January 1, 2023.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material.

The Company

BT Brands, Inc. (the “Company”) was incorporated as Hartmax of NY Inc. on January 19, 2016. Effective July 30, 2018, the Company acquired 100% of BTND, LLC.

We operate restaurants in the eastern two-thirds of the United States. As of October 1, 2023, including our 41.2% owned Bagger Dave’s business, we operated eighteen restaurants comprising the following:

· Eight Burger Time fast-food restaurants and one Dairy Queen franchise located in the North Central region of the United States, collectively (“BTND”);

· Bagger Dave’s Burger Tavern, Inc., a 41.2% owned affiliate, operates six Bagger Dave’s restaurants in Michigan, Ohio, and Indiana (“Bagger Dave’s”);

· Keegan’s Seafood Grille in Indian Rocks Beach, Florida (“Keegan’s”);

· Pie In The Sky Coffee and Bakery in Woods Hole, Massachusetts (“PIE”).

· Village Bier Garten is a German-themed restaurant, bar, and entertainment venue in Cocoa, Florida (“VBG”). 

Our Dairy Queen store is operated under a franchise agreement with International Dairy Queen. We pay royalty and advertising payments to the franchisor as required by the franchise agreement. Effective October 17, 2023, we agreed with International Dairy Queen to sell the business, which has a current book value at October 1, 2023, of $440,384, including remaining goodwill, to an approved buyer.  Under the terms of the agreement with International Dairy Queen, we will continue to operate under the agreement for six months, during which time we plan to sell the business.

8

Business

As of October 1, 2023, BT Brands owned and operated thirteen restaurants, including eight Burger Time restaurants in the North Central region of the United States, a Dairy Queen fast-food franchised location in suburban Minneapolis, Minnesota, collectively ("BTND"). We own and operate Keegan's Seafood Grille ("Keegan's"), a dine-in restaurant located in Florida, Pie In The Sky Coffee and Bakery ("PIE"), a casual dining coffee shop bakery located in Woods Hole, Massachusetts, and the Village Bier Garten (“VBG”), a German-themed restaurant in Cocoa, Florida. Our Burger Time restaurants feature a variety of burgers and other affordable foods, sides, and soft drinks. Our Dairy Queen restaurant offers a proscribed menu of burgers, chicken, sides, ice cream, proprietary desserts, novelty items, and various beverages. Keegan's has operated in Indian Rocks Beach, Florida, for more than thirty-five years and offers a variety of traditional fresh seafood items for lunch and dinner. The menu at Keegan's includes beer and wine. PIE features an array of fresh baked goods, freshly made sandwiches, and our locally roasted coffee. VBG is a full-service restaurant and bar featuring a German-themed menu, specialty imported European beers, and regular entertainment. Our revenues are derived from food and beverages at our restaurants, retail goods such as apparel, private-labeled "Keegan's Hot Sauce," and other souvenir items, which account for an insignificant portion of our income.

On June 2, 2022, BT Brands purchased 11,095,085 common shares, or 41.2%, of Bagger Dave's Burger Tavern, Inc. ("Bagger Dave's"). We acquired the shares from the founder of Bagger Dave’s for $1,390,000, or approximately $.114 per share. Following the investment, two representatives of BT Brands were appointed to comprise Bagger Dave's Board of Directors. Bagger Dave's specializes in locally sourced, never-frozen prime rib recipe burgers, all-natural lean turkey burgers, hand-cut fries, locally crafted beers on draft, milkshakes, salads, black bean turkey chili, and pizza. The first Bagger Dave's opened in January 2008 in Berkley, Michigan. There are six Bagger Dave's restaurants, including four in Michigan and single units in Ft. Wayne, Indiana, and Centerville, Ohio.

Our Dairy Queen location is operated under a franchise agreement with International Dairy Queen. We pay royalty and advertising payments to the franchisor as the franchise agreement requires. Following the end of the quarter, we entered into an agreement to terminate the franchise agreement with International Dairy Queen. We plan to sell the Dairy Queen business.

Fiscal Year Periods

BT Brand's fiscal year is a 52/53-week year, ending on the Sunday closest to December 31. Most years consist of four 13-week accounting periods comprising a 52-week year. Fiscal 2023 is 52 weeks ending December 31, 2023, and fiscal 2022 was a 52-weeks ending January 1, 2023. References in this report to periods refer to the 39-week periods in the respective fiscal periods

Cash and Cash Equivalents

Cash includes United States Treasury Bills with original maturities at the time of purchase of 90 days or less. Our bank deposits often exceed the amount insured by the Federal Deposit Insurance Corporation. In addition, we maintain cash deposits in brokerage accounts, including money market funds above the insured amount. We do not believe there is a significant risk related to cash.

Investments

As of October 1, 2023, noncurrent investments include our net equity method investment of $811,615 in Bagger Dave’s and our $304,000 total investment in NGI Corporation. (NGI). In 2020, the Company received equity ownership in NGI as consideration for a loan to NGI. Upon repayment of the loan to NGI, we attributed $75,000 to the value of the equity received, which was reflected as additional interest income in 2020. The fair value determined in 2020 continues to be reflected as the value of the investment. On February 12, 2022, we invested $229,000 in Series A1 8% Cumulative Convertible Preferred Stock of NGI, including a five-year warrant to purchase 34,697 common shares of NGI at $1.65 per share.

Bagger Dave’s common stock is traded on the OTC Pink Sheets market and files quarterly and annual financial reports with OTCMarkets, Inc. under the Alternative Reporting Standard. The listing with OTC Markets does not require the information to be audited. For the 39 weeks ending October 1, 2023, Bagger Dave’s had sales of $5,009,164 and a net loss of $617,164. For the 39 weeks, our 41.2% equity share in the loss was approximately $254,272 and is included in the accompanying statement of operations.

See Note 8 for information regarding our related party investment.

Fair Value of Financial Instruments

Our accounting for fair value measurements of assets and liabilities, including available-for-sale securities, is that they are recognized or disclosed at fair value in the statements on a recurring or nonrecurring basis, adhere to the Financial Accounting Standards Board (FASB) fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value.

9

The hierarchy prioritizes unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we can access at the measurement date.

· Level 2 inputs are inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the entire term of the asset or liability.

· Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to fair value measurement in its entirety.

On October 1, 2023, the cost of marketable securities includes a bond fund at a cost of $ 574,836  and common stocks at a cost of $792,137 for a total cost of $1,366,973 prior to a mark-to-market reduction of $110,205. At January 1, 2023, the fair value of Level 1 investments included common stocks of $713,900 and a corporate bond exchange-traded fund (ETF) of $316,000, a total carrying value of $1,029,900, net of an unrealized mark-to-market loss of $86,422. These investments are reflected in the accompanying financial statements at October 1, 2023, at the level-one quoted market price in an active market of $1,366,973.

The carrying values of cash, receivables, accounts payable, and other financial working capital items approximate fair value due to the short maturity nature of these instruments.  

Receivables

Receivables consist of estimated rebates due from a primary vendor.

Inventory

Inventory consists of food, beverages, and supplies and is stated at a lower of cost (first-in, first-out method) or net realizable value.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives, ranging from three to thirty years.

We review long-lived assets to determine if the carrying value of these assets is recoverable based on estimated cash flows. Assets are evaluated at the lowest level, for which cash flows can be identified at the restaurant level. In determining future cash flows, we estimate the future operating results of each restaurant. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets.

Goodwill and other Intangible Assets and Other Assets

Goodwill is not amortized.  Goodwill is tested for impairment at least annually. The cost of other intangible assets is amortized over the expected useful life. Other assets includes the allocated fair value of the acquired Dairy Queen franchise agreement which is being amortized over 14 years.

10

 Asset Held for Sale

We closed the Burger Time store in West St. Paul in 2022 and the Richmond, Indiana, store in 2018. The West St. Paul location sale was completed in February of 2023 for a gain of $313,688. The Richmond location is currently offered for sale. We believe the Richmond property will be sold at or above its current carrying value. In the second quarter of 2023, we completed the disposition of the St. Louis property in lieu of unpaid property taxes, eliminating approximately $180,000 of previously accrued property taxes, which was reflected as a reduction of occupancy costs during the second quarter of this fiscal year.

Income Taxes

The Company follows Accounting Standards Codification (ASC) 740, Accounting for Income Taxes. ASC 740 using the asset and liability approach in accounting for income taxes. Deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities. They are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. If necessary, we provide a valuation allowance to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary.

As of October 1, 2023, we used a net combined federal and state rate of approximately 27.5% in estimating our current tax benefit.

The Company has no accrued interest or penalties relating to income tax obligations. There currently are no federal or state examinations in progress. The Company has not had any federal or state tax examinations since its inception. All periods since inception remain open for inspection.

Per Common Share Amounts

Net income per common share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted net income or loss per share is calculated by dividing net income by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted per share amounts if their effect is anti-dilutive. There were no dilutive shares for the periods ending in 2023 and 2022.  

 NOTE 2 – INTANGIBLE ASSETS

At October 1, 2023, the value of acquired assets, Intangible Assets being amortized are the following

	Estimated Useful Life     (Years)		Original Cost		Accumulated Amortization			Net Carrying Value
Covenants not to Compete		3	$	98,000	$	(50,100	)	$	47,900
Trademarks		15		393,000		(40,134	)		352,866
			$	491,000	$	(90,234	)	$	400,766

Tradename assets are being amortized over 15 years at $26,000 annually. The total amortization of intangible assets, including covenants not to compete, will approximate $58,900 in 2023 and 2024, $40,500 in 2025, $26,200 per year thereafter following six years and $7,500 in 2037.

Total amortization expense for the 13 weeks was $12,221, and for the 39 weeks ending October 1, 2023, was $54,486.

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NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	October 1, 2023			January 1, 2023
Land	$	435,239		$	485,239
Equipment		3,875,840			3,893,274
Buildings and leasehold improvements		2,453,547			2,402,157
Total property and equipment		6,764,626			6,780,670
Accumulated depreciation		(3,267,565	)		3,741,170
Less - property held for sale		(258,751	)		(446,526	)
Net property and equipment	$	3,238,310		$	3,294,644

Depreciation expense for the 39-week periods in 2023 and 2022 was $416,315 and $306,584, respectively.

NOTE 4 - ACCRUED EXPENSES

Accrued expenses consisted of the following at: 

	October 1, 2023		January 1, 2023
Accrued real estate taxes	$	33,487	$	202,436
Accrued bonus compensation		59,139		59,139
Accrued payroll		190,747		143,481
Accrued payroll taxes		12,926		12,764
Accrued sales taxes payable		99,330		70,270
Accrued vacation pay		17,663		17,663
Accrued gift card liability		19,705		25,965
Other accrued expenses		43,038		802
	$	476,035	$	532,520

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NOTE 5 - LONG TERM DEBT

Our long-term debt is as follows: 

	October 1, 2023			January 1, 2023
Three notes payable to a bank dated June 28, 2021, due in monthly installments totaling $22,213, including principal and interest at a fixed rate of 3.45% through June 28, 2031. Beginning in July 2031, the interest rate will be equal to the greater of the "prime rate" plus .75%, or 3.45%. These notes mature on June 28, 2036. The notes are secured by mortgages covering ten BTND operating locations. The notes are guaranteed by BT Brands, Inc. and a shareholder of the Company.	$	2,533,971		$	2,864,484
Minnesota Small Business Emergency Loan dated April 29, 2020, payable in monthly installments of $458 beginning December 15, 2020, including principal and interest at 0%. This note is secured by the personal guarantee of a shareholder of the Company. Under the terms of the loan, $13,750 of the loan was forgiven on June 22, 2022.		458			3,208
Total		2,534,429			2,867,692
Less - unamortized debt issuance costs		(37,549	)		(41,599	)
Current maturities		(164,866	)		(167,616	)
	$	2,332,014		$	2,658,477

NOTE 6 - STOCK-BASED COMPENSATION

In 2019, we adopted the BT Brands, Inc. 2019 Incentive Plan (the “Plan”), under which the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units, and other stock and cash awards to eligible participants. As of October 1, 2023, there were 429,750 shares available for grant under the  Plan.

Compensation expense equal to the fair value of the options at the grant date is recognized in general and administrative expense over the applicable service period. Total equity-based compensation expenses through the third quarter of 2023 were $118,000, and $102,300 through the third quarter of 2022, including approximately $77,000 for the Contingent Share Award described below. Based on current estimates, we project that approximately $372,000 in stock-based compensation expense for current grants will be recognized over the next five years at approximately $200,000 in 2024, $95,000 in 2025, $35,000 in 2026, $28,000 in 2027 and $14,000 in 2028.

As outlined in each agreement, stock options granted to employees and directors vest over four years in annual installments. Options expire ten years from the date of the grant. Compensation expense equal to the fair value of the options at the grant date is recognized in general and administrative expense over the applicable service period.

We utilize the Black-Scholes option pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:

·	Stock price – Published trading market values of the Company’s common stock as of the grant date.
·	Exercise price – The stated exercise price of the stock option.
·	Expected life – The simplified method
·	Expected dividend – The rate of dividends expected to be paid over the term of the stock option.
· ·	Volatility – Estimated volatility. Risk-free interest rate – The daily United States Treasury yield curve rate corresponding to the expected life of the award

Information regarding our stock options is summarized below:

	Number of			Weighted Average		Weighted Average Remaining Term		Aggregate Intrinsic
	Options			Exercise Price		(In Years)		Value
Options outstanding at January 1, 2023		220,250		$	2.74		9.0	$	0
Granted		100,000			2.50		6.7
Exercised		0			0
Canceled, forfeited, or expired		(750	)		0
Options outstanding at October 1, 2023		319,500		$	2.74		8.8	$	0
Options exercisable at October 1, 2023		106,802		$	3.18		8.3	$	0

On February 27, 2023, the Company finalized a Contingent Incentive Share Award with senior executives. The Contingent Share Awards provides that so long as the Company’s publicly traded warrants are outstanding, senior management of the Company will be deemed to earn an aggregate award of 250,000 shares of common stock as an award upon the Company’s share price reaching $8.50 per share for 20 consecutive trading days, provided, however, participants must be employed by the Company at the time the Incentive Shares are earned.  The estimated fair value of the plan is $1.00 per share, and $250,000 of compensation expense will be recognized over the remaining 2.1 years available under the Plan. $77,000 of stock-based compensation was recognized for this Agreement for the 39 weeks of 2023. We utilized a lattice model when determining the fair value of the Contingent Incentive Share Awards. Assumptions utilized in the model include a risk-free rate of 4.4% and volatility of 63%.

NOTE 7 – LEASES

Concurrent with the closing of the acquisition of Keegan's net assets, we entered into a lease for approximately 2,800 square feet of restaurant space. The 131-month Keegan's lease provides for an initial rent of $5,000 per month with an annual escalation equal to the greater of 3% or the Consumer Price Index. The lease is being accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $624,000. The present value discounted at 4% of the remaining lease obligation of $558,571 is reflected as a liability in the accompanying financial statements as of October 1, 2023.

Keegan's lease does not provide an implicit interest rate; we used our incremental borrowing rate of 4% to determine the present value. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

Concurrent with the acquisition of PIE assets, we entered into a lease for approximately 3,500 square feet of restaurant and bakery production space. The terms of the 60-month lease provide for an initial rent of $10,000 per month with an annual escalation after 24 months of 3%. The PIE lease includes three five-year renewal option periods. The PIE lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $1,055,000. The present value discounted at 5% of the remaining lease obligation of $933,235 is reflected as a liability in the accompanying financial statements as of October 1, 2023.

The PIE lease did not provide an implicit interest rate; we used our estimated incremental borrowing rate of 5% to determine the present value of future lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

Concurrent with the acquisition of Village Bier Garten assets, we entered into a five-year lease with the seller for approximately 3,000 square feet of restaurant space and access to an additional 3,000 square feet of shared entertainment and seating area. The terms of the triple-net 60-month provide for an initial rent of $8,200 per month with an annual escalation of 3%. The VBG lease includes three five-year renewal option periods. The VBG lease does not provide an implicit interest rate; we used our estimated incremental borrowing rate of 5% to determine the present value of future lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

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The VBG lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $469,949. The present value discounted at 5% of the remaining lease obligation of $452,871 is reflected as a liability in the accompanying financial statements as of October 1, 2023.

The weighted average remaining lease term is approximately 5.0 years.

Following is a schedule of the approximate minimum future lease payments on the operating leases as of October 1, 2023:

	Total
Remainder 2023	$	70,788
2024		289,076
2025		297,745
2026		306,674
2027		268,437
2028 and thereafter		1,039,438
Total future minimum lease payments		2,272,158
Less - interest		(406,471	)
	$	1,865,687

The Company is a party to a month-to-month land lease agreement for one of its Burger Time locations. The net book value of the building on this land is approximately $18,500. The monthly lease payment is $1,600 plus the cost of property taxes. The total operating lease expense for the 39-week and 13-week period in 2023 was $81,000 and $26,333, respectively, and cash paid for leases during the 39 weeks in 2023 totaled $76,000  and variable expenses for lease properties were approximately $26,000.

The weighted average remaining lease term is approximately 5.3 years.

The Company also pays a monthly rent under month-to-month arrangements for corporate and administrative office spaces in West Fargo, North Dakota, and Minnetonka, Minnesota, for a combined monthly rent of approximately $2,200.

NOTE 8 - RELATED PARTY TRANSACTION

NGI Corporation

Our CEO and CFO also serve as Chairman and CFO, respectively, of NGI Corporation (NGI). BT Brands owns 330,418 common shares and holds warrants to purchase 358,000 common shares at $1.00, expiring March 31, 2028, and 34,697 warrants to purchase additional shares at $1.65  of NGI. We received 179,000 shares of common stock in NGI as consideration for modifying a note that was subsequently paid. The common stock and warrants received in the note modification transaction were recorded at a value determined by BT Brands of $75,000. The investment in NGI does not have a readily determinable market value. Therefore, it is carried at a cost determined by BT Brands.

NOTE 9 – CONTINGENCIES

In the course of its business, the Company may be a party to claims and legal or regulatory actions arising from the conduct of its business. We are unaware of any significant asserted or potential claims that could impact our financial position. 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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, "BT Brands" or 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 2, 2023.

Introduction

As of October 1, 2023, including our partially owned Bagger Dave’s business, we owned and operated eighteen restaurants comprising the following:

· Eight Burger Time fast-food restaurants and one Dairy Queen franchise (“BTND”);

· Village Bier Garten is a German-themed restaurant, bar, and entertainment venue in Cocoa, Florida. (“VBG”):

· Keegan’s Seafood Grille in Indian Rocks Beach, Florida (“Keegan’s”);

· Pie In The Sky Coffee and Bakery in Woods Hole, Massachusetts (“PIE”).

· Unconsolidated affiliate Bagger Dave’s Burger Tavern, Inc., 41.2% owned, operates six Bagger Dave’s restaurants in Michigan, Ohio, and Indiana (“BD”).

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 at our Burger Time restaurants increased by approximately 20% in fiscal 2023 compared to 2022 and currently is approximately $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 2022, 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.

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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.   

Results of Operations for the Thirteen Weeks Ended October 1, 2023, and the Thirteen Weeks Ended October 2, 2022

The following table sets forth our Condensed Statements of Operations and percentages of total revenues for the thirteen-week fiscal periods. The percentages below may not reconcile because of rounding.

	13 weeks ended, October 1, 2023						13 weeks ended, October 2, 2022
	Amount			%			Amount			%
SALES	$	4,007,656			100.0	%	$	4,023,920			100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs		1,449,796			36.2			1,604,858			39.9
Labor costs		1,509,721			37.7			1,336,039			33.2
Occupancy costs		340,002			8.5			367,872			9.1
Other operating expenses		209,721			5.2			248,383			6.2
Depreciation and amortization		114,774			2.9			168,855			4.2
General and administrative		343,027			8.6			288,922			7.2
Total costs and expenses		3,967,041			99.1			4,014,929			99.8
Income from operations		40,615			1.0			8,991			0.2
INTEREST EXPENSE		(23,948	)		(.6	)		(33,638	)		(0.8	)
OTHER		89,069			2.2			(28,618	)		(0.7	)
EQUITY IN LOSS FROM AFFILIATE		(109,222	)		(2.7	)		(121,641	)		(3.0	)
NET INCOME (LOSS)	$	(3,486	)		(.1	)%	$	(174,906	)		(4.3	)%

Net Revenues:

Net sales for the third fiscal quarter of 2023 decreased $16,264 to $4,007,656 from $4,023,920 in fiscal 2022. Reflecting the closing of the West St. Paul location at the end of 2022. Including West St. Paul in the prior year, sales at the Burger Time locations declined approximately 4.6% as customer purchasing patterns continued a return to pre-pandemic levels. Staffing challenges adversely impacted Burger Time, which resulted in limited hours and daily store closures during the quarter. 

Restaurant unit sales for Burger Time for the 13 weeks ranged from a low of approximately $140,000 to a high of approximately $337,000. The average sales for each Burger Time unit were approximately $228,000 in 2023, approximately $20,000 above the same period in 2022.

Our various restaurants all experience unique seasonal sales patterns.  The third quarter, which includes the summer months, is particularly strong at PIE; for the quarter, PIE had sales of $1,292,740, an increase of 2.9% from the same quarter a year ago, particularly at PIE where eggs, butter and pork were all at lower costs than one year ago.

Costs of Sales - food and paper:

Cost of sales - food and paper for the fiscal 2023 period decreased as a percentage of sales declined to 36.2% of restaurant sales from 39.9% of restaurant sales in the third quarter of fiscal 2022. This decrease was the net result of moderating inflationary pressures where several key inputs declined in price from a year ago.

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Restaurant Operating Costs:

Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants but do not include general and administrative expenses and depreciation and amortization) as a percentage of restaurant sales decreased to 88.6% of sales in the third fiscal quarter of 2023 from 88.4% in the similar period of fiscal 2022. This decrease was the result of declining and stabilizing commodity costs, particularly at PIE and the matters discussed in the "Cost of Sales, - food and paper," "Labor Costs," and "Occupancy and Other Operating Costs" sections below.

Labor Costs

For the third quarter of fiscal 2023, labor and benefits cost increased as a percentage of sales to 37.7% of restaurant sales from 33.2% in fiscal 2022. The increase in the percentage cost resulted from tighter labor markets, resulting in higher hourly wage costs offset by leveraging existing staffing and higher labor costs associated with the PIE acquisition. Payroll costs are semi-variable, meaning they do not decrease proportionally to decreases in revenue.

Occupancy and Other Operating Expenses

For the third fiscal quarter of 2023, occupancy and other expenses decreased to 8.5% of sales from 9.1% in 2022; the impact of the closure of the West St. Paul at the end of 2022 was offset by rent and utility cost increases.

Depreciation and Amortization Expense:

For the third fiscal quarter of 2023, depreciation and amortization expense decreased to $114,774 (2.9% of sales) from $168,855 (4.2% of sales) in the third quarter of fiscal 2022. The decrease results from reduced depreciation and amortization associated with our recent acquisitions.

General and Administrative Costs

General and administrative costs increased by $54,105 in the third fiscal quarter of 2023 from $288,922 to $343,027; the increase is associated with expenses related to the Company's transition to a public company in November 2021, including the costs related to long-term management agreements, incentive stock options and legal and accounting relating to our status as a public company and approximately $100,000 in legal expenses for a proxy solicitation contest related to one of the Company’s investments. For these reasons, third-quarter general and administrative expenses were 8.6% of sales, an increase from 7.2% in the earlier year.

Income from Operations

The income from operations for the third quarter of fiscal 2023 was $40,615 compared to an income from operations of $8,991 in the same period in 2022. The percentage of income from operations as a percentage of sales improved by 1.0% from .2%, reflecting an improved profit margin due to moderating inflation, higher general and administrative expenses and the matters discussed in the "Net Revenues" and "Restaurant Operating Costs" sections above. 

Restaurant-level EBITDA 

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP. The Company uses restaurant-level EBITDA, which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute or superior to operating income calculated under GAAP. The reconciliations to operating income set forth below should be carefully evaluated.

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We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization, and impairment charges. General and administrative expenses are excluded as they are generally not specifically identifiable as restaurant-specific costs. Depreciation, amortization, and impairment charges are excluded because they are not ongoing controllable cash expenses and are not related to the health of ongoing operations. 

	13 weeks ended,
	October 1, 2023			October 2, 2022
Revenues	$	4,007,656		$	4,023,920
Reconciliation:
Income from operations		40,615			8,991
Depreciation and amortization		114,774			168,855
General and administrative, corporate-level expenses		343,027			288,922
Restaurant-level EBITDA	$	498,416		$	466,768
Restaurant-level EBITDA margin		12.4	%		11.6	%

Our Results of Operations for the Thirty-nine Weeks Ended October 1, 2023, and the Thirty-nine Weeks Ended October 2, 2022

The following table sets forth our Condensed Statements of Income and percentages of total revenues for the 39-week fiscal periods. The percentages below may not reconcile because of rounding.

	39 weeks ended,                  October 1, 2023						39 weeks ended, October 2, 2022
	Amount			%			Amount			%
SALES	$	11,078,419			100.0	%	$	9,621,996			100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs		4,348,294			39.3			3,637,814			37.8
Labor costs		4,124,857			37.2			3,122,867			32.5
Occupancy costs		845,863			7.6			803,792			8.4
Other operating expenses		603,964			5.5			577,035			6.0
Depreciation and amortization		470,801			4.2			351,084			3.6
Gain on sale of assets		(313,688	)		(2.8	)		-			-
General and administrative		1,288,019			11.6			1,035,639			10.8
Total costs and expenses		11,368,110			102.6			9,528,231			99.1
Income from operations		(289,691	)		(2.6	)		93,765			1.0
INTEREST EXPENSE		(73,857	)		(0.7	)		(88,099	)		(0.9	)
OTHER		156,814			1.4			(99,384	)		1.0
EQUITY IN LOSS FROM AFFILIATE		(254,272	)		(2.3	)		(135,813	)		(1.4	)
INCOME TAX BENEFIT		82,000			.7			5,000			-
NET INCOME (LOSS)	$	(379,006	)		(3.5	)%	$	(224,531	)		(2.3	)%

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Net Revenues:

Net sales for the 39 weeks of fiscal 2023 increased $1,456,423 or 15.1% to $11,078,419 from $9,621,996 in fiscal 2022. The increase in sales was principally the result of a favorable impact in the 39 weeks of acquired restaurants, which contributed approximately $1.9 million in incremental sales in 2023, offsetting a 4.5% decline in BTND revenue.

Burger Time unit sales for the 39 weeks ranged from a low of approximately $347,000 to a high of approximately $925,000. Average sales for each Burger Time unit were approximately $625,000 in 2023, a decline from approximately $626,000 in the same 39-week period in 2022. The sales decline in the first half of 2023 resulted from a return to pre-COVID customer purchasing patterns as competitive dining options returned to normal, labor challenges resulting in some contraction of hours, and poorer weather conditions relative to the year-earlier period.

Costs of Sales - food and paper:

Cost of sales - food and paper for the 2023 period increased as a percentage of sales to 39.3% from 37.8% of restaurant sales in the same period in 2022. This increase resulted from inflation early in the year, especially for Keegan's fresh seafood and the cost of meat which resulted in higher costs at Burger Time.

Restaurant Operating Costs:

Restaurant operating costs, which are associated with operations, not including general and administrative expenses, and depreciation and amortization, increased as a percentage of restaurant sales to 89.6% in 2023 from 84.6% in fiscal 2022. This increase was due to the rise in both hourly wages and commodity food costs, as further discussed in the "Cost of Sales," "Labor Costs," and "Occupancy and Other Operating Costs" sections below.

Labor Costs:

For the 39-week period of fiscal 2023, labor and benefits costs increased to 37.2% of restaurant sales from 32.5% in fiscal 2022. Significantly higher hourly wage rates at all locations increased the overall labor percentage. The hiring markets have become more challenging in terms of filling open positions. Payroll costs are semi-variable, meaning they do not decrease proportionally to decreases in revenue. Thus, they increase as a percentage of restaurant sales when there is a decrease.

Occupancy and Other Operating Expenses:

For the first 39 weeks of fiscal 2023, occupancy and other expenses fell to 7.6% of sales from 8.4% in 2022, principally as a result of reversing previously accrued property taxes.  Aside from the real state tax matter, many of these costs are fixed, and the percentage reflects lower maintenance costs offset by higher lease occupancy costs at our new locations.

Depreciation and Amortization Expense:

Depreciation and amortization expenses in the third quarter of fiscal 2023 increased by $119,717 to $470,801 (4.2% of sales) from $351,084 (3.6% of sales) in 2022 and are the result of the purchase of three new restaurants and capital improvements, including significant parking lot repairs, at several of our locations.

General and Administrative Costs:

General and administrative costs during the first three quarters of fiscal 2023 increased $252,380 to $1,2,88,019 from $1,035,639 (10.8% of sales) during the fiscal 2022 period. The increase results from approximately $100,000 in legal and other costs associated with the Noble Roman’s Inc. proxy solicitation effort and other expenses generally associated with public reporting, stock-based compensation costs, and the expenses associated with long-term management employment agreements.

Income from Operations:

Operating loss was $289,691 in the 39 weeks of fiscal 2023 compared to a profit of $93,765 in the same period in fiscal 2022. The change in income from operations in 2023 compared to 2022 was due primarily to the increase in general and administrative expenses, which included higher costs associated with public company expenses, including the reasons described in the "Net Revenues" and "Restaurant Operating Costs" sections above.  

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Restaurant-level EBITDA:

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use restaurant-level EBITDA, which is not a measure defined by GAAP. This non-GAAP operating measure is helpful to both management and, we believe, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute or superior to operating income calculated under GAAP. The reconciliations to operating income set forth below should be carefully evaluated.

We define restaurant-level EBITDA as operating income before general and administrative costs, depreciation and amortization, and impairment charges. General and administrative expenses are excluded as they are generally not specifically identifiable as restaurant-specific costs. Depreciation, amortization, and impairment charges are excluded because they are not ongoing controllable cash expenses and are not related to the health of ongoing operations.

	39 weeks ended,
	October 1, 2023			October 2, 2022
Revenues	$	11,078,419		$	9,621,996
Reconciliation:
Income (loss) from operations		(289,691	)		93,765
Depreciation and amortization		470,801			351,084
General and administrative, corporate-level expenses		1,288,019			1,035,639
Restaurant-level EBITDA	$	1,469,129		$	1,480,488
Restaurant-level EBITDA margin		13.3	%		15.4	%

Liquidity and Capital Resources

In its peak period, the public response to COVID-19 positively impacted our sales and liquidity. More recently, as customer activities have returned to normal patterns, our Burger Time business has experienced a decline from the peak level at the height of COVID restrictions. On October 1, 2023, we had $6.9 million in cash and cash equivalents and marketable securities and net working capital of $6.2 million, a decrease of $.6 million from January 1, 2023.

In the future, COVID and its variants may continue to impact the United States economy. It is difficult to predict the ultimate impact on the United States economy in general, the impact on the quick service drive-through segment of the food service industry, and our operating results and financial condition. 

Our primary requirements for liquidity are to fund our working capital needs, capital expenditures, and general corporate needs, as well as to invest in or acquire businesses. Our operations do not require significant working capital, and, like many restaurant companies, we generally operate with negative working capital. We anticipate that working capital deficits may be incurred in the future and possibly increase. Our primary liquidity and cash flow sources are operating cash flows and cash on hand. We use this to service debt, maintain our stores to operate efficiently and increase our working capital. Our working capital position benefits from the fact that we collect cash from sales from our customers at the point of purchase or within a few days from our credit card processor; generally, payments to our vendors are not due for thirty days.

Summary of Cash Flows

Cash Flows Provided by Operating Activities

Operating cash flow for the 39 weeks ending October 1, 2023, was a negative $74,732. The cash flow from operations was impacted negatively by the ongoing costs related to our public company expenses, including stock-based compensation programs and costs associated with contested proxy solicitation for our Noble Roman investment. We expect operating cash flow in future periods to be significantly affected by our recent acquisitions.

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Cash Flows Used in Investing Activities

During fiscal 2023, we have continued to seek acquisitions in the food service and related industries, purchasing two operating restaurants and purchasing a 41.2% interest in a publicly traded casual dining business.

Cash Flows Used in Financing Activities

A significant portion of our cash flow used in financing activities is allocated to service our debt.

Contractual Obligations

As of October 1, 2023, we had $4.4 million in contractual obligations relating to amounts due under mortgages on the real property where our stores are situated, including $1.9 million in capitalized lease obligations related to our recent acquisitions. Our monthly required payments on lease and mortgage obligations are approximately $47,000.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

(1) Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports we filed under the Exchange Act is recorded, processed, summarized, and reported within the periods specified by the SEC's rules and forms. Disclosure controls are also designed to ensure that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As of October 1, 2023, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation and the material weakness in our internal control over financial reporting as disclosed in the Company's Form 10-K for the fiscal year ended January 1, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 1, 2023, our disclosure controls and procedures were not effective at a reasonable assurance level in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules, regulations, and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer, Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(2) Changes in Internal Control over Financial Reporting

The Company disclosed a material weakness for lack of segregation of duties and not performing an adequate risk assessment on monitoring of internal controls over financial reporting in its Form 10-K for the fiscal year ended January 1, 2023. While we are addressing these deficiencies, there has been no significant change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting. As a result of recent restaurant acquisitions, we are integrating our controls and procedures into the acquired businesses. Other than the recent acquisitions, during the period covered by this report, there were no changes in the Company's internal controls over financial reporting, which materially affected or are reasonably expected to impact our internal financial reporting controls.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to be threatened or contemplated against it.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

On February 9, 2022, the independent members of the Board of Directors and the Compensation Committee of the board of Directors approved a grant of 250,000 shares of common stock to each of Gary Copperud and Kenneth Brimmer, the Company's chief executive officer and chief financial officer, respectively, if, so long as the Company's publicly traded warrants are outstanding, the Company's common stock trades at $8.50 per share for 20 consecutive trading days. Final approval of the awards is contingent upon shareholder approval of an increase in the number of shares available for grant under the 2019 Incentive Plan, which is expected to be proposed at the next annual shareholders’ meeting. The award of the shares is tied directly to the price at which the common stock purchase warrants issued in the Company's initial public offering completed in November 2021 are redeemable by the Company. The warrants initially are exercisable at $5.50 per share (subject to adjustment under certain circumstances). The Company expects that if and when the warrants become redeemable, holders will exercise their warrants, and the Company will receive additional capital to fund acquisitions and growth. On July 5, 2023, the Company granted a seven-year option to purchase 100,000 shares of its common stock at $2.50 per share to a consultant.  These options granted to the consultant vest monthly over a 60-month period so long as the consulting relationship continues.

Other than as set forth above, since the date on which the Company filed its Annual Report on Form 10-K and through the date of this quarterly report, we did not sell any securities.

Use of Proceeds

Since the closing of the Company's initial public offering in November 2021, the Company has used the proceeds received from the sale of securities for general working capital purposes and to acquire (i) the restaurant assets of Keegan's Seafood Grille ($1,150,000) and Pie in the Sky Bakery and Coffee Shop ($1,160,000) and (ii) a 41.2% of the outstanding shares of common stock of Bagger Dave's ($1,390,000) and (iii) the Village Bier Garten, all as more fully described under Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS.

Exhibit	Description
31.1	Certification of the Company's Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly Report on Form 10-Q for the quarter ended October 1, 2023.
31.2	Certification of the Company's Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly Report on Form 10-Q for the quarter ended October 1, 2023.
32.1*	Certification of the Company's Principal Executive Officer and Principal Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
32.2*	Certification of the Company's Principal Executive Officer and Principal Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101.INS.	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH.	Inline XBRL Taxonomy Extension Schema Document.
101.CAL.	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF.	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB.	Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE.	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BT BRANDS, INC.
Date: November 15, 2023	By:	/s/ Kenneth Brimmer
	Name:	Kenneth Brimmer
	Title:	Chief Operating Officer and Principal Financial Officer

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