NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Use of Estimates

The Company

Business

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 2022 is 52 weeks ending January 1, 2023, and fiscal 2021 was a 52-weeks ending January 2, 2022.

At times, our bank deposits 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.

Our 41.2% ownership of Bagger Dave’s is accounted for using the “equity method” of accounting. Under the equity method, our share of the net income (loss) is recognized as income (loss) in our condensed consolidated statements of income and added to (subtracted from) the investment account. Dividends received, if any, are deducted from the investment. See Note 9 for information regarding our related party investment.

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.

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:

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.

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.  

Investments in marketable equity securities are carried at fair value. On July 3, 2022, marketable securities consisted of Nasdaq-listed equity securities with a historical cost of $ i 607,988. These investments are reflected in the accompanying financial statements on July 3, 2022, at the level-one fair value quoted in an active market of $ i 527,750. 

Receivables consist of rebates due from a primary vendor.

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

Goodwill is the excess of the purchase price over the estimated fair value of acquired business assets. In accordance with GAAP, Goodwill is not amortized. We periodically assess goodwill for impairment and have determined there is no impairment of Goodwill at July 3, 2022. 

Intangible assets with estimated finite lives result from business acquisitions and include allocated cost of trademarks, tradenames, a covenant not to compete, websites, and social media accounts. The costs of purchased intangible assets are recorded at the estimated value and are amortized over  i 4 to  i 20 years.

The Company provides for income taxes under Accounting Standards Codification (ASC), 740, Accounting for Income Taxes. ASC 740 uses an 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 July 3, 2022, we estimated a current tax provision at the net combined federal and state rate of approximately  i 27.5%.

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.

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 2022 and 2021.

NOTE 2 – ACQUISITIONS

Restaurant Acquisition - Keegan’s

On March 2, 2022, BT Brands, through its 1519BT, LLC subsidiary (“1519BT “), purchased the net assets of Keegan’s, a fresh seafood restaurant located in Indian Rocks Springs, Florida. Concurrent with the purchase, we entered a  i 131-month lease for the approximately 2800 square foot space that Keegan’s has occupied for more than 35 years. We acquired Keegan’s tradename as part of the purchase and will continue to operate the business as Keegan’s Seafood Grille. The purchase price was approximately $ i 1.15 million, paid in cash at closing.

The Keegan’s acquisition was accounted for using the acquisition method of accounting following ASC 805 “Business Combinations.” Accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired were recorded at their estimated fair values. The Company recorded provisional amounts and will complete the acquisition accounting once it finalizes its valuation analysis.

As a result of the Keegan’s acquisition, we provisionally recorded $ i 200,000 in goodwill, representing the excess of fair value over the purchase price of the identifiable assets; the allocation to purchased goodwill is expected to be deductible for income tax purposes over fifteen years.

The following table presents the preliminary estimate of the fair value of the assets acquired, and liabilities assumed in the Keegan’s transaction: 

Restaurant Acquisition – Pie In the Sky Coffee and Bakery

On May 11, 2022, our 10Water Street, LLC subsidiary (“10Water”) purchased the net assets of PIE, a bakery and coffee shop located in Woods Hole, Massachusetts. Concurrent with the purchase, we entered into a  i 60-month lease, including  i three additional five-year renewal options.  i The lease covers the approximately 3,500 square feet PIE has operated in for more than 20 years. We acquired the Pie in the Sky tradename and the piecoffee.com website URL as part of the purchase and will continue to operate as Pie in the Sky. The purchase price was approximately $ i 1.16 million, including $ i 1.15 million in cash paid at closing.

The acquisition of PIE was accounted for following ASC 805 “Business Combinations.” Accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired were recorded at their estimated fair values based on information available as of the closing date. We recorded provisional amounts as of the purchase date and will complete the acquisition accounting once we finalize the valuation analysis.

As a result of the PIE acquisition, we provisionally recorded $ i 270,100 in goodwill, representing the excess of fair value over the purchase price of the identifiable assets, which is expected to be deductible for income tax purposes over fifteen years.

NOTE 3 – INTANGIBLE ASSETS

At July 3, 2022, based upon our preliminary evaluation of the value of acquired assets, Intangible Assets are the following:

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Depreciation expense for the 26-week periods in 2022 and 2021 was $ i 177,676 and $ i 113,394, respectively.

NOTE 5 - ACCRUED EXPENSES

Accrued expenses consisted of the following at: 

NOTE 6 - LONG TERM DEBT

Our long-term debt is as follows: 

NOTE 7 - STOCK-BASED COMPENSATION

In 2019, the Company adopted the 2019 BT Brands Incentive Plan (the “2019 Incentive Plan”), under which it 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. The number of common shares reserved for issuance is  i 250,000. As of July 3, 2022, there were  i 13,400 shares available for a grant under the 2019 Incentive Plan.

During the year ended January 2, 2022, we issued options to purchase  i 15,000 shares of common stock under the “2019 Incentive Plan as stock awards to three directors of the Company in connection with their joining the board of directors. The options are exercisable at $ i 5 per share through 2031. In the first half of 2022, we granted  i 220,750 options to employees and consultants to purchase shares at $ i 2.50 per share.

Stock options granted to employees and directors vest over two to five years, in monthly or annual installments, as outlined in each agreement. Options expire ten years from the date of 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. Compensation expense for the 26 weeks in 2022 was $ i 73,400 and was zero in a similar period in 2021. Based on current estimates, we project that for current grants, approximately $ i 230,000 in stock-based compensation expense will be recognized in future periods.