10-Q/A: BT Brands Amends Quarterly Report, Details Acquisition and Financial Performance

BT Brands files an amended quarterly report, highlighting the acquisition of Schnitzel Haus and providing an update on financial results for the period ending June 30, 2024.

Summary

• BT Brands has filed an amendment to its quarterly report on Form 10-Q for the period ending June 30, 2024, primarily to include the Interactive Data File as an exhibit.
• The company acquired Schnitzel Haus, a German-themed restaurant in Hobe Sound, Florida, for $943,000 on May 13, 2024.
• For the 26 weeks ended June 30, 2024, BT Brands reported a net loss of $515,652, compared to a net loss of $375,520 for the same period in 2023.
• Sales for the first half of 2024 were $7,300,786, a slight increase from $7,070,763 in the first half of 2023.
• The company's restaurant-level EBITDA was $421,941 for the first half of 2024, down from $657,025 in the same period of 2023.
• BT Brands had $5.2 million in cash, cash equivalents, and marketable securities as of June 30, 2024, with net working capital of $4.4 million.
• The company's long-term debt stood at $2,200,897, with monthly lease and mortgage obligations of approximately $47,000.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with increased sales but also increased losses and decreased profitability. The company is facing significant challenges in managing costs and labor, which tempers the positive aspects of the acquisition and sales growth.

Positives

• The acquisition of Schnitzel Haus diversifies BT Brands' operations into a new restaurant segment.
• Sales at Pie In The Sky increased by 16.5% over the prior year's 13-week period.
• The average customer transaction at Burger Time restaurants increased by approximately 10% in 2024.
• Food and paper costs decreased to 39.0% of sales in the first half of 2024, down from 41.0% in the same period of 2023.

Negatives

• The company's net loss increased to $515,652 for the first half of 2024, compared to $375,520 in the same period of 2023.
• Restaurant-level EBITDA decreased to $421,941 for the first half of 2024, down from $657,025 in the same period of 2023.
• Labor costs increased to 40.2% of restaurant sales in the first half of 2024, up from 37.0% in the same period of 2023.
• Occupancy and other operating expenses increased to 15.0% of sales in the first half of 2024, up from 12.8% in the same period of 2023.

Risks

• The company faces challenges in attracting and retaining food service workers.
• Rapid inflation in the cost of input items is impacting profitability.
• The restaurant industry is highly competitive, with major companies aggressively adopting new technologies and marketing strategies.
• The company is vulnerable to increased food, commodity, and energy costs.
• There is a risk of food safety and foodborne illness incidents.
• The company depends on a small number of suppliers.
• The company's growth strategy includes acquisitions, which carry inherent risks.
• The company has a material weakness in its internal control over financial reporting.

Future Outlook

The company expects to see moderation of inflationary pressure during the remainder of 2024 and continues to consider new acquisition opportunities.

Management Comments

• The company operates through a central management organization that provides continuity across our restaurant base by utilizing the efficiencies of a central management team.
• 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.
• We continue to consider new acquisition opportunities.

Industry Context

The restaurant industry is facing challenges such as difficulties attracting food service workers, rapid inflation in input costs, and the need to adopt new technologies and marketing strategies. BT Brands is actively navigating these trends through acquisitions and operational adjustments.

Comparison to Industry Standards

• The company's performance is mixed when compared to industry standards.
• While sales have increased slightly, the increase in net loss and decrease in restaurant-level EBITDA suggest that the company is facing challenges in managing costs and improving profitability.
• The company's labor costs are higher than industry averages, reflecting the current tightness of labor markets.
• The company's occupancy and other operating expenses are also higher than industry averages, partly due to inflationary pressures and recent acquisitions.
• Comparable companies such as McDonald's and Restaurant Brands International have been focusing on technology adoption and loyalty programs, which BT Brands is also addressing.
• The company's acquisition strategy is similar to that of other restaurant groups seeking growth and diversification.

Related Party Transactions

• BT Brands' CEO and CFO also serve as Chairman and CFO, respectively, of NGI Corporation (NGI).
• BT Brands owns 336,496 common shares and holds warrants to purchase 358,000 common shares of NGI.
• In June 2024, BT Brands advanced $25,000 to NGI on a demand note.

Stakeholder Impact

• Shareholders may be concerned about the increased net loss and decreased profitability.
• Employees may benefit from the company's efforts to retain quality staff and address labor shortages.
• Customers may experience menu price increases due to inflationary pressures.
• Suppliers may be affected by the company's dependence on a small number of vendors.
• Creditors may be impacted by the company's debt obligations.

Next Steps

• The company will continue to seek acquisition opportunities.
• The company will focus on operational enhancements, equipment advances, and increased volumes to offset food cost increases.
• The company will work to identify, develop, and retain quality employees to address labor shortages.

Key Dates

Keywords

restaurant, acquisition, financial results, EBITDA, net loss, sales, food costs, labor costs, Schnitzel Haus, Burger Time