8-K: BT Brands to Merge with Aero Velocity, Spin Off Restaurants

BT Brands, Inc. announced a merger with drone services company Aero Velocity Inc., which will result in Aero shareholders owning 89% of the combined entity, alongside a planned spin-off of BT Brands' restaurant assets.

Summary

• BT Brands, Inc. (Parent) has entered into a Merger Agreement with Aero Velocity Inc. (Aero), where Aero will become a wholly owned subsidiary of Parent.
• The Merger Agreement contemplates the eventual spin-off of BT Group, Inc., which holds all of BT Brands' restaurant assets and liabilities, to BT Brands' stockholders.
• At closing, Aero shareholders will own 89% of the equity ownership in the combined entity, with BT Brands shareholders holding 11%.
• Parent will issue 10,110 shares of Series A-1 and A-2 Preferred Stock, with an aggregate stated value of $101,100,000, convertible into 68,409,284 common shares at $1.48 per share.
• Series A-1 Preferred Stock carries a 50-1 as converted voting preference, subject to a 5% ownership blocker.
• Aero's principal stockholder has committed to investing a minimum of $3 million (with an option up to $5 million) in Series B Convertible Preferred Stock, convertible into 1,639,344 common shares.
• The business combination is accounted for as a reverse acquisition, with Aero treated as the accounting acquirer and BT Brands as the accounting acquiree.
• The preliminary purchase consideration is $12.5 million, resulting in the recognition of $4,775,547 in goodwill.
• Pro forma combined revenues for the year ended December 31, 2024, were $16,783,214, with a net loss of $(6,472,630).
• Pro forma combined revenues for the nine months ended September 30, 2025, were $13,401,873, with a net loss of $(20,758).
• Aero Velocity specializes in drone-based services, technologies, and manufacturing solutions across industries like agriculture, forestry, infrastructure, oil & gas, and environmental management.
• Aero's DaaS (Drone-as-a-Service) portfolio includes CleanSweep, TankVision, TerraVision, SiteSnap, and HeatScope.
• Aero is pursuing contract manufacturing and engineering services for unmanned aerial systems (UAS) and believes it could reach agreements by the end of 2025.

Sentiment

Score: 4

Explanation: The merger represents a significant strategic shift for BT Brands into the high-growth drone industry, which is a positive. However, the pro forma financials show substantial losses, particularly in the initial combined period, and Aero's historical financials indicate ongoing operational challenges and a 'going concern' risk. While the long-term potential of the drone market is strong, the immediate financial picture and the preliminary nature of the valuations introduce considerable uncertainty and risk.

Positives

• The merger creates a diversified entity with BT Brands' existing assets and Aero's drone technology and services.
• Aero Velocity has a diversified DaaS portfolio addressing multiple market needs, from cleaning and inspections to mapping and analytics.
• Aero's 'Made-in-USA' commitment and government contracting experience provide competitive advantages in the drone industry.
• Aero is actively investing in R&D, focusing on AI and machine learning to enhance mission execution and data analysis.
• The spin-off of BT Brands' restaurant assets allows for a clearer focus on the drone business for the combined entity and potential independent growth for the restaurant segment.

Negatives

• The pro forma combined entity reported a significant net loss of $(6,472,630) for the year ended December 31, 2024, largely due to merger transaction costs.
• Aero Velocity historically incurred a net loss of $(660,915) and negative operating cash flows of $(1,014,425) for the nine months ended September 30, 2025.
• Aero's historical financial statements include a 'going concern' note, although management believes there is no substantial doubt for at least one year due to recent performance and financing.
• The preliminary purchase price allocation includes $4,775,547 in goodwill, which is subject to adjustment and could indicate a premium paid over identifiable net assets.
• Aero recognized an impairment loss of $9,333 related to domains during the nine months ended September 30, 2025, indicating a loss of value in certain intangible assets.

Risks

• The proposed transaction may not be completed in a timely manner, or at all, due to various factors including failure to satisfy shareholder approvals.
• Unanticipated difficulties or expenditures related to the proposed transaction could arise.
• The announcement or pendency of the proposed transaction could negatively affect business plans, relationships, operating results, and operations.
• There is a potential for difficulties in retaining employees, suppliers, and customers as a result of the merger announcement.
• Diverting management's attention from ongoing business operations during the merger process poses a risk.
• Legal proceedings may be instituted against Aero, its board of directors, executive officers, or others following the announcement.
• The allocation of the purchase price is preliminary and subject to adjustment for up to one year from the acquisition date, which could cause material differences in financial information.
• Aero has a limited number of customers, with significant revenue concentration (e.g., one customer accounted for 69% of total revenues for 9M ended Sep 30, 2025), making it vulnerable to the loss of these customers.

Future Outlook

Management of BT Group, Inc. plans to pursue a listing for its common stock following the spin-off. Aero Velocity aims to position itself at the forefront of the rapidly evolving drone industry through organic growth, innovation, and targeted acquisitions. Aero believes it could secure contract manufacturing/assembly partnerships by the end of 2025. The preliminary purchase price allocation is subject to adjustment for up to one year from the acquisition date as valuations are finalized. Aero's management, despite historical losses and negative operating cash flows, believes there is no substantial doubt about its ability to continue as a going concern for at least one year, citing improved recent financial performance, access to additional financing, and continued operational expansion.

Management Comments

• Aero's guiding vision 'Propelling Progress' reflects its dedication to advancing the industry while supporting the success of its clients.
• Aero believes its employees are among its most valued assets and are the driving force behind success, aspiring to be an employer of choice.
• Management believes that the assumptions for the pro forma financial statements provide a reasonable basis for presenting the significant effects directly attributable to the business combination.

Industry Context

The merger positions the combined entity to capitalize on the rapidly expanding drone industry, which is seeing increased demand across diverse sectors like agriculture, infrastructure, and government. Aero Velocity's integrated model, combining service delivery, technology development, and manufacturing, aligns with the trend towards comprehensive drone solutions. The emphasis on 'Made-in-USA' and compliance with U.S. regulations (like NDAA) is particularly relevant given geopolitical considerations and government initiatives to bolster domestic UAS manufacturing, such as the 'Unleashing American Drone Dominance' executive order. Aero's focus on AI and machine learning in its R&D is critical for staying competitive in an industry increasingly driven by advanced data analytics and automation.

Comparison to Industry Standards

• Aero Velocity's diversified Drone-as-a-Service (DaaS) portfolio, including specialized units like CleanSweep, TankVision, TerraVision, SiteSnap, and HeatScope, positions it against competitors offering more niche services. For example, companies like DroneDeploy and Kespry focus heavily on mapping and data analytics, while others like Skydio emphasize autonomous flight and government contracts. Aero's breadth of services, from exterior cleaning to internal tank inspections and 3D modeling, suggests a strategy to capture a wider market share by offering end-to-end solutions.
• The pursuit of contract manufacturing for U.S. and non-U.S. drone OEMs, leveraging its Ohio-based assembly line, aligns with the broader industry trend towards supply chain localization and compliance with domestic manufacturing standards, particularly in the defense and critical infrastructure sectors. This could put Aero in a similar strategic position to companies like Shield AI or Anduril, which are building out U.S.-based defense technology capabilities, though on a different scale.
• Aero's historical financial performance, including significant net losses and negative operating cash flows, indicates it is in an earlier growth stage or facing substantial investment costs compared to more established, profitable drone service providers or manufacturers. For instance, publicly traded drone companies or divisions of larger aerospace firms often demonstrate stronger financial metrics, reflecting mature operations or significant market penetration.

Corporate Governance

Legal Proceedings

• The cautionary statement mentions that legal proceedings may be instituted against Aero, its board of directors, its executive officers or others following the announcement of the proposed transaction.

Related Party Transactions

• Aero Velocity has an outstanding note payable to its sole investor, ATW Opportunities Master Fund II, L.P., who is considered a related party. The balance was $2,100,110 as of September 30, 2025, with interest expense of $66,176 for the nine months ended September 30, 2025.

Stakeholder Impact

• **Shareholders (BT Brands)**: Will receive shares in the combined drone entity and shares in the spun-off restaurant entity (BT Group), representing a significant strategic shift and potential for value unlocking or dilution depending on market reception and future performance.
• **Shareholders (Aero Velocity)**: Will become the majority owners (89%) of the combined public entity, gaining liquidity and access to public markets.
• **Employees (BT Brands)**: Those associated with the restaurant business will transition to BT Group, while others will be part of the new combined drone-focused company, potentially impacting roles and corporate culture.
• **Employees (Aero Velocity)**: Will become part of a larger public company, potentially offering new opportunities but also integration challenges.
• **Customers (Aero Velocity)**: The merger could enhance service offerings and operational scale, potentially improving service delivery and technological capabilities.
• **Suppliers**: Integration of supply chains and potential changes in procurement policies could impact existing supplier relationships for both companies.
• **Creditors**: The combined entity's financial health and debt structure will be a key consideration, especially given Aero's existing related-party debt and the pro forma losses.

Next Steps

• Merger Sub will merge with and into Aero Velocity Inc., with Aero continuing as the surviving corporation and a wholly owned subsidiary of Parent.
• BT Brands will complete a restructuring to form BT Group, a wholly-owned Wyoming subsidiary, to which it will transfer all of its restaurant assets and liabilities.
• BT Brands will distribute the shares of BT Group to its common stockholders (the Spin-Off).
• BT Group, Inc. plans to pursue a listing for its common stock.
• The allocation of the purchase price for the merger is preliminary and subject to adjustment during the measurement period, not to exceed one year from the acquisition date.
• Aero will continue to conduct a more detailed review of BT Brands' accounting policies to conform them to Aero's policies for purchase accounting purposes.

Key Dates

Recommendation

The merger represents a significant strategic pivot for BT Brands, moving into the high-growth drone services sector while spinning off its traditional restaurant business. This could unlock value by allowing each segment to focus on its core operations. However, the pro forma financials for the combined entity show substantial losses, and Aero Velocity's historical performance includes significant net losses and negative operating cash flows, along with a 'going concern' disclosure. While the drone industry offers long-term potential, the immediate financial challenges, the preliminary nature of the purchase price allocation, and the inherent risks of integrating two disparate businesses warrant a cautious 'hold' recommendation. Investors should monitor the successful completion of the merger and spin-off, the finalization of purchase accounting, and the combined entity's ability to achieve profitability and positive cash flow in the highly competitive drone market before making further investment decisions.

Keywords

Drone Services, UAS, Unmanned Aerial Systems, Merger, Spin-off, Aero Velocity, BT Brands, Financial Reporting, SEC Filing, Corporate Governance, Reverse Acquisition, Preferred Stock, Capital Raise, Technology, AI, Machine Learning, Government Contracting