BT Brands Inc

To the Board of Directors and

Shareholders of BT Brands, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of BT Brands, Inc. (the “Company”) as of December 31, 2023 and January 1, 2023 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the fiscal years then ended (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and January 1, 2023 and the results of its operations and its cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/Boulay PLLP

We have served as the Company’s auditor since 2015.

Minneapolis, Minnesota

April 1, 2024

PCAOB ID:542

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

BT Brands, Inc. (“BT Brands,” “we,” “us,” “our” or the “Company”) was incorporated as Hartmax of NY Inc. on January 19, 2016. Effective July 30, 2018, we acquired 100% of the ownership of BTND, LLC (“BTND”) in exchange for common stock through a Share Exchange Agreement (the “Share Exchange”). In 2020 BT Brands, Inc. was reincorporated in the State of Wyoming.

As of December 31, 2023, the Company owned and operated twelve restaurants and owned a 39.6%, as of year-end, interest in an operator of six restaurants. During 2023 we collectively owned and operated eight Burger Time restaurants in the North Central region of the United States, and a Dairy Queen fast-food franchised location in suburban Minneapolis, Minnesota (“BTND”). We closed stores in West St. Paul in 2022 and in Richmond, Indiana, in 2018. The West St. Paul location was sold in February of 2023 for a gain of approximately $313,000. The Richmond location is currently offered for sale. In February, 2024, we closed a leased location in Sioux Falls, South Dakota. The net book value of the closed location was approximately $69,000. We own 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 consisting of burgers, chicken, sides, ice cream, other desserts, and various beverages. Keegan’s Seafood Grille has operated in Indian Rocks Beach, Florida, for over thirty-five years, offering a variety of 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 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 items that account for an insignificant portion of our income.

On June 2, 2022, the Company purchased 11,095,085 common shares at the time of the 2022 purchase our ownership represented 41.2% ownership of Bagger Dave’s Burger Tavern, Inc. (“BDVB”). We acquired the shares from its founder for $1,260,000, or approximately $0.114 per share. During 2023, Bagger Dave Following the investment, representatives of BT Brands were appointed to two of the three positions on 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 investment in Bagger Dave’s is accounted for under the “Equity Method.” During the fourth quarter of 2023 BDVB, issued an additional one million shares reducing our ownership to approximately 39.6%.

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. Effective October 17, 2023, we agreed with International Dairy Queen to sell the business, which has a current book value at December 31, 2023 of approximately $438,500, including remaining franchise agreement intangible asset, to an approved buyer. Under the terms of the agreement with International Dairy Queen, we will continue to operate the location during the six-month period we plan to sell the business. However, we may retain ownership of the physical assets, including the land and building.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of BT Brands, Inc., BTND, LLC, and its wholly owned subsidiaries 10Water Street, LLC, 1519BT, LLC and BTNDDQ, LLC. Significant intercompany accounts and transactions were eliminated in consolidation.

Use of Estimates in Preparation of Financial Statements

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the period. Our significant estimates include the valuation of deferred tax assets and liabilities, valuation of long-lived assets in acquisitions, amortization period for intangible assets, valuation of equity-based compensation, and valuation of equity method and fair value investments. Actual results may differ from the estimates used in preparing the consolidated financial statements.

Fiscal Year

The Company’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 the 52-week year. Fiscal 2023 was the 52 weeks ending December 31, 2023, and Fiscal 2022 was the 52 weeks ending January 1, 2023; all references to years in this report refer to the fiscal years described above.

Fair Value of Financial Instruments

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

The hierarchy gives the highest priority to 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 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 at year-end due to the short maturity nature of these instruments.

Investments

Noncurrent investments include our equity method investment of $688,806 in BDVB and our $304,000 total investment in Next Gen Ice, Inc. (NGI). In 2020, the Company received equity ownership in NGI as consideration for a loan to NGI. Upon repayment of the note, $75,000 was attributed by us to the value of the equity received and this amount was reflected as additional interest income in 2020. 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 shares at $1.65 per share. See Note 11.

BDVB files quarterly and annual financial reports with OTCMarkets, Inc. The listing with OTC Markets does not require the information to be audited. Below is summary information filed by Bagger Dave’s for the fiscal years ended December 31, 2023, and December 25, 2022.

Unaudited summary financial information for Bagger Dave’s -

Fair Value Measurements

The following is a summary of the fair value of Level 1 investments. As required, fair values have been determined by reference to quoted market prices in active markets as of the indicated year-end:

Cash and Cash Equivalents

Cash and cash equivalents includes United States Treasury Bills with a maturity at the time of purchase of 3 months or less. Our bank deposits often exceed the amounts insured by the Federal Deposit Insurance Corporation. In addition, we maintain cash deposits in brokerage accounts including money funds in excess of the amounts covered by insurance. We do not believe there is a significant risk related to cash.

Short-Term Investments

Marketable Securities at January 1, 2023, include $5,000,000 face value of a United States Treasury Bills maturing March 16, 2023, purchased for $4,907,378 in August 2022. The amortized cost value approximates fair value.

Broker Margin Loan

The broker margin account loan of $115,899 at December 31, 2023 and $791,372 at January 1, 2023, bear a variable margin interest rate as set by the lending brokerage firm 6.8% and 4.6% on December 31, 2023 and January 1, 2023 respectively. This broker margin loan is reflected as a current liability. The loan is collateralized by Treasury Bills and any other marginable securities held in the margin account and is due on demand under Federal Reserve margin account regulations and the margin account agreement.

Revenue Recognition

Our revenues consist principally of selling food products for cash or bank-issued credit and debit card transactions at our restaurants. We follow Accounting Standards Update (ASU) 2014-09 (ASC 606). Under ASC 606, revenues are recognized when control of promised goods or services is transferred to a customer in an amount that reflects the expected consideration for those goods or services. Our sales are recognized at the point of purchase, net of discounts and incentives net of applicable sales taxes.

Receivables

In these consolidated financial statements, receivables consist of rebates due from a primary vendor.

Inventory

Inventory consists of food, beverages, supplies, and merchandise for resale 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 or the term of the lease for leasehold improvements if less than its useful life:

We review long-lived assets to determine if their carrying value may not be recoverable based on estimated cash flows. Assets are reviewed at the lowest level, for which cash flows can be identified at the restaurant level. In determining future cash flows, significant estimates are made for each restaurant's future operating results over its remaining life. If such assets are concluded to be impaired, the impairment recognized is measured by the amount by which the carrying value of the assets exceeds the carrying value of the assets.

Impairment and Disposal of Long-Lived Assets

Land, building and equipment, operating right of use assets and certain other assets, including definite-lived intangible assets, are reviewed regularly for impairment and whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of the assets to the future undiscounted net cash flow expected to be generated, and it is determined at the restaurant level. If an asset is determined to be impaired, the recognized impairment is measured by the amount by which the carrying amount of the asset exceeds the fair value.

We may sell an existing unit or close an operating unit and seek to liquidate the property. In the first quarter of 2023 we completed the abandonment of a property in the St. Louis area in lieu of approximately $180,000 of property taxes. and our results of operations include a gain of approximately $80,000 reflecting the reversal of the accrued property taxes and the remaining $100,000 is included in other income. We closed stores in West St. Paul in the fourth quarter of 2022 and in Richmond, Indiana, in 2018. The West St. Paul location sale was completed in February of 2023 for a gain of $313,000 reflected in our 2023 statement of operations. The Richmond location is currently offered for sale. We believe the Richmond property will be sold at or above its current carrying value.

Leases

Three of our restaurant locations are subject to leases***.***We evaluate leases at commencement to determine their operating or finance lease classification. As required by FASB ASC Topic 842, we recognize operating and finance lease liabilities based on the present value of minimum future lease payment over the expected lease term and recognize a corresponding right-of-use asset. We recognize lease expense related to operating leases on a straight-line basis. At lease inception, we determine the likelihood of exercising any future lease option periods. Where we are reasonably certain to exercise our renewal option, we include that option period in calculating the present value of future lease payments. See Note 4 for additional information.

Goodwill, Other Intangible Assets and Other Assets

Goodwill is not amortized, but instead, Goodwill is tested for impairment at least annually. The cost of other intangible assets is amortized over the expected useful life.

Other assets include the allocated fair value of the acquired Dairy Queen franchise agreement related to our location in Ham Lake, Minnesota, and amortized over an estimated useful life of 14 years. Amortization for each of the next five years is estimated to be $2,000 per year. Accumulated amortization was approximately $11,000 and $9,000 at the end of 2023 and 2022, respectively.

Advertising and Marketing Costs

We expense advertising and marketing costs as incurred. Advertising expenses for fiscal 2023 and 2022 totaled $81,594 and $76,701, respectively.

Income Taxes

We provide for income taxes under ASC 740, Accounting for Income Taxes, using an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. ASC 740 requires the net of deferred tax assets and deferred tax liability to be presented as a single amount on the balance sheet.

Per Common Share Amounts

Net income per common share is computed as required by section 260-10-45 of the FASB Accounting Standards Codification. Basic net income or (loss) per 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 per share is computed 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 diluted net income (loss) computation per share because their effect is anti-dilutive. As a result, no common stock equivalents were dilutive as of the years ending in 2023 and 2022. There are currently 2,746,838 five-year warrants exercisable at $5.50 per share outstanding. These warrants were issued as a part of our November 12, 2021, initial public offering. At the end of fiscal 2023 and 2022, all outstanding warrants were exercisable at prices above the underlying stock’s market price and, therefore, were not dilutive.

Restaurant Pre-opening expenses

Restaurant pre-opening and other development expenses are non-capital expenditures and are expensed as incurred as part of other operating expenses. Restaurant pre-opening expenses may include the costs of hiring and training the initial hourly workforce for each new restaurant, travel, the cost of food and supplies used in training, grand opening promotional expenses, the cost of the initial stocking of operating supplies, and other direct costs related to the opening of a restaurant, including rent during the construction and in-restaurant training period.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles accepted in the United States of America 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 significant.

Stock-Based Compensation

In our consolidated financial statements, we recognize stock-based compensation as an expense. Equity classified awards are measured at the grant date fair value of the award. We estimated the grant date fair value using the Black-Scholes option-pricing model. We recognize a compensation expense, net of estimated forfeitures, on a straight-line basis over the employee service periods for awards granted.

Segment Reporting

We follow the guidance of FASB Accounting Standards for reporting and disclosure on operating segments, which require segment disclosures about products and services, geographic areas, and significant customers. We have determined that we did not have separately reportable operating segments.

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at the end of the respective fiscal year:

Depreciation expenses for 2023 and 2022 were $539,675 and $412,016, respectively.

*NOTE 3 – INTANGIBLE ASSETS ***

At year end 2023 and 2022 based on the value of acquired assets, intangible assets comprise the following:

Tradename assets are being amortized over 15 years. Total amortization expense for 2023 and 2022 was $58,865 and $37,022, respectively. The total amortization of intangible assets including the covenants not to compete will approximate $58,900 in 2024, $40,500 in 2025 and $26,200 per year through 2036 and approximately $7,500 in 2037.

NOTE 4 – LEASES

With Keegan’s acquisition, 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. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax. 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 3.75% of the remaining lease obligation of $547,687 at December 31, 2023 $588,363 at the end of fiscal 2022 are reflected as a liabilities in the accompanying financial statements.

When we acquired the PIE assets, we entered into a lease for approximately 3,500 square feet of restaurant and bakery production space. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax. The terms of the 60-month lease provide for an initial rent of $10,000 per month with an annual escalation of 3% after 24 months. The PIE lease includes three five-year renewal option periods at our option. The PIE lease is accounted for as an operating lease. At the inception of the lease, we concluded it was reasonably certain the initial five-year option would be exercised and recorded as an operating lease obligation and a right-of-use asset of approximately $1,055,000. The present value discounted at 5% of the remaining lease obligation of $923,885 at December 31, 2023 and $995,206 at the end of fiscal 2022 are reflected as a liabilities in the accompanying financial statements.

With the acquisition of VBG assets, we entered 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 seating area. The terms of the triple-net 60-month lease provide for an initial rent of $8,200 per month with an annual escalation of 3%. The VBG lease includes three five-year renewal periods at our option. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax. 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 $470,000. The present value discounted at 4.5% of the remaining lease obligation of $344,376 as of December 31, 2023 and $352,100 at the end of fiscal 2022 are reflected as a liabilities in the accompanying financial statements.

The following is a schedule of the approximate minimum future lease payments on the operating leases as of December 31, 2023, including amounts assuming we exercise the option to extend leases where we believe that exercise of the option is likely.

The weighted average remaining lease term is approximately 5.3 years, and the weighted average discount rate is approximately 4.32%. We cannot determine the interest rate implicit in our leases. Therefore, the discount rate represents our estimated incremental interest rate to borrow an amount approximating the aggregate lease payments collateralized by the property at the commencement of the lease.

The total operating lease expense for 2023 and 2022 was $298,567 and $239,092, respectively. Cash paid for leases was $282,000 in 2023 and $207,000 in 2022, and variable expenses for leased properties were $16,500 in 2023 and $17,000 in 2022.

We pay $550 per month under an annual rental agreement, for corporate and administrative office spaces in West Fargo, North Dakota, and $1,350 per month in Minnetonka, Minnesota, for a combined monthly rent of approximately $1,900.

NOTE 5 – INCOME TAXES

Principally, due to bonus tax depreciation, which allows for the depreciation of assets acquired in a business acquisition, the 2023 and 2022 losses for tax purposes resulted an estimated net operating loss carryforward of approximately $1.7 million in 2022 and a total of $2.0 million at December 31, 2023. We believe will be fully realized in future periods. Combined with other timing differences, there is a net deferred tax asset of $206,000 and $61,000 for fiscal 2023 and 2022 respectively.

Deferred tax assets are recognized for temporary deductible differences, operating loss and tax credit carryforwards and deferred tax liabilities are recognized for temporary taxable differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

We continually review the realizability of its deferred tax assets, including analyzing factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. We assessed whether a valuation allowance should be recorded against its deferred tax assets based on consideration of all available evidence using a “more likely than not” standard. In assessing the need for a valuation allowance, We considered both positive and negative evidence related to the likelihood of the realization of deferred tax assets. In making such an assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Future sources of taxable income were also considered when determining the amount of the recorded valuation allowance.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The tax effect of the temporary differences and carryforwards are as follows for the respective fiscal years:

The following table summarizes the components of the provision for income taxes:

Total income tax expense for the years ended December 31, 2023, and January 1, 2023, differed from the amounts computed by applying the U.S. Federal statutory tax rate of 21% to pre-tax income as follows:

Accounting Standards require that deferred tax assets and liabilities, along with any related valuation allowance, be classified as a noncurrent item on the balance sheet.

The Company had no accrued interest or penalties relating to income tax obligations and currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its inception. The last three years are subject to federal and state tax examinations. With few exceptions, the Company is no longer subject to U.S. Federal and state income tax examinations by tax authorities for years before 2019.

NOTE 6 – ACCRUED EXPENSES

Accrued expenses consisted of the following at the end of the respective reporting periods:

NOTE 7 – SHAREHOLDERS’ EQUITY

On November 12, 2021, the Company completed a public offering of Units consisting of one share of common stock and onefive-year stock purchase warrant to purchase one common share at $5.50. The Company has the right to redeem the warrants under certain conditions. We issued 2,400,000 common shares in the offering and 2,760,000 stock purchase warrants, which included 360,000 warrants to purchase an aggregate of 360,000 shares of common stock purchase pursuant to a partial exercise of the over-allotment option granted to underwriters for $.01 per warrant, totaling $3,600. The estimated fair value of the warrants at the date of issuance, net of the exercise proceeds, was $360,000, and this amount is reflected as an additional cost of the offering. After deducting all fees and expenses, net proceeds from the offering were $10,696,575. In 2018, We issued 3,708,000 common shares as part of the Share Exchange. Upon closing of a related private offering,205,002 additional common shares and 102,503 common stock warrants to purchase shares at $4.00 through July 31, 2023, were issued to investors for a net amount of approximately $492,266. During 2022,13,612 public warrants were exercised for $74,866. The remaining warrants were outstanding as of the end of the year. In addition, upon closing the private offering, the placement agent was issued an aggregate of 16,401 five-year stock purchase warrants to purchase shares at $3.30 per share, which are also outstanding at year-end. At December 31, 2023 and January 1, 2022, respectively, there were 215,000 and 65,000 common shares held as treasury shares for potential future issuance.

NOTE 8 – STOCK-BASED COMPENSATION

In 2019, we adopted the BT Brands, Inc. 2019 Incentive Plan (the "Plan") 2019 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.

In December 2022, the stockholders authorized the increase of shares available for grant under the 2019 Plan from 250,000 to 1,000,000 shares. As of January 1, 2023, there were 779,750 shares available for a grant under the 2019 Plan.

During 2021, we issued options to purchase 15,000 shares of common stock under the 2019 Plan as stock awards to three Company directors in connection with their joining the board of directors. The options are exercisable at $5 per share through 2031. In 2022, we granted 216,000 options, including 175,000 options to company officers and 41,000 options to employees and a consultant to purchase shares at $2.58 per share.

In 2023 we granted aconsultant warrants to purchase 100,000 shares at $2.50 per share for seven years with the option vesting warrants vesting monthly over five years so long as the consultant continues in this capacity. Assuming the consulting agreement continues to full term, we project that approximately $144,000 in stock based compensation will recognized at the rate of $32,000 per year in each of the four years and $16,000 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 fee over the applicable service period. Compensation expense for 2023 was $174,000 in 2023 and $118,700 in 2022. Based on current estimates, we project that approximately $120,000 in stock-based compensation expense will be recognized over the next three years including approximately $57,000 in 2024, $57,000 in 2025, $6,000 in 2026.

On February 27, 2023, the board of directors Compensation Committee approved an “Incentive Shares” proposal wherein, so long as the Company’s publicly traded warrants are outstanding, senior management will be granted 250,000 shares of common stock as an award upon our share price reaching $8.50 per share fortwenty consecutive trading days. The total estimated expense of the award was determined using a lattice model with assumptions similar to the stock option calculation. The total estimated expense of this award was determined to be $265,000. For 2023, Stock based compensation included $105,000 of expense for the award. We project approximately $160,000 of stock-based compensation will be recognized over the next two years including approximately $126,000 in 2024 and $36,000 in 2025.

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

Information regarding our stock options is summarized below:

The Black-Scholes option-pricing model was used to estimate the fair value of the stock options with the following weighted-average assumptions for grants during the year ended January 1, 2023 there were no options granted during the year ended December 31, 2023:

NOTE 9 – LONG-TERM DEBT

Scheduled maturities of long-term debt, excluding amortization of debt issuance costs, are as follows:

NOTE 10 – ACQUISITIONS

We acquired three separate restaurant properties in 2022. The acquisitions were 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.

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 in Indian Rocks Springs, Florida. Concurrent with the purchase, we entered a 131-month lease for the approximately 2800 square foot space that Keegan’s has occupied for over thirty-five years. We acquired Keegan’s tradename as part of the purchase and continue to operate the business as Keegan’s Seafood Grille. The purchase price was approximately $1.15 million, paid in cash at closing. For Keegan’s acquisition, based on an appraisal of asset values, we recorded $547,900 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.

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 in Woods Hole, Massachusetts. Concurrent with the purchase, we entered into a 60-month lease, including three additional five-year renewal options. The lease covers the approximately 3,500 square feet PIE has operated in for over twenty years. We acquired the Pie In The Sky tradename and the piecoffee.com website URL as part of the purchase. We continue to operate the assets as Pie In The Sky. The purchase price was approximately $1.16 million, including $1.15 million in cash paid at closing. For PIE, based on an appraisal of asset values, we recorded $40,320 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.

Village Bier Garten

On August 4, 2022, through our 1519BT, LLC subsidiary, we purchased the assets and the business operating as Van Stephan Village Bier Garten, now rebranded as the Village Bier Garten (“VBG”), a full-service bar and restaurant in Cocoa, Florida. The restaurant features a German-themed menu; specialty imported European beers and regular entertainment. The purchase price was $690,0000, paid in cash at closing. Concurrent with the purchase, we entered a five-year lease with three five-year renewal options for the property currently occupied by the business. Triple net lease terms call for an initial monthly rent of $8,200. For VBG, based on an appraisal of asset values, we recorded $83,000 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 fair value of the assets acquired and liabilities assumed in the acquisitions. Goodwill recognized in acquired businesses is the excess over the fair value of the acquired assets and represents the value of existing repetitive customers of the businesses, employees, management, and management systems acquired and are in use in the acquired businesses:

NOTE 11 – RELATED PARTY TRANSACTIONS

Next Gen Ice

In 2019, the Company made cash advances to Next Gen Ice, Inc. (“NGI”), totaling $179,000. Our CEO, Gary Copperud, was and continues to serve as Chairman of the board of directors of NGI. Our Chief Operating Officer, Kenneth Brimmer, is a member of the board of directors of NGI and serves as its Chief Financial Officer on a contract basis. At the time the loans were made, Mr. Copperud controlled approximately 34% of the outstanding equity of NGI. As consideration for a loan maturity extension in 2020, we received 179,000 shares of NGI common stock and warrants to purchase 358,000 shares at $1.00 per share through March 23, 2028. The Company invested $229,000 in NGI Series A18% Cumulative Convertible Preferred Stock on February 2, 2022, including a five-year warrant to purchase 34,697 shares at $1.65 per share. All outstanding preferred share were converted to common stock during 2023 and we received 157,496 common shares of NGI in exchange for the preferred shares and accrued dividends. The NGI common stock and common stock purchase warrants received in March 2020 were recorded in 2020 at a value determined by us of $75,000. The investment in NGI does not have a readily determinable market value. The NGI investment is carried at the cost we determined when the shares and warrants were received.

NOTE 12 – MAJOR VENDOR

For the year ended December 31, 2023, approximately 60% of our food and paper cost of goods sold is represented by product purchases from one vendor. On December 31, 2023, the amount due to the major vendor totaled $268,849. In fiscal 2022, approximately 60% of our purchases were from the same vendor. On January 1, 2023, the amount due to this vendor was $272,657.

NOTE 13 – CONTINGENCIES

In the course of its business, the Company may be a party to claims and legal or regulatory actions arising from its business. We are not aware of any significant asserted or potential claims which could impact its financial position.