BT Brands, Inc.

BT Brands, Inc. (the "Company") operates in the food service industry, owning and operating nine restaurants across the Midwest, Massachusetts, and Florida, and holding a minority ownership interest in an unconsolidated affiliate operating an additional five restaurants, totaling 14 operating restaurant locations as of December 28, 2025. The Company's historical strategy has focused on acquiring restaurant properties and operating businesses at attractive valuation multiples to diversify across concepts and geographies, while also driving same-store sales growth, improving cost efficiency, and enhancing brand awareness. However, in 2025, the Company began evaluating business opportunities outside the food service sector, culminating in a proposed business combination with Aero Velocity Inc., a private company specializing in unmanned aerial vehicles and Drones-as-a-Service, with a contemplated spin-off of its restaurant operations into a new entity, BT Group, Inc.

The Company's core business model revolves around generating revenue from the sale of food and beverages at its owned and operated restaurants. This includes quick-service, fast-casual, and upscale dining categories. Revenue is primarily transactional, derived from point-of-purchase cash sales and bank-issued credit/debit card transactions. The Company also generates insignificant revenue from retail items like apparel at Pie In The Sky Coffee and Keegan's Seafood Grille. The primary customer segments vary by restaurant concept, from broad consumers appreciating value and speed at Burger Time to local communities and ferry travelers at Pie In The Sky, and those seeking fresh seafood or German-themed fine dining at Keegan's and Schnitzel Haus, respectively. The Company operates under a centralized management structure to leverage shared services and administrative efficiencies across its restaurant portfolio.

The Company's restaurant portfolio includes six Burger Time fast-food restaurants located in the North Central region of the United States, which offer flame-broiled burgers and other quick-service items, emphasizing value, a limited menu for quality and speed, and efficient drive-thru designs. Keegan's Seafood Grille, a casual seafood restaurant in Indian Rocks Beach, Florida, acquired in March 2022 for $1,150,000 ⁴², focuses on fresh local ingredients and award-winning dishes. Pie In The Sky Coffee and Bakery, a coffee shop and bakery in Woods Hole, Massachusetts, acquired in May 2022 for $1,150,000 ⁴³, serves breakfast and lunch sandwiches, pastries, soups, salads, and freshly roasted coffee. Schnitzel Haus, a German-themed fine dining restaurant and bar in Hobe Sound, Florida, acquired in May 2024 for $943,000 ⁴⁴, offers traditional German and American menu items with wine, beer, and cocktails. The Village Bier Garten, a German-themed restaurant in Cocoa, Florida, ceased operations in January 2025. Additionally, the Company holds a 40.7% ⁴⁵ ownership interest in Bagger Dave's Burger Tavern, Inc. (BDVB), an unconsolidated affiliate operating five casual-dining restaurants in Michigan, Ohio, and Indiana, accounted for under the equity method.

For the fiscal year ended December 28, 2025, the Company reported total sales of $13,486,629 ¹, a decrease from $14,823,472 ² in fiscal 2024. Food and paper costs were $4,494,449 ³, representing 33.3% ⁴ of sales, while labor costs were $5,111,097 ⁵, or 37.9% ⁶ of sales. Occupancy costs amounted to $1,282,049 ⁷, or 9.5% ⁸ of sales, and other operating expenses were $878,125 ⁹, or 6.5% ¹⁰ of sales. Depreciation and amortization expenses totaled $648,704 ¹¹, or 4.8% ¹² of sales. Impairment of restaurant and right-of-use assets was $215,000 ¹³, or 1.6% ¹⁴ of sales. General and administrative expenses were $1,464,021 ¹⁵, or 10.9% ¹⁶ of sales. The Company recognized a gain on sales of assets of $(242,231) ¹⁷, or (1.8)% ¹⁸ of sales. Total costs and expenses were $13,851,214 ¹⁹, resulting in a loss from operations of $(364,585) ²⁰, or (2.7)% ²¹ of sales. The net loss for the period was $(687,839) ²², leading to a diluted EPS of $(0.11) ²³. Cash and cash equivalents stood at $846,167 ²⁴, with marketable securities of $3,596,133 ²⁵. Total long-term debt, less current portion, was $1,899,592 ²⁶.

Comparing fiscal 2025 to fiscal 2024, net sales decreased by $1.3 million ²⁷, or 7.5% ²⁸, from $14,823,472 ² to $13,486,629 ¹. This decline was primarily due to the closure of Village Bier Garten, which contributed approximately $1.3 million ²⁹ in sales in fiscal 2024, and the closure of a Burger Time in Minot, North Dakota, which generated $560,000 ³⁰ in sales in fiscal 2024 and $281,000 ³¹ in fiscal 2025. Partially offsetting this was the acquisition of Schnitzel Haus in May 2024, which contributed approximately $1.5 million ³² in sales in fiscal 2025, an increase of approximately $0.8 million ³³ compared to fiscal 2024. Comparable restaurant sales for Burger Time locations open for the full year declined by approximately $224,000 ³⁴, or 3.9% ³⁵, driven by reduced customer traffic. Restaurant operating costs as a percentage of sales improved to 87.2% ³⁶ in fiscal 2025 from 95.1% ³⁷ in fiscal 2024, reflecting cost control initiatives, a more moderate inflationary environment, and menu price increases. Food and paper costs decreased from 37.8% ³⁸ to 33.3% ³⁹ of sales, and labor costs decreased from 41.3% ⁴⁰ to 37.9% ⁴¹ of sales. The net loss improved from $(2,311,208) ²² in fiscal 2024 to $(687,839) ²² in fiscal 2025.

Significant operational developments during the period include the permanent closure of Village Bier Garten in January 2025, with certain equipment sold for $34,500 ⁴⁶ and the lease assigned to an unrelated party. The Minot, North Dakota Burger Time location also ceased operations in July 2025, with the property subsequently leased to a third party. The Company recorded an impairment charge of $215,000 ¹³ in 2025 related to the Village Bier Garten right-of-use asset due to a lease dispute. In October 2024, the Hot-N-Now trademark was sold for an upfront cash payment of $250,000 ⁴⁷, plus contingent payments of up to $150,000 ⁴⁸ at $10,000 ⁴⁹ per unit for each new Hot-N-Now restaurant opened. During fiscal 2025, a $10,000 ⁵⁰ licensing payment related to this trademark was received. The Company also recorded a full impairment charge of $304,000 ⁵¹ for its equity investment in NGI Corporation and acquired bottle inventory with a carrying value of $790,718 ⁵² through foreclosure on NGI loans, subsequently writing down the inventory by $216,718 ⁵³ to an estimated net realizable value of $574,000 ⁵⁴.

Management's specific forward-looking guidance for the upcoming period is not explicitly provided in terms of revenue, margin, or EPS ranges. However, the Company has entered into an agreement to pursue a proposed business combination with Aero Velocity Inc., a private company that designs and manufactures unmanned aerial vehicles and operates a Drones-as-a-Service business. If this transaction is completed, the Company expects to spin off its restaurant operations and related assets into a newly formed entity, BT Group, Inc., which would then operate as a standalone company.

The primary growth area explicitly described in the filing, assuming the Aero Velocity transaction and related spin-off are consummated, is within the existing restaurant operations of the prospective BT Group, Inc. Initiatives include increasing same-store sales, enhancing brand awareness, improving operating margins, and improving cash flow. Tactics to achieve these objectives involve evaluating menu offerings and promotional strategies, informed by customer feedback and market data. These initiatives are expected to evolve with market conditions and future acquisitions. The Company also continues to review its acquisition strategy in the restaurant industry, considering opportunities that provide access to specific restaurant concepts, geographic areas, or operational platforms, including individual properties or multi-unit businesses that are expected to generate attractive returns.

Operationally, the Company's outlook for margin trajectory and cost structure evolution focuses on continued efforts to improve restaurant-level margins through operational efficiencies, equipment upgrades, and improved unit-level performance. This follows a decrease in restaurant operating costs to 87.2% ³⁶ of restaurant sales in fiscal 2025 from 95.1% ³⁷ in fiscal 2024, driven by the closure of less-profitable locations, improved margins at Pie In the Sky, and cost control initiatives. Food and paper costs decreased to 33.3% ³⁹ of restaurant sales in fiscal 2025 from 37.8% ³⁸ in fiscal 2024, and labor costs decreased to 37.9% ⁴¹ from 41.3% ⁴⁰. General and administrative expenses also declined by $227,375 ⁵⁵ to $1.5 million ⁵⁶ in fiscal 2025, representing 10.9% ¹⁶ of sales, down from 11.4% ⁵⁷ in fiscal 2024, reflecting cost-control efforts.

Regarding planned capital allocation, the Company expects capital expenditures in fiscal 2026 to consist primarily of maintenance capital, equipment replacement, and operational enhancements. Significant expansionary capital expenditures are not currently anticipated. The Company has a Board-authorized Share Repurchase Program in place, allowing for the repurchase of up to 625,000 ⁵⁸ shares of common stock, with 533,606 ⁵⁹ shares remaining available for repurchase as of December 28, 2025. However, no shares were repurchased during fiscal 2025. Future repurchases will depend on liquidity, capital requirements, and strategic considerations, including the outcome of the proposed merger. The Company has no plans to pay cash dividends on its common stock in the foreseeable future, intending to retain all available funds and future earnings to support operations and finance business growth and development.

Structural headwinds and execution risks management explicitly flagged to the growth plan include the uncertainty surrounding the proposed merger with Aero Velocity and the related spin-off of restaurant operations. If either transaction is delayed, renegotiated, or fails to close, the Company may incur transaction-related costs, experience operational disruption, or be required to reassess its strategic focus. The separation could also result in incremental transaction costs, advisory fees, audit and legal expenses, and standalone public company costs for BT Group, Inc., including governance, compliance, and reporting expenses. Additionally, the separation may require new credit facilities or financing arrangements for BT Group, with no assurance regarding their availability or terms. The Company is evaluating BT Group's anticipated working capital needs, capital structure, and ongoing liquidity requirements.

The Company faces several material risks, including those related to the proposed business combination with Aero Velocity Inc., which may not be completed on anticipated terms or timeline, or at all, potentially leading to substantial legal, accounting, and advisory expenses without realizing anticipated benefits. This merger would fundamentally change the nature of the business from restaurant operations to unmanned aerial vehicle manufacturing and services, exposing the Company to different capital requirements, regulatory frameworks, operational risks, and competitive dynamics. Existing stockholders are expected to experience substantial dilution and reduced voting power, with Aero stockholders obtaining approximately 89% ⁶⁰ of the equity ownership on an as-converted basis and control over the election of directors and stockholder matters. The contemplated spin-off of BT Group, Inc. is not expected to qualify as a tax-free transaction for U.S. federal income tax purposes, potentially resulting in taxable income for stockholders. Operational risks in the restaurant industry include intense competition, cost increases (food, labor, utilities), labor shortages, wage inflation, food safety incidents, and unfavorable publicity, including through social media. Technological disruptions, cybersecurity incidents, and data privacy breaches also pose risks. Legal and regulatory risks encompass litigation, regulatory proceedings, changes in menu-labeling laws, and the need to maintain various licenses and permits. General risk factors include economic conditions, reduced consumer discretionary spending, regional economic concentration, damage to reputation, and seasonal fluctuations in revenue. The Company also identified a material weakness in its internal control over financial reporting related to the accounting and reporting of significant, nonrecurring events and complex transactions.

Management's message to shareholders emphasizes a strategic pivot from a historical focus on the restaurant sector to evaluating growth opportunities outside food service, highlighted by the proposed business combination with Aero Velocity Inc. and the planned spin-off of restaurant operations into BT Group, Inc. While no specific revenue or EPS guidance is provided for the upcoming period, management states that the forward-looking growth strategy described in the report reflects current views regarding BT Group, assuming the merger closes. The two or three strategic priorities emphasized for the restaurant business (BT Group, Inc., post-spin-off) include increasing same-store sales, enhancing brand awareness, and improving operating margins and cash flow through menu evaluations, promotional strategies, and operational efficiencies. Management also highlighted cost-control efforts, which contributed to a significant improvement in restaurant operating costs as a percentage of sales, decreasing to 87.2% ³⁶ in fiscal 2025 from 95.1% ³⁷ in fiscal 2024. The Company intends to retain all available funds and future earnings to support operations and finance business growth and development, with no plans to pay cash dividends in the foreseeable future.