Quarterly Report for Quarter Ending June 28, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition, results of operations, liquidity, and capital resources of BT Brands, Inc. and its wholly-owned subsidiaries (together, "BT Brands" "we," "our," or the "Company") should be read in conjunction with the Company's condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 28, 2025.

Introduction

As of June 28, 2026, we owned and operated nine restaurants. In addition, we held a non-controlling 40.7% ownership interest in Bagger Dave's Burger Tavern, Inc. ("BDVB"), an unconsolidated affiliate that operated five restaurant locations at year-end. BT Brands owned restaurant portfolio consisted of nine restaurant locations, comprised of

	·	Six Burger Time fast-food restaurants ("BTND");
	·	Keegan's Seafood Grille in Indian Rocks Beach, Florida ("Keegan's");
	·	Pie In the Sky Coffee and Bakery in Woods Hole, Massachusetts ("PIE");
	·	Schnitzel Haus in Hobe Sound, Florida ("Schnitzel").

We hold a 40.7% unconsolidated ownership interest in Bagger Dave's Burger Tavern, Inc., which operates five restaurants.

Burger Time opened its first restaurant in Fargo, North Dakota, in 1987. Burger Time restaurants feature flame-broiled hamburgers, other quick-service menu items, and soft drinks. Burger Time's operating principles emphasize value, a limited menu to support quality and speed of service, efficient single- and double-drive-thru designs supported by point-of-sale systems, and food prepared fresh to order at competitive prices.

We estimate that the average customer transaction at Burger Time restaurants did not change significantly in the first two quarters of 2026 compared to fiscal 2025, and based on our analysis, it is approximately $18. We continually evaluate menu pricing to manage gross margins amid fluctuating input costs. Our operating environment remains highly competitive, and numerous factors, including consumer demand, pricing sensitivity, competition, and broader economic conditions, influence sales trends.

In recent periods, we have also begun evaluating potential growth opportunities outside the restaurant industry as part of our broader effort to enhance shareholder value. While restaurants remain our primary operating focus, we believe that certain non-restaurant businesses with strong fundamentals and scalable operating models may complement our existing structure. These efforts remain exploratory and subject to ongoing evaluation.

We operate under a centralized management structure that ensures operational continuity across our restaurant portfolio and enables us to leverage shared services and administrative efficiencies.

Recent Events

Our acquisitions have diversified our operations across restaurant concepts and geographic regions, reducing our dependence on the Burger Time brand. In May 2024, we acquired the Schnitzel Haus restaurant. In 2022, we acquired three operating restaurants and purchased 40.7% ownership interest in BDVB, a non-controlled affiliate.

Due to underperformance, we closed the Village Bier Garten restaurant in early 2025 and entered into an agreement to assign the lease. In November 2025, the landlord of the Village Bier Garten premises in Cocoa, Florida, issued a notice of default alleging nonpayment of rent by the Assignee beginning in August 2025. Subsequent to the notice, the landlord filed a lawsuit against the Assignee of the lease, our 1519BT, LLC subsidiary and BT Brands, Inc., seeking recovery of unpaid rent and other amounts alleged to be due under the lease. We recorded an impairment charge of $215,000 in 2025 to write off the remaining right-of-use asset. We believe this matter is a contractual dispute that will be resolved through negotiation or litigation. The Company's position is that the landlord's prior acceptance of rent payments from the assignee following the transfer of possession constituted constructive consent to the lease assignment. See Note 10 to Consolidated Financial Statements.

In January 2025, our unconsolidated affiliate, Bagger Dave's, closed its Chesterfield, Michigan, location. This location was sold during the first quarter of 2026. BDVB is currently exploring strategic alternatives, including the potential sale of all Bagger Dave's restaurant locations.

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Material Trends and Uncertainties

Industry trends materially affect our business. These trends include ongoing challenges in attracting and retaining restaurant employees, rising wages, and increased labor competition across the retail and service industries. We also face rapidly evolving technological trends, including mobile ordering, delivery platforms, loyalty programs, and digital marketing, which larger competitors have adopted aggressively.

Food cost inflation moderated in 2025; however, we expect volatility to persist due to inflationary pressures and tariffs. Given the competitive nature of the restaurant industry, our ability to recover cost increases through menu pricing may be limited. Margin improvement efforts focus on operational efficiencies, equipment upgrades, and improved unit-level performance. If labor inflation, commodity volatility, or competitive pricing pressures persist, we believe they are reasonably likely to continue to impact restaurant-level margins and operating results.

Public health matters, inflationary pressures, supply chain disruptions, and labor availability continue to present uncertainty. We have implemented menu price increases and may continue to do so; however, such increases may not fully offset higher costs and could adversely affect consumer demand. The termination of the proposed Aero Velocity merger eliminates certain transaction-related uncertainties; however, the Company may continue to incur transaction-related costs and faces uncertainty related to the dispute asserted by Aero Velocity regarding the validity of the termination.

Results of Operations for the Thirteen Weeks Ended June 28, 2026, and the Thirteen Weeks Ended June 29, 2025

The following table sets forth our Condensed Statements of Operations and percentages of total sales for the thirteen-week fiscal periods. The percentages below may not reconcile because of rounding.

		13 Weeks Ended								13 Weeks Ended
		June 28, 2026								June 29, 2025
		Amount				%				Amount				%
SALES		$	3,550,865				100.0	%		$	3,779,690				100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs			1,132,214				31.9				1,249,220				33.1
Labor costs			1,256,264				35.4				1,374,603				36.4
Occupancy costs			327,331				9.2				302,021				8.0
Other operating expenses			232,601				6.6				253,185				6.7
Depreciation and amortization expenses			151,575				4.3				144,725				3.8
General and administrative expenses			333,675				9.4				531,057				14.1
Total costs and expenses			3,433,660				96.7				3,854,811				102.0
Income (loss) from operations			117,205				3.3				(75,121	)			(2.0	)
UNREALIZED GAIN ON MARKETABLE SECURITIES			829,976				23.4				82,128				2.2
REALIZED INVESTMENT GAIN (LOSS)			(64,649	)			(1.8	)			79,026				2.1
INTEREST AND DIVIDEND INCOME			18,233				0.5				40,367				1.1
INTEREST EXPENSE			(19,032	)			(0.5	)			(19,550	)			(0.5	)
OTHER INCOME (EXPENSE)			(270,994	)			(7.6	)			18,586				0.5
EQUITY IN NET LOSS OF AFFILIATE			(34,306	)			(1.0	)			(70,405	)			(1.9	)
INCOME BEFORE TAXES			576,433				16.2				55,031				1.5
INCOME TAX (EXPENSE) BENEFIT			-				-				-				-
NET INCOME		$	576,433				16.2	%		$	55,031				1.5	%

Net income for the thirteen weeks ended June 28, 2026, was $576,433, compared to $55,031 for the prior year period. The increase in net income was primarily attributable to an unrealized gain of $829,976 on marketable securities during the current period, compared to an unrealized gain of $82,128 in the prior year period.

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Changes in the fair value of our marketable securities can result in significant unrealized gains or losses from period to period. Unrealized gains and losses are non-cash and do not affect cash flows unless and until the applicable securities are sold.

The Company also recorded a write down on its inventory of bottled water of approximately $174,000 in the 13-week period ended June 28, 2026.

Excluding the impact of investment gains and losses and the write down of the inventory of bottled water held for sale, the Company's operating results improved compared to the prior year period, reflecting reduced general and administrative expenses and lower food costs at Burger Time.

Sales:

Net sales for the second fiscal quarter of 2026 decreased by approximately $229,000 to approximately $3.6 million from $3.8 million in fiscal 2025. The decrease resulted from a decline in Burger Time sales during the quarter, including the closure of the Minot Burger Time location in mid-2025.

Our various restaurants each experience unique seasonal sales patterns. The first quarter is seasonally slower for BTND and PIE. PIE revenues are significantly higher in the second and third quarters of the year, resulting from tourist traffic in the Cape Cod area. In 2025, approximately 40% of sales occurred during the seasonally strong third quarter.

Costs of Sales - food and paper:

Cost of sales - food and paper - for the second quarter of fiscal 2026 decreased as a percentage of restaurant sales to 31.9% from 33.1% in the second quarter of fiscal 2025. This decrease was the result of menu changes, including the switch to "hand-cut" fries at Burger Time, combined with only moderate inflationary pressures on food costs.

Restaurant Operating Costs:

Restaurant operating costs (which refer to all costs associated with the operation of our restaurants, excluding general and administrative expenses and depreciation and amortization) as a percentage of restaurant sales decreased to 83.0% in the second quarter of 2026 from 84.1% in the comparable period of 2025. The decrease resulted from a concerted effort to monitor scheduling and actual hours across all locations, as well as the matters discussed in the "Cost of Sales - food and paper," "Labor Costs," and "Occupancy and Other Operating Costs" sections above and below.

Labor Costs:

For the second quarter of fiscal 2026, labor and benefits costs decreased as a percentage of restaurant sales to 35.4% from 36.4% in fiscal 2025. The decrease resulted from a concerted effort to monitor scheduling and actual hours across all locations.

Occupancy and Other Operating Expenses:

For the second quarter of 2026, occupancy and other expenses increased to 15.8% of sales from 14.7% in 2025, due to the impact of a sales decrease on fixed costs.

Depreciation and Amortization Expense:

For the second quarter of 2026, depreciation and amortization expenses were $151,575 (4.3% of sales), an increase from the prior year of $144,725 (3.8% of sales). The increase is primarily due to depreciation associated with asset purchases made in the 2026 period.

General and Administrative Costs:

General and administrative costs in the second quarter of 2026 were $333,675, a decrease of approximately $197,000 from the previous year's second quarter of $531,057. General and administrative costs were 9.4% of sales, a decrease from 14.1% in the previous year. The decrease is the result of a concerted cost-reduction effort throughout the Company.

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Income (Loss) from Operations:

Income from operations in the second quarter of 2026 was $117,205, as compared to a loss from operations of $75,121 in the second quarter of 2025, reflecting primarily lower general and administrative expenses and cost-cutting in virtually all other areas of the Company's businesses, the closing of an unprofitable location, and the items discussed in the "Net Revenues" and "Restaurant Operating Costs" sections above.

Results of Operations for the Twenty-Six Weeks Ended June 28, 2026, and the Twenty-Six Weeks Ended June 29, 2025

The following table sets forth our Condensed Statements of Operations and percentages of total sales for the twenty-six-week fiscal periods. The percentages below may not reconcile because of rounding.

		26 Weeks Ended								26 Weeks Ended
		June 28, 2026								June 29, 2025
		Amount				%				Amount				%
SALES		$	6,394,499				100.0	%		$	7,010,763				100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs			2,095,508				32.8				2,449,549				34.9
Labor costs			2,369,626				37.1				2,592,500				37.0
Occupancy costs			647,455				10.1				611,715				8.7
Other operating expenses			456,739				7.1				441,105				6.3
Depreciation and amortization expenses			303,151				4.7				301,120				4.3
General and administrative expenses			669,165				10.5				982,091				14.0
Total costs and expenses			6,541,644				102.3				7,378,080				105.2
Loss from operations			(147,145	)			(2.3	)			(367,317	)			(5.2	)
UNREALIZED GAIN ON MARKETABLE SECURITIES			399,190				6.2				38,104				0.5
REALIZED INVESTMENT GAIN (LOSS)			(143,899	)			(2.3	)			174,064				2.5
INTEREST AND DIVIDEND INCOME			37,348				0.6				80,967				1.2
INTEREST EXPENSE			(37,468	)			(0.6	)			(41,104	)			(0.6	)
OTHER INCOME (EXPENSE)			(257,856	)			(4.0	)			45,173				0.6
EQUITY IN NET INCOME (LOSS) OF AFFILIATE			(24,748	)			(0.4	)			(204,705	)			(2.9	)
LOSS BEFORE TAXES			(174,578	)			(2.7	)			(274,818	)			(3.9	)
INCOME TAX (EXPENSE) BENEFIT			-				-				-				-
NET LOSS		$	(174,578	)			(2.7	)%		$	(274,818	)			(3.9	)%

Net loss for the twenty-six weeks ended June 28, 2026, was $174,578, compared to a net loss of $274,818 for the prior year period. The reduction in net loss was primarily attributable to an unrealized gain of $399,190 on marketable securities during the current period, compared to an unrealized gain of $38,104 in the prior year period.

Changes in the fair value of our marketable securities can result in significant unrealized gains or losses from period to period. Unrealized gains and losses are non-cash and do not affect cash flows unless and until the applicable securities are sold.

The Company also recorded a write down on its inventory of bottled water held for sale of approximately $174,000 in the twenty-six-week period ended June 28, 2026.

Excluding the impact of investment gains and losses and the write down of the inventory of bottled water held for sale, the Company's operating results improved compared to the prior year period, reflecting reduced general and administrative expenses and lower food costs at Burger Time.

Sales:

Net sales for the twenty-six week period ended June 28, 2026 decreased by approximately $616,000 to approximately $6.4 million from $7.0 million in fiscal 2025. The decrease resulted from a decline in Burger Time sales during the 2026 period as compared to the 2025 period, as well as the closure of the Minot Burger Time location in mid-2025.

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Our various restaurants each experience unique seasonal sales patterns. The first quarter is seasonally slower for BTND and PIE. PIE revenues are significantly higher in the second and third quarters of the year, resulting from tourist traffic in the Cape Cod area. In 2025, approximately 40% of sales occurred during the seasonally strong third quarter.

Costs of Sales - food and paper:

Cost of sales - food and paper - decreased as a percentage of restaurant sales to 32.8% from 34.9% in the comparable 2025 period. This decrease was the result of menu changes, including the switch to "hand-cut" fries at Burger Time, combined with only moderate inflationary pressures on food costs.

Restaurant Operating Costs:

Restaurant operating costs (which refer to all costs associated with the operation of our restaurants, excluding general and administrative expenses and depreciation and amortization) as a percentage of restaurant sales increased slightly to 87.1% from 86.9% in the comparable period of fiscal 2025. The increase resulted from the net effect of higher labor cost as the fixed components, including minimum staffing levels, increased as a percentage of sales early in the 2026 period, and lower food and paper costs resulting from menu changes, as well as the matters discussed in the "Cost of Sales - food and paper," "Labor Costs," and "Occupancy and Other Operating Costs" sections below.

Labor Costs:

Labor and benefits costs increased slightly as a percentage of restaurant sales to 37.1% from 37.0% in the comparable 2025 period. The increase resulted from lower sales, including the impact of minimum staffing levels, which were offset by a concerted effort to monitor scheduling and actual hours across all locations.

Occupancy and Other Operating Expenses:

Occupancy and other expenses increased to 17.2% of sales from 15.0% in 2025, primarily due to the impact of a sales decrease on fixed costs.

Depreciation and Amortization Expense:

Depreciation and amortization expenses were $303,151 (4.7% of sales), a slight increase from the prior year of $301,120 (4.3% of sales).

General and Administrative Costs:

General and administrative costs were $669,165, a decrease of approximately $313,000 from the comparable period in 2025 of $982,091. General and administrative costs were 10.5% of sales, a decrease from 14.0% in the previous year. The decrease is the result of a concerted cost-reduction effort throughout the Company.

Loss from operations:

The loss from operations improved to a loss of $147,145 from a loss of $367,317 in the comparable period in 2025, reflecting lower general and administrative expenses and cost-cutting in virtually all other areas of the Company's businesses, the closing of an unprofitable location, and the items discussed in the "Net Revenues" and "Restaurant Operating Costs" sections above.

Restaurant-level EBITDA:

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses restaurant-level EBITDA. Restaurant-level EBITDA is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to stockholders, primarily because corporate-level expenses are excluded. Restaurant-level EBITDA should not be considered a substitute or superior to operating income calculated under GAAP. The reconciliations to operating income set forth below should be carefully evaluated.

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We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization, and impairment charges. General and administrative expenses are excluded because they are not specifically identifiable as restaurant costs. Depreciation, amortization, and impairment charges are excluded because they are not ongoing controllable cash expenses and are not related to the health of ongoing operations.

		26 Weeks Ended				26 Weeks Ended				13 Weeks Ended				13 Weeks Ended
Restaurant-level EBITDA		June 28, 2026				June 29, 2025				June 28, 2026				June 29, 2025
Revenues		$	6,394,499			$	7,010,763			$	3,550,865			$	3,779,690
Reconciliation:
Income (loss) from operations			(147,145	)			(367,317	)			117,205				(75,121	)
Depreciation and amortization			303,151				301,120				151,575				144,725
General and administrative - corporate-level expenses			654,276				982,091				324,449				531,057
Restaurant-level EBITDA		$	810,281			$	915,894			$	593,229			$	600,661
Restaurant-level EBITDA margin			12.7	%			13.1	%			16.7	%			15.9

Liquidity and Capital Resources

We had $4.4 million in cash and marketable securities and net working capital of $4.5 million, which is a decrease of approximately $200,000 from what we had in net working capital as of December 28, 2025. The Company maintains a portfolio of marketable securities, the value of which is subject to market volatility. As a result, the Company may continue to recognize significant unrealized gains or losses in future periods, which could materially impact reported net income but would not directly affect cash flows unless such investments are sold.

Unforeseen public health matters may again impact the United States at any time, and recently announced tariffs may impact the economy in the future. It is difficult to predict the United States economy in general, the impact on the quick service drive-through segment of the food service industry, and our operating results and financial condition.

Although we had approximately $4.5 million of working capital at June 28, 2026, our working capital may fluctuate based on operating performance, investment activity, capital expenditures, acquisitions and other strategic transactions. Our primary sources of liquidity and cash flow are operating cash flows and cash on hand. We use this to service debt, maintain our stores' efficient operations, and increase our working capital. Our working capital position benefits from the fact that we collect cash from our customers at the point of purchase or within a few days through our credit card processor; generally, payments to our vendors are not due for 30 days.

Summary of Cash Flows

Cash Flows Provided by Operating Activities

Operating cash flow for the 26 weeks ending June 28, 2026, was approximately $117,000. The cash flows provided by operating activities were mainly the result of improved restaurant performance during the year due to lower overall costs relative to revenue as discussed above.

Cash Flows Provided by (Used in) Investing Activities

Cash flow from investing activities is primarily the net result of our short-term investments. We have continued to improve our existing businesses, and we may pursue acquisitions in the food service and related industries, as well as other potential mergers.

Cash Flows used in Financing Activities

A significant portion of our cash flow used in financing activities is allocated to service our debt.

Contractual Obligations

As of June 28, 2026, we had $3.5 million in contractual obligations, including $2.0 million for amounts due under mortgages on the real property on which our stores are situated and $1.5 million in operating lease obligations related to our recent acquisitions. Our monthly required payments on lease and mortgage obligations are approximately $53,000.

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