Quarterly Report for Quarter Ending September 27, 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 September 27, 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 as of September 27, 2026. 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 three 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

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.

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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.

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 September 27, 2026 and the Thirteen Weeks Ended September 28, 2025

Summary

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
		September 27, 2026								September 28, 2025
		Amount				%				Amount				%
SALES		$	3,774,196				100.0	%		$	3,853,682				100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs			1,172,818				31.1				1,176,619				30.5
Labor costs			1,309,742				34.7				1,290,108				33.5
Occupancy costs			325,879				8.6				332,984				8.6
Other operating expenses			262,955				7.0				231,761				6.0
Depreciation and amortization expenses			151,575				4.0				151,010				3.9
General and administrative expenses			418,422				11.1				178,389				4.6
Gain on sale of asset			-				-				(242,231	)			(6.3	)
Total costs and expenses			3,641,391				96.5				3,118,640				80.9
Income from operations			132,805				3.5				735,042				19.1
UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES			(279,921	)			(7.4	)			462,020				12.0
REALIZED INVESTMENT GAIN			518,809				13.7				138,890				3.6
INTEREST AND DIVIDEND INCOME			14,091				0.4				31,866				0.8
INTEREST EXPENSE			(16,727	)			(0.4	)			(16,385	)			(0.4	)
IMPAIRMENT OF EQUITY INVESTMENT IN RELATED COMPANY			-				-				(304,000	)			(7.9	)
ABANDONED OFFERING COSTS			(168,630	)			(4.5	)			(1.7	)			-
OTHER EXPENSE			(245,812	)			(6.5	)			(32,724	)			(0.8	)
EQUITY IN NET LOSS OF AFFILIATE			(100,012	)			(2.6	)			(99,734	)			(2.6	)
INCOME (LOSS) BEFORE TAXES			(145,397	)			(3.9	)			914,975				23.7
INCOME TAX (EXPENSE) BENEFIT			-				-				-				-
NET INCOME (LOSS)		$	(145,397	)			(3.9	)%		$	914,975				23.7	%

Net loss for the thirteen weeks ended September 27, 2026, was $145,397, compared to net income $914,975 for the prior year period. The decrease between periods was primarily attributable to an unrealized loss of $279,921 on marketable securities during the current period, compared to an unrealized gain of $462,020 in the prior year period, as well as the write-down and storage expense related to inventory of bottled water held for resale, a gain on the sale of an asset in the 2025 period, the expensing of the Company's deferred offering costs, and reserves placed on advances to BDVB in the 2026 period, partially offset by an impairment of an equity investment recognized in the 2025 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 held for resale of approximately $200,000 in the 13-week period ended September 27, 2026.

Sales:

Net sales for the third fiscal quarter of 2026 decreased by approximately $79,000 to approximately $3.8 million from $3.9 million in fiscal 2025. The decrease primarily resulted from a decline in Burger Time sales during the quarter. Our various restaurants each experience unique seasonal sales patterns.

Costs of Sales - food and paper:

Cost of sales - food and paper - for the third quarter of fiscal 2026 increased as a percentage of restaurant sales to 31.1% from 30.5% in the third quarter of fiscal 2025. This increase was the result of 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 to 81.4% in the third quarter of 2026 from 78.7% in the comparable period of 2025. The increase resulted from 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 third quarter of fiscal 2026, labor and benefits costs increased as a percentage of restaurant sales to 34.7% as compared to 33.5% in fiscal 2025. The increase resulted from a minor increase in wages on a lower revenue base.

Occupancy and Other Operating Expenses:

For the third quarter of 2026, occupancy and other expenses increased to 15.6% of sales from 14.6% in 2025, due to the impact of a sales decrease as well as store-specific costs.

Depreciation and Amortization Expense:

For the third quarter of 2026, depreciation and amortization expenses were $151,575 (4.0% of sales), which is consistent with the prior year amount of $151,010 (3.9% of sales).

General and Administrative Expenses:

General and administrative expenses in the third quarter of 2026 were $418,422, an increase of approximately $240,000 from the previous year's third quarter of $178,389. General and administrative expenses were 11.1% of sales, an increase from 4.6% in the previous year. The increase is primarily the result of the reserve placed on amounts advanced to BDVB.

Income from Operations:

Income from operations in the third quarter of 2026 was $132,805, as compared to $735,042 in the third quarter of 2025, partially due to a gain on sale of asset recognized in the 2025 period and the items discussed in the "Sales," "General and Administrative Expenses," and "Restaurant Operating Costs" sections above.

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Results of Operations - Thirty-nine Weeks Ended September 27, 2026 Compared to the Thirty-nine Weeks Ended September 28, 2025

Overview of Results

The following table presents our Condensed Consolidated Statements of Operations and the percentages of total sales for the thirty-nine-week fiscal periods. The percentages below may not reconcile because of rounding.

		39 Weeks Ended								39 Weeks Ended
		September 27, 2026								September 28, 2025
		Amount				%				Amount				%
SALES		$	10,168,695				100.0	%		$	10,864,445				100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs			3,268,326				32.1				3,626,168				33.4
Labor costs			3,679,368				36.2				3,882,608				35.7
Occupancy costs			975,249				9.6				944,699				8.7
Other operating expenses			672,127				6.6				672,866				6.2
Depreciation and amortization expenses			454,726				4.5				452,130				4.2
General and administrative expenses			1,119,520				11.0				1,160,480				10.7
Gain on sale of asset			-				-				(242,231	)			(2.2	)
Total costs and expenses			10,169,316				100.0				10,496,720				96.6
Income (loss) from operations			(621	)			(0.0	)			367,725				3.4
UNREALIZED GAIN ON MARKETABLE SECURITIES			119,269				1.2				500,124				4.6
REALIZED INVESTMENT GAIN			374,910				3.7				312,954				2.9
INTEREST AND DIVIDEND INCOME			50,990				0.5				112,833				1.0
INTEREST EXPENSE			(54,195	)			(0.5	)			(57,489	)			(0.5	)
IMPAIRMENT OF EQUITY INVESTMENT IN RELATED COMPANY			-				-				(304,000	)			(2.8	)
ABANDONED OFFERING COSTS			(168,630	)			(1.7	)			-				-
OTHER INCOME (EXPENSE)			(516,938	)			(5.1	)			12,449				0.1
EQUITY IN NET LOSS OF AFFILIATE			(124,760	)			(1.2	)			(304,439	)			(2.8	)
INCOME (LOSS) BEFORE TAXES			(319,975	)			(3.1	)			640,157				5.9
INCOME TAX (EXPENSE) BENEFIT			-				-				-				-
NET INCOME (LOSS)		$	(319,975	)			(3.1	)%		$	640,157				5.9	%

Net loss for the thirty-nine weeks ended September 27, 2026, was $319,975, compared to net income of $640,157 for the prior year period. This reduction was primarily attributable to the reduction in unrealized gain on marketable securities as compared to the prior period, as well as write-down and storage expense related to the inventory of bottled water held for resale, a gain on sale of asset recognized in the 2025 period, the expensing of the Company's deferred offering costs, and reserves placed on advances to BDVB in 2026, partially offset by an impairment of an equity investment recognized in the 2025 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.

Sales:

Sales for the thirty-nine-week period ended September 27, 2026 decreased by approximately $696,000 to approximately $10.2 million from $10.9 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. Our various restaurants each experience unique seasonal sales patterns.

Costs of Sales - food and paper:

Cost of sales - food and paper - decreased as a percentage of restaurant sales to 32.1% from 33.4% 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 84.5% from 84.0% in the comparable period of fiscal 2025. The increase in percentage resulted primarily from lower sales as compared to the 2025 period, and other matters discussed in the "Cost of Sales - food and paper," "Labor Costs," and "Occupancy and Other Operating Costs" sections above and below.

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Labor Costs:

Labor and benefits costs increased as a percentage of restaurant sales to 36.2% from 35.7% 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 16.2% of sales from 14.9% in 2025, primarily due to the impact of a sales decrease on fixed costs.

Depreciation and Amortization Expense:

Depreciation and amortization expenses were $454,726 (4.5% of sales), a slight increase from the prior year of $452,130 (4.2% of sales).

General and Administrative Expenses:

General and administrative expenses were $1,119,520, a decrease of approximately $41,000 from the comparable period in 2025 of $1,160,480. The decrease is primarily the result of focused cost cutting initiatives implemented in 2026. General and administrative expenses were 11.0% of sales, an increase from 10.7% in the previous period.

Income (loss) from operations:

Loss from operations was $621, as compared to income from operations of $367,725 in the comparable period in 2025, mainly due to the comparable period in 2025 including a gain on the sale of an asset of $242,231, as well as the items discussed in the "Sales," 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.

We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, and depreciation and amortization. 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.

		39 Weeks Ended				39 Weeks Ended				13 Weeks Ended				13 Weeks Ended
Restaurant-level EBITDA		September 27, 2026				September 28, 2025				September 27, 2026				September 28, 2025
Sales		$	10,168,695			$	10,864,445			$	3,774,196			$	3,853,682
Reconciliation:
Income (loss) from operations			(621	)			367,725				132,805				735,042
Depreciation and amortization			454,726				452,130				151,575				151,010
Gain on sale of assets			-				(242,231	)			-				(242,231	)
General and administrative - corporate-level expenses			1,119,520				1,160,480				418,422				178,389
Restaurant-level EBITDA		$	1,573,625			$	1,738,104			$	702,802			$	822,210
Restaurant-level EBITDA margin %			15.5	%			16.0	%			18.6	%			21.3

Liquidity and Capital Resources

We had $4.6 million in cash and marketable securities and net working capital of $4.4 million, which is a decrease of approximately $247,000 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.

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Although we had approximately $4.4 million of working capital at September 27, 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 39 weeks ending September 27, 2026, was approximately $341,000, primarily reflecting the Company's operating results and changes in net working capital during the period.

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 worked 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 September 27, 2026, we had $3.4 million in contractual obligations, including $2.0 million for amounts due under mortgages on the real property on which our stores are situated and $1.4 million in operating lease obligations related to our recent acquisitions. Our monthly required payments on lease and mortgage obligations are approximately $53,000.