Quarterly Report for Quarter Ending March 29, 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 March 29, 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 fiscal quarter of 2026 compared to fiscal 2025, and based on our analysis, it is approximately $14.50. 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.

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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.

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.

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Results of Operations for the Thirteen Weeks Ended March 29, 2026, and the Thirteen Weeks Ended March 30, 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, March 29, 2026								13 weeks ended, March 30, 2025
		Amount				%				Amount				%
SALES		$	2,843,634				100	%		$	3,231,073				100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs			963,763				33.9				1,200,329				37.1
Labor costs			1,110,584				39.1				1,217,897				37.7
Occupancy costs			304,023				10.7				309,694				9.6
Other operating expenses			197,599				6.9				187,920				5.8
Depreciation and amortization			151,575				5.3				156,395				4.8
General and administrative			348,901				12.3				451,034				14.0
Total costs and expenses			3,076,445				108.2				3,523,269				109.0
Loss from operations			(232,811	)			(8.2	)			(292,196	)			(9.0	)
UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES			(435,615	)			(15.3	)			(44,024	)			(1.4	)
REALIZED INVESTMENT GAIN (LOSS)			(79,395	)			(2.8	)			95,038				2.9
INTEREST EXPENSE			(21,440	)			(.8	)			(21,554	)			(0.7	)
INTEREST AND DIVIDENDS			21,234				.7				40,600				1.3
OTHER INCOME (EXPENSE)			(12,542	)			(.4	)			26,587				.8
EQUITY IN AFFILIATE INCOME (LOSS)			9,558				.3				(134,300	)			(4.2	)
NET LOSS		$	(751,011	)			(26.4	)%		$	(329,849	)			(10.2	)%

Net loss for the thirteen weeks ended March 29, 2026, was $751,011, compared to a net loss of $329,849 for the prior year period. The increase in net loss was primarily attributable to an unrealized loss of $435,615 on marketable securities during the current period, compared to an unrealized loss of $44,024 in the prior year period. The Company also recognized a realized loss on investments of $79,395 during the current period, compared to a realized gain of $95,038 in the prior year period.

These investment-related losses are primarily driven by changes in the market value of publicly traded securities and are non-cash in nature with respect to unrealized losses. Excluding the impact of investment gains and losses, 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 first fiscal quarter of 2026 decreased by $387,439 to approximately $2.8 million from $3.2 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. Minot contributed $121,000 to the first quarter 2025 revenue.

Restaurant unit sales for Burger Time over 13 weeks ranged from approximately $137,000 to approximately $247,000. The average sales for each Burger Time unit were approximately $179,000 in 2026, approximately $51,000 below the same period in 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.

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Costs of Sales - food and paper:

The cost of sales-food and paper-for the first quarter of fiscal 2026 decreased as a percentage of restaurant sales to 33.9% from 37.1% in the first 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 increased slightly to 90.6% in the fiscal quarter of 2026 from 90.2% 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 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

For the first quarter of fiscal 2026, labor and benefits costs increased as a percentage of restaurant sales to 39.1% from 37.7% in fiscal 2025. The increase results 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

For the first fiscal quarter of 2026, occupancy and other expenses increased to 17.6% of sales from 15.4% in 2025, due to the impact of a sales decrease on fixed costs.

Depreciation and Amortization Expense:

For the first fiscal quarter of 2026, depreciation and amortization expenses were $151,575 (5.3% of sales), a slight decrease from the prior year of $156,395 (4.8% of sales). The result is partly due to a larger share of BTND assets becoming fully depreciated.

General and Administrative Costs

General and administrative costs in the first fiscal quarter of 2026 were $348,901, a decrease of $102,133 from the previous year's first quarter of $451,034. General and administrative costs were 12.3% 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.

Income (Loss) from Operations

The loss from operations for the first quarter of fiscal 2026 improved to a loss of $232,811 from a loss of $292,196 in the first quarter of 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.

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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, which 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, 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.

		13 weeks ended,
		March 29, 2026				March 30, 2025
Revenues		$	2,843,634			$	3,231,073
Reconciliation:
Income (loss) from operations			(232,811	)			(292,196	)
Depreciation and amortization			151,575				156,395
General and administrative, corporate-level expenses			348,901				451,034
Restaurant-level EBITDA		$	267,665			$	315,233
			9.4	%			9.7	%

Liquidity and Capital Resources

Recently, sales at our Burger Time business have declined. For the 13 weeks ended March 29, 2026, the restaurant's EBITDA declined slightly from 2025 levels. We had $3.6 million in cash and marketable securities and net working capital of $3.9 million, a decrease of approximately $714,000 from 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.

We anticipate that working capital deficits may be incurred and possibly increase. 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.

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Summary of Cash Flows

Cash Flows Used in Operating Activities

Operating cash flow for the thirteen weeks ending March 29, 2026, was a negative $97,650. Seasonal patterns in our business typically result in negative cash flow from operating activities in the first quarter of the year.

Cash Flows Provided by (Used in) Investing Activities

Cash flow from investing activities is 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 March 29, 2026, we had $3.6 million in contractual obligations, including $2.1 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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