BTBD Bt Brands, Inc. - 10-K

Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. You should carefully consider the risks described below, together with the other information in this Annual Report. The risks described are not the only risks we face, and additional risks not presently known or that we currently deem immaterial may also impair our business. If any of the following risks occur, our business, financial condition, results of operations, and cash flow could be materially adversely affected, and the market price of our common stock and warrants could decline.

Risks Related to the Proposed Business Combination with Aero Velocity

The proposed Merger with Aero Velocity may not be completed on the anticipated terms or timeline, or at all.

The proposed business combination with Aero Velocity Inc. (“Aero”) is subject to numerous conditions, including stockholder approval, the effectiveness of required registration statements, regulatory and exchange approvals, and the satisfaction or waiver of customary closing conditions. There can be no assurance that these conditions will be satisfied or waived. Regulatory review, SEC comments, financing conditions, or other factors could delay or prevent completion.

If the transaction is not completed, we may incur substantial legal, accounting, advisory, and other transaction-related expenses without realizing anticipated benefits. The pendency of the transaction may also create operational disruption, harm relationships with employees and business partners, and adversely affect our stock price.

The proposed Merger will fundamentally change the nature of our business, and our historical results will not be indicative of future performance.

If completed, the combined company is expected to focus primarily on unmanned aerial vehicle manufacturing and related services rather than restaurant operations. Our historical financial statements reflect restaurant operations and will not be indicative of the future performance, financial condition, or risk profile of the combined company.

The transaction represents a significant strategic shift into an industry with different capital requirements, regulatory frameworks, operational risks, and competitive dynamics. Investors who purchased our securities based on our historical restaurant operations will own securities in a company operating in a different industry. If the combined company fails to execute its business plan, the value of our securities could decline materially.

If the proposed Merger is completed, our existing stockholders will experience substantial dilution and reduced voting power, and Aero stockholders are expected to obtain control of the combined company.

Upon completion of the proposed business combination, our existing stockholders are expected to hold a minority ownership interest in the combined company. The transaction contemplates the issuance of a significant amount of convertible preferred stock to Aero stockholders. A certain series of this preferred stock is expected to carry voting rights that are disproportionate to its economic ownership, including enhanced voting rights on an as-converted basis.

As a result, Aero stockholders are expected to control the election of directors and the outcome of matters submitted to a stockholder vote. Our existing common stockholders will have limited ability to influence corporate governance, strategic decisions, or other significant matters, and the market price of our common stock could be adversely affected.

In addition, conversion of the preferred stock into common stock at the stated conversion price could result in substantial dilution to existing stockholders, particularly if the market price of our common stock is below or near the conversion price at the time of conversion.

The proposed spin-off of BT Group, Inc. is not expected to qualify as a tax-free transaction and may result in taxable income to our stockholders.

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. As a result, stockholders may recognize taxable income upon the distribution of BT Group shares, potentially without receiving cash to satisfy the resulting tax liabilities.

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The tax treatment of the spin-off may vary depending on individual circumstances, and we do not currently intend to seek an IRS ruling regarding its tax consequences. Any taxable treatment could reduce the value received by stockholders and adversely affect trading prices.

We may not realize the anticipated benefits of the proposed business combination, and the merged company may face significant operational, financial, and strategic challenges.

Even if the proposed business combination is completed, there can be no assurance that the combined company will achieve the anticipated benefits of the transaction. Realizing those benefits will depend, among other things, on the combined company’s ability to execute its business plan, attract and retain key personnel, obtain financing on acceptable terms, manage its capital structure, comply with applicable regulatory and listing requirements, and respond effectively to competitive and market conditions.

The combined company may also face unanticipated costs, liabilities, or challenges, and management’s attention may be diverted toward integration, reporting, and strategic matters following the transaction, which could adversely affect operating performance.

The proposed spin-off of BT Group, Inc., may not be completed, may be delayed, or may not achieve its intended objectives.

The proposed business combination with Aero contemplates a spin-off of BT Group, Inc., which would hold our restaurant operations and related assets and liabilities. The spin-off is subject to various conditions and approvals and may be delayed, not completed on the anticipated terms or timeline, or not completed at all. Even if completed, there can be no assurance that BT Group, Inc. will achieve a public listing, operate successfully as a standalone company, or deliver value to our stockholders.

Failure to complete the spin-off as contemplated, or adverse market or regulatory conditions affecting BT Group, Inc., could negatively affect the overall structure and anticipated benefits of the proposed transaction.

The proposed business combination could expose us to litigation, regulatory scrutiny, and stockholder claims.

Transactions of the type contemplated by the proposed business combination frequently result in litigation, including stockholder lawsuits challenging the transaction, the consideration to be received, or the disclosure provided in connection with the transaction. Defending such actions could be costly, time-consuming, and distracting to management, regardless of the outcome, and could result in significant liability or settlement costs.

In addition, regulatory authorities, including the SEC and Nasdaq, may review aspects of the proposed transaction, which could result in delays, additional disclosure requirements, or conditions to completion.

The combined company may face risks related to continued listing standards and market acceptance following the transaction.

Following completion of the proposed business combination, the combined company will remain subject to the continued listing requirements of The Nasdaq Stock Market, including requirements relating to stock price, market capitalization, stockholders’ equity, governance, and public float. There is no assurance that the combined company will be able to meet these requirements. Any failure to satisfy applicable listing standards could result in delisting, which would reduce the liquidity of the combined company’s securities, limit access to capital, and adversely affect the market price of our common stock.

Risks Related to Our Growth Strategy

If our proposed merger with Aero Velocity does not close, or if the related spin-off of our restaurant operations is not completed, our growth strategy and business outlook may change.

The Merger Agreement with Aero Velocity contemplates a spin-off of our existing restaurant operations into a new company. If either the merger or the spin-off is delayed, renegotiated, or fails to close, we may incur transaction-related costs, experience operational disruption, or be required to reassess our strategic focus. Uncertainty surrounding the Merger may also affect investor perception, employee retention, and partner relationships.

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We may not be able to integrate, operate, or improve acquired businesses effectively.

The integration and operation of an acquired business may be difficult and may impose significant demands on management and our administrative and financial resources. Integration risks include, among others, implementing consistent operating standards; consolidating systems, procedures, and vendors; integrating management and personnel; retaining key employees; maintaining employee morale; adapting marketing strategies to local markets; and establishing or enhancing financial reporting systems and internal control over financial reporting. These challenges may be more pronounced if we acquire or invest in businesses outside the restaurant industry, given our management team’s limited operational experience in those markets. If we are unable to successfully integrate or operate acquired restaurants, our business, results of operations, and cash flows could be materially adversely affected.

Acquisitions may expose us to unknown liabilities, impairment charges, and other unanticipated consequences.

Acquired businesses may have liabilities that are not identified during due diligence, including employment, tax, food safety, lease, insurance, vendor, litigation, or regulatory matters. Acquired assets, including goodwill, tradenames, other intangibles, and long-lived assets, may be subject to impairment if performance does not meet expectations or market conditions deteriorate. Acquisitions outside our traditional restaurant operations may expose us to additional or different risks, including industry‑specific regulatory regimes, contractual obligations, or operational liabilities that are more difficult to identify or quantify. In addition, acquisitions may disrupt our existing operations and divert management attention, particularly in the periods immediately following a transaction.

Our growth strategy may require additional capital that may not be available on acceptable terms, or at all, and rising interest rates could increase our borrowing costs.

Our ability to pursue acquisitions and growth initiatives depends in part on our access to capital. Market conditions, our operating performance, our stock price, and other factors may limit our ability to raise funds when needed, on acceptable terms, or at all. If we raise capital through equity or convertible securities, existing stockholders may experience dilution, and new securities may have rights senior to our common stock. If we incur debt, we may be subject to restrictive covenants, collateral requirements, and increased debt service obligations, which could limit financial flexibility and adversely affect our results of operations. Higher interest rates may increase borrowing costs and reduce the availability of financing for acquisitions or other corporate purposes. Non‑restaurant acquisitions or strategic transactions may require additional or different forms of financing and could increase our capital needs and financial risk.

Our growth strategy may divert management’s attention from our existing operations .

Pursuing acquisitions, restaurant openings, and expansion requires significant management time and resources and could reduce attention available for operating and improving our existing restaurants. Any resulting decline in operational focus could adversely affect sales, margins, service quality, employee retention, and overall operating performance.

Long-term leases and real estate commitments may create fixed obligations that could adversely affect our financial performance.

Certain acquired restaurants may be subject to long-term, non-cancellable leases and other contractual obligations that require us to pay rent, common area charges, taxes, insurance, maintenance, and other occupancy costs regardless of the restaurant’s performance. If we close or underperform in leased locations, we may remain obligated under the lease and may incur additional costs to exit, assign, or sublease. Lease renewals may also result in higher occupancy costs or the loss of desirable locations, any of which could materially adversely affect our financial condition and results of operations. While this risk is most pronounced in restaurant operations, other acquired businesses may also involve fixed contractual or capital commitments that reduce financial flexibility.

If we grow rapidly, we may not be able to manage that growth effectively.

Significant growth could strain our managerial, administrative, operational, and financial resources. To manage growth effectively, we must enhance operational and financial controls, improve information systems and reporting capabilities, and hire, train, and retain qualified personnel. Growth through acquisitions or strategic transactions outside the restaurant industry may increase these challenges due to differing business models, systems, or regulatory requirements. If we are unable to do so, our business could be harmed, and we may be unable to execute our strategy effectively.

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We rely on key executives to operate our business.

We rely on Gary Copperud, our Chief Executive Officer, and Kenneth Brimmer, our Chief Operating Officer and Chief Financial Officer, to make key decisions relating to our operations and finances. The loss of either executive could adversely affect our business. In addition, neither individual devotes full-time efforts to the Company, as described under “Management.” Our reliance on a limited management team may be further heightened as we evaluate and pursue growth opportunities outside our traditional areas of operation.

Our evaluation of growth opportunities outside the restaurant industry may expose us to additional risks and uncertainties that could adversely affect our business.

In addition to growth within the restaurant and food service sector, management is evaluating strategic transactions and other growth opportunities that may involve businesses outside our historical areas of operation. Pursuing opportunities in new industries involves risks and uncertainties that may be difficult to identify or evaluate in advance, including our limited experience operating non-restaurant businesses, challenges in assessing industry-specific risks, unanticipated regulatory or compliance requirements, and difficulties integrating new operations into our existing management structure.

These efforts may also divert management time and resources, increase professional fees and transaction costs, and create operational distractions, whether or not the transaction is ultimately completed. There can be no assurance that any such opportunity will be successfully identified, consummated, or managed, or that any anticipated benefits will be realized. If we are unable to evaluate, integrate, or operate businesses outside the restaurant industry effectively, our results of operations, cash flows, and financial condition could be materially adversely affected.

Risks Related to Operating in the Restaurant Industry

We face intense competition, and our inability to compete effectively could adversely affect sales and margins.

The restaurant industry is highly competitive across price, service, location, and quality. Many competitors have greater financial, marketing, and operational resources and stronger brand recognition than we do. Increased competition, including from delivery-focused restaurants, supermarkets and prepared meals, meal kits, and other at-home dining alternatives, could reduce traffic and profitability. Competitive discounting may further pressure margins.

Cost increases could adversely affect our operating margins and financial performance.

We are exposed to increases in food and beverage costs, paper and packaging, labor, utilities, insurance, maintenance, rent, and other operating expenses. Inflation, supply chain disruptions, adverse weather, public health matters, and other factors beyond our control may increase costs. Our ability to offset cost increases through menu price increases or operational initiatives may be limited by competitive conditions and customer price sensitivity. If we cannot offset cost increases, our margins and results of operations could be adversely affected.

Labor shortages, wage inflation, and changes in employment laws could increase costs and disrupt operations.

Our business is labor-intensive and depends on our ability to hire, train, and retain sufficient qualified employees. Labor shortages, higher turnover, or an inability to staff restaurants adequately could adversely affect service levels and operating efficiency. In addition, changes in minimum wage, overtime, paid leave, scheduling, healthcare, and other employment laws could increase labor costs and compliance burdens. If we are unable to effectively manage these labor-related challenges, our profitability and ability to operate efficiently could be materially adversely affected.

Food safety incidents or perceived food safety issues could harm our brand and the results of our operations.

Any foodborne illness, contamination, tampering, or other food safety incident involving our restaurants or suppliers, or involving the broader restaurant industry, could harm our reputation, reduce demand for our products, result in temporary closures, and lead to litigation, regulatory actions, and increased costs. Any such event could materially reduce customer traffic, increase our costs, and negatively affect our financial performance.

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Unfavorable publicity, including through social media, could harm our brands and reduce customer traffic.

Negative publicity, including online reviews regarding food quality, customer experience, inspections, employee matters, or other issues—whether or not accurate—could harm our reputation and reduce sales. Social media can amplify these risks and lead to rapid, widespread dissemination of adverse information. Loss of customer trust and reduced traffic may significantly affect our sales, profitability, brand image, and future growth.

Risks Related to Health Emergencies

Health emergencies, including the resurgence of COVID-19 variants or other outbreaks, could reduce customer traffic, disrupt staffing, increase commodity costs, and cause supply disruptions, resulting in temporary closures or other operational constraints. If any such health emergency occurs, it could materially adversely affect our revenues, operating margins, and overall financial condition.

Risks Related to Information Technology, Cybersecurity, and Data Privacy

Technological disruptions or failures could interrupt operations and adversely affect our business.

We rely on technology systems, including point-of-sale systems and other systems operated and supported by third-party vendors. System failures, telecommunications disruptions, or service provider outages could disrupt operations, degrade customer experience, and incur costs or liabilities. Any prolonged or significant disruption could impair our ability to operate our restaurants efficiently and could materially adversely affect our results of operations.

Cybersecurity incidents could result in operational disruption, reputational harm, and liability .

Although we rely on third-party providers for payment processing and certain employee-related systems and we generally do not store customer payment card information, cybersecurity incidents affecting our vendors or us could result in unauthorized access to data, system disruptions, reputational harm, regulatory investigations, litigation, and remediation costs. Cybersecurity threats continue to evolve, and our controls may not prevent all incidents. Any such incident could result in significant costs, operational disruption, and reputational damage, materially adversely affecting our business and financial results.

Failure to manage social media effectively could harm our reputation and the results of our operations .

Information on social media may be inaccurate or adverse to our interests and can spread quickly. In addition, ineffective or inappropriate use of social media by us, our customers, or employees could lead to reputational harm, litigation, increased costs, or reduced customer traffic. If these risks materialize, they could negatively affect customer perception, reduce traffic to our restaurants, and materially affect our revenues.

Legal and Regulatory Risks

Litigation and regulatory proceedings could be costly and could adversely affect our business.

We may be subject to claims by employees, customers, suppliers, stockholders, and others, including wage-and-hour, discrimination, harassment, wrongful termination, premises liability, food-related claims, and other matters. Litigation and regulatory proceedings can be costly, time-consuming, disruptive, and may result in adverse publicity. Insurance may not be available on commercially reasonable terms or in amounts sufficient to cover all liabilities. An adverse outcome in any such proceeding could result in significant monetary damages, operational restrictions, or reputational harm, materially adversely affecting our business and financial condition.

Regulatory changes and shifting consumer health preferences could require updates to menu disclosures and adversely affect demand.

As we grow, we may be subject to additional federal, state, or local requirements, including menu labeling and other nutritional disclosures. New regulations or shifts in consumer preferences could require adjustments to menu items or disclosures, adversely affect demand, or increase compliance costs. These changes could increase operating costs, reduce customer demand for certain menu offerings, and materially adversely affect our operating results.

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We are subject to extensive federal, state, and local regulation, and compliance is costly and complex.

Our operations are subject to numerous laws and regulations, including those relating to food safety, sanitation, health and fire standards, alcohol service (where applicable), employment practices, wage and hour compliance, immigration verification, and accessibility requirements under the ADA. Failure to comply could result in fines, enforcement actions, litigation, or the loss of required licenses and permits. Any failure to comply with laws and regulations could disrupt our operations, increase costs, and materially adversely affect our business and results of operations.

Failure to maintain required licenses and permits could harm our business.

Restaurants must obtain and renew various licenses, permits, and approvals. If we are unable to obtain or maintain required licenses or approvals, we could be required to modify operations, delay openings, or close locations. Such outcomes could reduce revenues and profitability and materially adversely affect our financial condition.

We may not be able to adequately protect our intellectual property, which could reduce brand value.

Our business depends in part on trademarks and other intellectual property. Third-party infringement, misappropriation, challenges to our rights, or claims that we have infringed others’ rights could be costly and adversely affect our brands and operations. Any impairment of our intellectual property rights could diminish brand recognition and customer loyalty and materially adversely affect our business.

General Risk Factors

Economic conditions and reduced consumer discretionary spending could adversely affect our business.

Our performance depends on consumer discretionary spending. Economic downturns, inflation, financial market volatility, and reductions in consumer confidence may reduce restaurant traffic and sales. If sales decline, profitability may be adversely affected, and we may take actions such as delaying remodels, closing locations, or recording impairment charges. Sustained adverse economic conditions could materially adversely affect our revenues, margins, and cash flows.

Regional economic conditions and events could adversely affect our results due to geographic concentration.

A significant portion of our operations is concentrated in a limited number of states. Adverse regional economic conditions, severe weather, natural disasters, or other local events could adversely affect our results of operations and financial condition. Because of this concentration, adverse events in these regions could disproportionately impact our business and financial results.

Damage to our reputation could adversely affect our business and our results of operations.

Our success depends in part on consumer perception of our brands. Any event that harms consumer trust or perception—including incidents involving food quality, service, safety, or employee conduct—could reduce brand value and customer traffic and materially adversely affect our business. A sustained loss of consumer confidence could materially adversely affect our revenues and long-term growth prospects.

Our business is subject to seasonal fluctuations due to weather and other factors.

Historically, customer spending at our midwestern restaurants is lowest in the first and fourth quarters, driven by holidays, consumer habits, and adverse weather. Likewise, our restaurants in Florida experience declines in customer spending during the summer, when fewer tourists visit. Our restaurant in Woods Hole, Massachusetts, experiences reduced customer traffic outside the summer months. Therefore, our quarterly results will continue to be affected by seasonality. Because of these and other factors, our financial results for any quarter may not be indicative of the results achieved for a full fiscal year. Seasonal fluctuations may cause volatility in our quarterly operating results and cash flows, complicating planning and adversely affecting our financial performance in certain periods.

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If we cannot offset rising labor costs with price increases, our financial performance could be adversely affected.

Increases in hourly labor costs and minimum tip credit wages, extensions of personal and other leave policies, other governmental regulations affecting labor costs and a diminishing pool of potential staff members when the unemployment rate falls and legal immigration is restricted, especially in certain localities, could increase our labor costs and make it more difficult to fully staff our restaurants, any of which could materially adversely affect our financial performance. If labor cost increases exceed our ability to adjust pricing or improve productivity, our margins and profitability could be materially adversely affected.

Failure of our internal control over financial reporting could adversely affect our business and financial results.

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process is designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we will prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and in a timely manner or to detect and prevent fraud. The identification of a material weakness could indicate a lack of controls adequate to produce accurate financial statements, which, in turn, could cause a loss of investor confidence and a decline in the market price of our common stock. We cannot assure you that we will be able to remediate any material weaknesses that may be identified in future periods in a timely manner, or that we will maintain all necessary controls to maintain continued compliance. Likewise, we cannot guarantee we will be able to retain sufficiently skilled finance and accounting personnel, particularly given the increased demand for such personnel among publicly traded companies. Any failure to maintain effective internal controls could result in financial reporting errors, loss of investor confidence, regulatory scrutiny, and a decline in the market price of our common stock.

Risks Related to Ownership of Our Common Stock

Activist stockholders could adversely affect our business and results of operations.

From time to time, stockholders may propose or seek to influence corporate actions or strategic decisions. Activist stockholder activity, whether successful or not, could be costly and time-consuming, diverting management’s attention and resources from operating our business. In addition, activist activity may create perceived uncertainty regarding our strategy or future direction, which could adversely affect our ability to attract and retain employees, customers, suppliers, and other business partners, and could hinder our ability to execute our business plan. Activist activity could also lead to litigation or other disputes, which may be costly and disruptive, regardless of the outcome. These activities could distract management, increase costs, and create uncertainty that could adversely affect our business and stock price.

The market price of our common stock may be volatile, and you may lose all or part of your investment.

The trading price of our common stock may fluctuate significantly, and you may not be able to sell your shares at or above the price you paid. The stock market has experienced, and may continue to experience, significant volatility, and our stock price may be particularly volatile due to, among other things, our operating results, strategic initiatives, merger-related developments and announcements, and general market conditions. As a result, the market price of our common stock may decline substantially, including for reasons unrelated to our operating performance. As a result of this volatility, investors may experience significant losses, and our ability to access capital markets could be adversely affected.

Factors that may cause our stock price to fluctuate include, among others:

actual or anticipated fluctuations in our quarterly or annual operating results;

analyst reports or changes analysts’ estimates or recommendations;

our failure to meet analysts’ projections or guidance;

changes in management or key personnel;

sales, or anticipated sales of shares held by significant stockholders, directors, or executive officers;

strategic transactions or investments, or changes in business strategy;

the passage of legislation or other regulatory developments affecting us or our industry;

litigation and governmental investigations;

publicity (regardless of accuracy), including on social media platforms;

terrorist acts, acts of war or periods of widespread civil unrest;

a foodborne illness outbreak, national health emergency or a pandemic;

severe weather, natural disasters, and other calamities; and

changes in the general market and economic conditions.

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Our articles of incorporation, bylaws and Wyoming law may discourage a change of control of our Company and depress the price of our stock.

Our articles of incorporation and bylaws include certain provisions that could have the effect of discouraging, delaying, or preventing a change of control of our company or changes in our management, including, among other things:

advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as to the form and content of a stockholder’s notice;

the right to issue preferred stock without stockholder approval, which could dilute the stock ownership of a potential hostile acquirer;

allowing all vacancies, including newly created directorships, to be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum, except as otherwise required by law;

limiting the persons that can call special meetings of our stockholders to our board of directors, the chairperson of our board of directors, the chief executive officer, or the president (in the absence of a chief executive officer).

These provisions could limit strategic alternatives and reduce the value of stockholders, and may be realized in a change‑of‑control transaction.

We have no plans to pay cash dividends on our common stock.

We will likely retain any future earnings for operations, expansion, and debt repayment, and we have no plans to pay any cash dividends in the foreseeable future. Any decision to declare and pay dividends in the future will be at the discretion of our board of directors and will depend, among other things, on our results of operations, financial condition, cash requirements, contractual restrictions, and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants in any existing or future indebtedness of our subsidiaries or us, including a credit facility. As a result, you may not receive any return on an investment in our common stock for a price greater than that you paid. As a result, investors may need to rely on stock price appreciation to achieve a return on their investment.

Raising additional equity capital may be more challenging while the warrants are outstanding.

While the warrants issued in our IPO remain outstanding, the holders of such warrants will be able to profit from an increase in the market price of our common stock. However, we may find it more difficult to raise additional equity capital. At the same time, the warrants are outstanding, and we may not have the capital to fund our expansion and growth plans or for other corporate purposes. If we are unable to raise capital on acceptable terms, our ability to fund growth initiatives and operations could be materially adversely affected.

Our board has broad authority to issue preferred stock, which could adversely affect holders of our common stock and could discourage or delay a change in control.

Our articles of incorporation authorize the issuance of up to 2,000,000 shares of preferred stock with designations, rights and preferences that may be determined from time to time by the board of directors. Subject to applicable law, our certificate of incorporation and bylaws, and applicable stock exchange requirements, our board of directors has the authority to create and issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

In connection with the proposed business combination, we are seeking stockholder approval for the issuance of Series A-1 and Series A-2 Convertible Preferred Stock. In addition, our board may in the future authorize the issuance of additional shares or series of preferred stock on terms that could dilute the interests of common stockholders, adversely affect the market price of our common stock, or be used, under certain circumstances, as a method of discouraging, delaying, or preventing a change in control of our company or a change in our management.

These provisions could adversely affect the voting power of holders of common stock and limit the price investors may be willing to pay for our common stock in the future.

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These provisions might discourage, delay, or prevent a change in control of our company or a change in our management. These provisions could adversely affect the voting power of holders of common stock and limit the price investors may be willing to pay for our common stock in the future.

Claims for indemnification by our directors and officers may reduce available funds to satisfy successful third-party claims.

Our articles of incorporation and bylaws provide that the Company will indemnify our directors and officers, in each case, to the fullest extent permitted by Wyoming law.

In addition, as permitted by the Wyoming Business Corporation Act, our bylaws and the indemnification agreements that we have entered into with our directors and officers provide that:

we indemnify our directors and officers for serving us in those capacities or serving other business enterprises at our request to the fullest extent permitted by Wyoming law. Wyoming law provides that a corporation may indemnify such a person if the person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe the conduct was unlawful;

we may indemnify employees and agents in those circumstances permitted by applicable law;

we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that the individual is not entitled to indemnification;

we are not obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

The rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees, and agents and to obtain insurance to indemnify such persons, and

we may not retroactively amend our bylaws to reduce our indemnification obligations to directors, officers, employees, and agents.

Reduced disclosure requirements may make our common stock less attractive to investors.

Reduced disclosure requirements applicable to us as a smaller reporting company may make our common stock less attractive to investors.

We qualify as a “smaller reporting company” under SEC rules. As a result, we are permitted to provide scaled disclosures in our SEC filings, including reduced executive compensation disclosure, and we are exempt from the requirement under Section 404(b) of the Sarbanes-Oxley Act that our independent registered public accounting firm attests to the effectiveness of our internal control over financial reporting. We may also be eligible to rely on other disclosure accommodations available to smaller reporting companies and, if applicable, emerging growth companies.

If we use these accommodations, investors may find our common stock less attractive because they may receive less information than they would from companies that do not qualify for, or elect not to use, scaled disclosure. Any such perception could reduce trading volume, increase price volatility, and adversely affect the market price of our common stock.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations is intended to provide information relevant to an assessment of our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report.

Fiscal Year

Our fiscal year consists of 52 or 53 weeks and ends on the Sunday closest to December 31. The 52-week fiscal year 2025 ended on December 28, 2025, and the 52-week fiscal year 2024 ended on December 29, 2024.

Introduction

As of December 28, 2025, 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. Accordingly, our owned and minority-owned restaurant portfolio consisted of fourteen restaurant locations, comprised of

Six Burger Time (Net of Minot closure July, 2025) 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”).

In addition, 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.

The average customer transaction at Burger Time restaurants did not change significantly in fiscal 2025 compared to fiscal 2024, and based on our recent 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.

Due to underperformance, we closed the Village Bier Garten restaurant in early 2025. In November 2025, the landlord of the Village Bier Garten premises in Cocoa, Florida, issued a notice of default alleging nonpayment of rent 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 15 to Consolidated Financial Statements.

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In September 2025, we entered into the Merger Agreement to enter into a business combination with Aero Velocity, a private aerospace company, as described elsewhere in this Report. This proposed transaction did not impact the 2025 results of operation. If the merger is completed, we intend to spin off our restaurant operations and other existing assets into a separate company, BT Group, Inc. The forward-looking growth strategy described in this Report reflects management’s current views regarding BT Group, assuming the merger closes. There can be no assurance that the merger will be completed or that the spin-off will occur.

In January 2025, our unconsolidated affiliate, Bagger Dave’s, closed its Chesterfield, Michigan, location. 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. In addition, our entry into an agreement to merge with Aero Velocity and the related plan to spin off our restaurant operations introduce additional uncertainties to our outlook.

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Fiscal 2025 Compared to Fiscal 2024

The following table presents our consolidated statements of operations expressed as a percentage of sales for the periods indicated. Percentages may not sum or may be adjusted to reflect the rounding.

52 weeks ended,

December 28, 2025

52 Weeks ended

December 29, 2024

Amount

Amount

SALES

COSTS AND EXPENSES

Restaurant operating expenses

Food and paper costs

Labor costs

Occupancy costs

Other operating expenses

Depreciation and amortization

Impairment of restaurant and right-of-use assets

General and administrative

Gain on sales of assets

Total costs and expenses

Loss from operations

UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES

REALIZED GAIN ON MARKETABLE SECURITIES

INTEREST AND DIVIDEND INCOME

INTEREST EXPENSE

IMPAIRMENT OF RELATED PARTY INVESTMENTS AND RECEIVABLES

OTHER INCOME

EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE

INCOME TAX EXPENSE

NET LOSS

Net Sales:

Net sales, which represent sales at our restaurant locations, for fiscal 2025 decreased $1.3 million, or 7.5%, to $13.5 million from $14.8 million in fiscal 2024. Among several factors, this decrease reflects the closure of the Village Bier Garten location at the beginning of the year; VBG contributed approximately $1.3 million in sales during fiscal 2024.

Comparable restaurant sales represent sales from Burger Time locations open for the full 52-week periods in both fiscal 2025 and fiscal 2024. A Burger Time restaurant in Minot, North Dakota, was closed during fiscal 2025. The Minot location generated approximately $560,000 in sales during fiscal 2024 and $281,000 during fiscal 2025. Schnitzel Haus, acquired in May 2024, contributed approximately $1.5 million in sales during fiscal 2025, an increase of approximately $0.8 million compared to fiscal 2024.

For Burger Time locations open for the full year, sales declined approximately $224,000, or 3.9%. The decline in comparable restaurant sales was primarily attributable to reduced customer traffic, partially offset by modest menu price increases. Average annual sales for the six Burger Time restaurants open at year-end were approximately $914,000 in fiscal 2025, compared with $952,000 in fiscal 2024, a 3.9% decline. For BTND locations that were open at year-end 2025, restaurant sales ranged from $691,000 to $1,224,000.

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Restaurant Operating Costs:

In 2025, restaurant operating costs (which refer to the costs associated with operating our restaurants, excluding general and administrative expenses, depreciation, amortization, and restaurant impairment charges) declined to 87.2% of restaurant sales from 95.1% in 2024. This decrease was due to the closure of less-profitable locations, improved margins at Pie In the Sky, and the matters discussed in the “Cost of Sales,” “Labor Costs,” and “Occupancy and Other Operating Costs” sections discussed below.

The change in restaurant operating costs from fiscal 2024 to fiscal 2025 is summarized below:

Restaurant operating costs for the period ended December 29, 2024

Decrease in food and paper costs.

Decrease in labor costs.

Decrease in occupancy and operating cost

Restaurant operating costs for the period ended December 28, 2025

Costs of Sales - food and paper:

Food and paper costs decreased to 33.3% of restaurant sales in fiscal 2025 from 37.8% in fiscal 2024. This decrease reflects cost control initiatives, a more moderate inflationary environment, and menu price increases.

Labor Costs:

In 2025, labor and benefits costs decreased to 37.9% of restaurant sales from 41.3% in 2024. The decrease results from the closure of unprofitable locations and a greater focus on controlling labor costs across all locations. Payroll costs are semi-variable and therefore do not decline proportionally with declining revenues, which can cause labor costs to increase as a percentage of restaurant sales.

Occupancy and Other Operating Costs:

For 2025, occupancy and other costs were unchanged at 17.0% of restaurant sales, or $2,160,878, compared to $2,355,806, or in 2024.

Depreciation and Amortization Costs:

For 2025, depreciation and amortization costs decreased 12.7%, or $94,156, to $648,704 (4.5% of sales) from $742,860 (5.0% of sales) in 2024. The decline in total depreciation is attributable in part to the closing of VBG and the 2024 charge-off of the remaining asset value.

General and Administrative Costs:

General and administrative expenses declined by $227,375 to $1.5 million in fiscal 2025, down from $1.7 million in fiscal 2024, and decreased to 10.9% of sales from 11.4% in fiscal 2024, reflecting cost-control efforts across administrative activities.

Restaurant Impairment and Related Charges:

In 2024, the Company recorded an impairment charge of $371,872 related to its decision to close the Village Bier Garten location. In 2025, the Company recorded a $215,000 lease litigation accrual related to the former Village Bier Garten location in Cocoa, Florida. This amount reflects the remaining contractual lease payments associated with unpaid rent under the original lease agreement. The Company disputes the landlord’s claims and intends to vigorously defend the matter. The ultimate outcome of the litigation is uncertain and may differ from the amount recorded, including as a result of the landlord’s obligation to mitigate damages and the Company’s potential recovery from the assignee. The Company will continue to evaluate the matter and adjust the recorded amount as additional information becomes available.

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Loss from Operations:

Loss from operations improved to a loss of $364,585 in fiscal 2025 from a loss of $1.8 million in fiscal 2024. The fiscal 2024 loss included a $371,872 impairment charge related to Village Bier Garten. The 2025 loss includes a $215,000 litigation charge related to the closure of the Village Bier Garten and a lease liability dispute. Operating margins improved across the portfolio, particularly at PIE and Burger Time locations. Menu changes and improved cost controls increased operating margins at the Burger Time location, as discussed in the “Net Revenues,” “General and Administrative Costs,” and “Restaurant Operating Costs” sections above.

Interest and Other Income (Expense) :

Interest expense increased slightly to $81,261 in fiscal 2025 as a result of ongoing amortization of principal on mortgage notes. Interest and dividend income declined to $148,666 from $178,279, reflecting lower average invested balances.

Net Loss

Net loss improved to a net loss of $687,839 in fiscal 2025 from a $2.3 million loss in fiscal 2024. The improvement reflects higher restaurant-level profitability, impairment and lease liability charges of $215,000 in 2025 and a 2024 charge of $371,872 for Village Bier Garten assets, and a lower equity loss from BDVB as the equity in BDVB reached zero. We also recorded a $216,248 charge to reduce the NGI bottle inventory to its estimated net realizable value of $574,000. Net loss for 2024 also reflects the impact of fully reserving for deferred tax benefits, resulting in a $206,000 income tax provision in 2024.

Restaurant-level EBITDA :

To supplement the consolidated financial statements, which are prepared and presented in accordance with GAAP, we use restaurant-level EBITDA (earnings before interest, taxes, depreciation, and amortization), which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, investors because it provides a means to gauge the overall profitability of our recurring, controllable core restaurant operations. However, this measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to stockholders, primarily because it excludes corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute for or superior to operating income, which is calculated in accordance with GAAP, and the reconciliations to operating income set forth below should be carefully evaluated.

We define restaurant-level EBITDA as operating income before general and administrative expenses, depreciation and amortization, and restaurant impairment and related charges. General and administrative expenses are excluded as they are generally unrelated to restaurant-specific costs. Depreciation and amortization are excluded because they are not ongoing controllable cash expenses and are unrelated to the health of ongoing operations. There were no pre-opening costs in fiscal 2025 or fiscal 2024.

Year

Revenues

Reconciliation:

Loss from operations

Depreciation and amortization

Gain on sale of assets

Restaurant impairment and related charges

General and administrative, corporate-level expenses

Restaurant-level EBITDA

Restaurant-level EBITDA margin

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Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash generated from restaurant operations, proceeds from the sale of marketable securities, and existing cash and marketable securities on hand. Our primary uses of cash are operating expenses, capital expenditures, debt service, transaction-related expenses, and strategic investments.

As of December 28, 2025, we had $4,442,300 in cash and marketable securities and $4,680,411 in working capital, compared to $4,270,970 in cash and marketable securities and $3,556,469 in working capital as of December 29, 2024. The increase in working capital was primarily attributable to improved operating performance and disciplined capital expenditures during fiscal 2025.

For fiscal 2025, we recorded a net loss of $687,839 compared to a net loss of $2,311,208 in fiscal 2024. Despite the net loss, operating cash flow improved significantly year over year due to stronger restaurant-level performance.

Our primary liquidity requirements are to fund working capital needs, capital expenditures, and general corporate needs, and to invest in or acquire businesses that are synergistic with our business. Our operations do not require significant working capital, as restaurants generally operate with negative working capital. Working capital deficits may be incurred in the future. Our liquidity and cash flow sources are cash and cash equivalents and marketable securities. We have used available cash to make acquisitions, service debt, and maintain our stores. Our working capital position benefits from the fact that we collect cash from sales to our customers at the point of purchase or within a few days from our credit card processor, and, in general, payments to our vendors are not due for 30 days.

The Company is currently involved in litigation related to a lease dispute at its former Village Bier Garten location in Cocoa, Florida. As of December 28, 2025, the Company recorded an accrued liability of $215,000 associated with this matter. While the Company disputes the landlord’s claims and intends to vigorously defend the matter, the timing and amount of any cash outflows related to this litigation remain uncertain. The Company believes that certain factors, including the landlord’s obligation to mitigate damages and the Company’s potential recovery from the assignee of the lease, may reduce the ultimate amount of any required payments. However, the resolution of this matter will be determined through litigation or negotiated settlement, and actual cash outflows may differ from the amount currently recorded. The Company does not currently expect this matter to have a material adverse impact on its overall liquidity position; however, management will continue to monitor developments and assess the potential impact on future cash flows.

The ultimate capital structure, liquidity profile, and operating model of BT Group will depend on the final terms and structure of the merger and spin-off. The separation could result in incremental transaction costs, advisory fees, audit and legal expenses, and standalone public company costs, including governance, compliance, and reporting expenses. In addition, the separation may require the establishment of new credit facilities or other financing arrangements for BT Group, and there can be no assurance regarding the availability or terms of such financing.

We are currently evaluating BT Group’s anticipated working capital needs, capital structure, and ongoing liquidity requirements. While we expect that existing cash balances and operating cash flow will support near-term operational needs of the restaurant business, completion of the merger and spin-off could materially change our capital allocation strategy, liquidity profile, and risk exposure. There can be no assurance that the merger will be completed or that the spin-off will occur.

Summary of Cash Flows

Operating Activities

Net cash provided by operating activities was $284,876 in fiscal 2025, compared to net cash used in operating activities of $284,876 in fiscal 2024. The improvement was primarily driven by reduced operating losses, improved restaurant-level margins, and the effect of the impairment charge recorded in the prior year.

Restaurant operations typically generate cash quickly due to point-of-sale transactions and short settlement cycles for credit card receipts, while vendor payment terms are generally 30 days. As a result, our restaurant operations do not require significant working capital investment.

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Investing Activities

Cash used in investing activities during fiscal 2025 primarily consisted of net purchases of marketable securities, approximately $172,925 in capital expenditures related to restaurant improvements and equipment upgrades, $380,861 for the purchase of Water Bottle Inventory, loans made to related party and purchase of a secured note totaling approximately $650,000, and proceeds from the sale of property of approximately $550,000. In fiscal 2024, investing activities included the acquisition of Schnitzel Haus for approximately $943,000 and net purchases of marketable securities.

We expect capital expenditures in fiscal 2026 to consist primarily of maintenance capital, equipment replacement, and operational enhancements. We do not currently anticipate significant expansionary capital expenditures.

Financing Activities

Cash used in financing activities during fiscal 2025 totaled $329,720 and consisted of scheduled principal payments on long-term debt and $140,450 in payments for deferred transaction costs. In 2024, cash used in financing activities was $450,849, including $142,794 for share repurchases. We did not acquire additional treasury shares during fiscal 2025.

Contractual Obligations

As of December 28, 2025, we had approximately $3.7 million in contractual obligations, including long-term debt and future lease liabilities. Our monthly required payments total approximately $47,000.

Investment in BDVB

As of December 28, 2025, the carrying value of our equity-method investment in Bagger Dave’s Burger Tavern, Inc. (“BDVB”) was zero. We are not obligated to fund additional losses of BDVB and have not guaranteed its indebtedness. In the future, any decision to advance or guarantee BDVB debt will result in additional equity losses. Proposed Merger with Aero Velocity and

Planned Spin-Off

In September 2025, we entered into an Agreement and Plan of Merger with Aero Velocity Inc., a private aerospace drone services company. If completed, the merger will result in a fundamental change in our capital structure and strategic focus.

Pursuant to the Merger Agreement, prior to closing, we intend to spin off our existing restaurant operations into a newly formed entity, (“BT Group, Inc.”) BT Group is expected to retain all of our existing restaurant operations, related assets, cash balances, and liabilities. Following the spin-off, BT Group would operate as a standalone company.

The proposed merger did not affect our fiscal 2025 liquidity or results of operations. However, if completed, the transaction will materially alter our capital structure, ownership profile, and financial risk. The combined post-merger entity is expected to issue convertible preferred stock to Aero stockholders, resulting in significant dilution to existing stockholders and a shift in voting control.

We intend to seek a listing of BT Group’s common stock on a national securities exchange; however, there can be no assurance that BT Group will meet applicable listing requirements or that such listing will be achieved in a timely manner. Failure to obtain a listing could adversely affect the liquidity and marketability of BT Group shares.

Completion of the merger and spin-off may result in incremental transaction costs, including advisory, legal, audit, and regulatory expenses. In addition, BT Group may incur ongoing standalone public company costs, including governance, compliance, and reporting expenses. The ultimate capital structure and liquidity profile of BT Group and the post-merger entity will depend on the final structure and terms of the transaction. There can be no assurance that the merger will be completed or that the spin-off will occur.

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Capital Allocation

We evaluate capital allocation priorities based on liquidity, operating performance, growth opportunities, and market conditions. While we have a Board-authorized Share Repurchase Program in place, we did not repurchase shares during fiscal 2025. Future repurchases, if any, will depend on liquidity, capital requirements, and strategic considerations, including the outcome of the proposed merger.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. These estimates are based on historical experience and other assumptions we believe to be reasonable under the circumstances. Because these estimates involve judgment and are based on currently available information, actual results could differ materially from those estimates.

We believe the following accounting estimates involve a higher degree of judgment and are most critical to understanding our financial condition and results of operations.

Impairment of Long-Lived Assets

We review long-lived assets, including restaurant property and equipment and right-of-use lease assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Indicators include declining operating performance, negative cash flow trends, store closures, or changes in market conditions.

Recoverability is assessed by comparing the carrying value of the asset group to the estimated undiscounted future cash flows expected to result from its use and eventual disposition. If the carrying value exceeds estimated undiscounted cash flows, an impairment charge is recorded based on the excess of carrying value over fair value.

These analyses require significant judgment regarding projected sales, operating margins, and terminal values. Changes in assumptions or operating performance could result in future impairment charges.

During fiscal 2024, we recorded a $371,872 impairment charge related to Village Bier Garten and entered into a lease assignment with a third party and in 2025, following receiving notice of default by the assignee to the lease we recorded a $215,000 charge representing the total amount of unpaid lease payments under the original lease.

Equity Method Investments

We account for our 40.7% ownership interest in Bagger Dave’s Burger Tavern, Inc. (“BDVB”) under the equity method of accounting. Under this method, we record our proportionate share of BDVB’s net income or loss and adjust the carrying value of the investment accordingly.

During fiscal 2025, cumulative equity losses reduced the carrying value of our investment in BDVB to zero. Once an equity-method investment is reduced to zero, we discontinue recognizing additional losses unless we have guaranteed obligations or otherwise committed to providing additional financial support, which we have not done. Determining whether additional losses should be recognized requires judgment regarding the nature of our involvement and any potential obligations.

We also evaluate equity-method investments for impairment if events or circumstances indicate that the decline in value may be other-than-temporary. This assessment requires judgment regarding the affiliate’s financial condition and prospects.

Impairment of Related-Party Investment (NGI Corporation)

Prior to 2023, we made a series of equity investments in NGI Corporation (“NGI”), a related party, resulting in an aggregate carrying value of $304,000. During fiscal 2025, we evaluated the recoverability of this investment. We determined that indicators of impairment were present, including recurring operating losses at NGI and insufficient capital to sustain operations without continued external financing.

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Because there were no observable market transactions or other valuation inputs to support the investment’s carrying value, management concluded that the decline in value was other than temporary. Accordingly, we recorded a full impairment charge of $304,000 during fiscal 2025. Following our foreclosure on the water bottle inventory in satisfaction of outstanding loans to NGI, we recorded a $216,718 adjustment to reduce the inventory’s value to its estimated net realizable value of $574,000.

Determining whether an investment is impaired and whether any impairment is other-than-temporary requires significant judgment regarding financial performance, liquidity, and future prospects of the investee. Changes in these factors could affect the timing and amount of impairment charges.

Contingencies and Litigation Reserve

The Company is involved in a legal dispute with the landlord of its former Village Bier Garten location in Cocoa, Florida. In connection with the Company’s cessation of operations and subsequent assignment of the lease to a third party in January 2025, the landlord asserted a claim for unpaid rent and other amounts under the lease and initiated litigation against the Company.

As of December 28, 2025, the Company recorded an accrued liability of $215,000, representing the remaining contractual lease payments associated with unpaid rent under the original lease agreement.

The determination of this liability required significant judgment. In evaluating the appropriate amount to record, management considered the nature of the landlord’s claims, the status of the litigation, and the terms of the underlying lease. The recorded amount reflects the full contractual lease payments remaining and does not incorporate potential reductions related to the landlord’s obligation to mitigate damages or potential recoveries from the assignee of the lease.

Management believes that certain factors, including the landlord’s acceptance of rent payments from the assignee following the transfer of possession and the landlord’s obligation under Florida law to mitigate damages after regaining possession of the premises, may affect the ultimate amount of damages, if any, that could be recoverable. Additionally, the Company has asserted a claim against the assignee for approximately $200,000 in unpaid consulting fees, which could offset any amount ultimately owed.

The ultimate resolution of this matter is subject to significant uncertainty and will be determined through litigation or negotiated settlement. As a result, actual outcomes may differ materially from the amount recorded. Management will continue to monitor developments in the matter and will adjust the recorded liability as additional information becomes available.

Lease Accounting

We recognize right-of-use assets and lease liabilities for operating leases based on the present value of future lease payments. Because our leases typically do not provide an implicit rate, we estimate an incremental borrowing rate to discount lease payments. This rate is based on our estimated secured borrowing rate for a similar term. Changes in assumptions regarding discount rates, renewal options, or lease terms could materially affect the measurement of lease assets and liabilities.

Marketable Securities Valuation

We hold marketable equity securities that are measured at fair value, with changes in fair value recognized in earnings. The fair value of these securities is based on quoted market prices. Market volatility may cause significant fluctuations in unrealized gains and losses, which could materially impact our results of operations in future periods. Given the marketable securities are liquid and tradable, management does not anticipate any losses on settlement. We do not believe that fluctuations in value will impact our overall liquidity and available capital resources.

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