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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
Amendment
No. 1
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): September 25, 2023
FAT
Brands Inc.
(Exact
name of Registrant as Specified in Its Charter)
Delaware |
|
001-38250 |
|
82-1302696 |
(State
or Other Jurisdiction
of
Incorporation) |
|
(Commission
File
Number) |
|
(IRS
Employer
Identification
No.) |
9720
Wilshire Blvd., Suite 500
Beverly
Hills, CA |
|
90212 |
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
Registrant’s
Telephone Number, Including Area Code: (310) 319-1850
Not
Applicable
(Former
Name or Former Address, if Changed Since Last Report)
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions (see General Instructions A.2. below):
☐ |
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|
|
☐ |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
|
|
☐ |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
|
|
☐ |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Class
A Common Stock |
|
FAT |
|
The
Nasdaq Stock Market LLC |
Class
B Common Stock |
|
FATBB |
|
The
Nasdaq Stock Market LLC |
Series
B Cumulative Preferred Stock |
|
FATBP |
|
The
Nasdaq Stock Market LLC |
Warrants
to purchase Common Stock |
|
FATBW |
|
The
Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging
growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory
Note
This
Current Report on Form 8-K/A amends the Current Report on Form 8-K previously filed by FAT Brands, Inc. (the “Company”) on
September 26, 2023 related to the acquisition of Barbeque Integrated, Inc. and Subsidiaries (“BBQI”). This Current Report
on Form 8-K/A includes the financial statements that had been omitted from the previously filed Current Report on Form 8-K as permitted
by Item 9.01(a) and (b) of Form 8-K.
On
September 25, 2023, the Company acquired BBQI from affiliates of Sun Capital Partners, Inc. BBQI owns and operates Smokey Bones Barbeque
and Grill restaurant facilities.
The
Company is filing this Current Report on Form 8-K/A to provide certain financial statements of BBQI and unaudited pro forma financial
information of BBQI and the Company required by Item 9.01 of Form 8-K.
Item
9.01 Financial Statements and Exhibits.
(a)
Financial Statements of Business Acquired
The
audited consolidated financial statements of BBQI as of and for the year ended January 1, 2023 are included as Exhibit 99.1 to this Current
Report on Form 8-K/A and are incorporated by reference herein.
The
unaudited condensed consolidated financial statements of BBQI as of and for the interim six months ended July 2, 2023 are included as
Exhibit 99.2 to this Current Report on Form 8-K/A as Exhibit 99.2 and are incorporated by reference herein.
(b)
Pro forma Financial Information
The
unaudited pro forma combined financial information of FAT Brands Inc. and its subsidiaries and BBQI with respect to the year ended December
25, 2022 and the six months ended June 25, 2023 are included as Exhibit 99.3 to this Current Report on Form 8-K/A and are incorporated
by reference herein.
(d)
Exhibits
The
following exhibits are filed herewith:
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date:
October 27, 2023
|
FAT
Brands Inc. |
|
|
|
|
By: |
/s/
Kenneth J. Kuick |
|
|
Kenneth
J. Kuick |
|
|
Chief
Financial Officer |
Exhibit
23.1
CONSENT
OF INDEPENDENT AUDITOR
Barbeque
Integrated, Inc.
Fort
Lauderdale, Florida
We
hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (No. 333-239032), Form S-3 (No.
333-261371, No. 333-261365 and No. 333-256342) and Form S-8 (No. 333-239031, No. 333-261362 and No. 333-270023) of Fat Brands Inc.
of our report dated April 14, 2023, relating to the financial statements of Barbeque Integrated, Inc., which appears in this Current
Report on Form 8-K/A.
/s/
BDO USA, P.C.
Fort
Lauderdale, Florida
October
27, 2023
Exhibit
99.1
Consolidated
Financial Statements and
Independent Auditor’s Report
Barbeque
Integrated, Inc. and Subsidiaries
As
of January 1, 2023
Independent
Auditor’s Report
Board
of Directors
Barbeque
Integrated, Inc.
Plantation
FL
Opinion
We
have audited the consolidated financial statements of Barbeque Integrated, Inc. and its subsidiaries (the Company), which comprise the
consolidated balance sheet as of January 1, 2023, and the related consolidated statement of operations, stockholder’s deficit,
and cash flows for the year then ended, and the related notes to the consolidated financial statements.
In
our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of January 1, 2023, and the results of its operations and its cash flows for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Basis
for Opinion
We
conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section
of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Responsibilities
of Management for the Financial Statements
Management
is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant
to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
In
preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered
in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after
the date that the consolidated financial statements are issued or available to be issued.
Auditor’s
Responsibilities for the Audit of the Financial Statements
Our
objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always
detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In
performing an audit in accordance with GAAS, we:
| ● | Exercise
professional judgment and maintain professional skepticism throughout the audit. |
| | |
| ● | Identify
and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks.
Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. |
| | |
| ● | Obtain
an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control. Accordingly, no such opinion
is expressed. |
| | |
| ● | Evaluate
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the overall presentation of the consolidated
financial statements. |
| | |
| ● | Conclude
whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about the Company’s ability to continue as a going concern
for a reasonable period of time. |
We
are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/
BDO USA, LLP
Fort
Lauderdale, FL
April
14, 2023
Barbeque
Integrated, Inc. and Subsidiaries
Consolidated
balance sheet
| |
January
1, 2023 | |
Asset | |
| | |
Current assets: | |
| | |
Cash and cash equivalents | |
$ | 3,361,801 | |
Accounts and other receivables | |
| 1,598,643 | |
Inventories | |
| 2,741,796 | |
Other current assets, net | |
| 1,790,801 | |
Total current assets | |
| 9,493,041 | |
| |
| | |
Property and equipment, net | |
| 28,614,321 | |
Right of Use Assets, net | |
| 39,110,685 | |
Intangible assets, net | |
| 224,858 | |
Deposits | |
| 563,465 | |
Total assets | |
$ | 78,006,370 | |
| |
| | |
Liabilities and Stockholder’s Equity | |
| | |
Current liabilities: | |
| | |
Accounts payable | |
| 4,756,256 | |
Accrued expenses | |
| 6,207,965 | |
Current portion of operating lease liability | |
| 12,541,042 | |
Unearned revenue | |
| 2,935,166 | |
Total current liabilities | |
| 26,440,429 | |
| |
| | |
Related party note payable | |
| 19,553,963 | |
Operating lease liability | |
| 39,889,679 | |
Deferred tax liability, net | |
| 282,776 | |
Lease exit obligation | |
| 808,882 | |
Total Liabilities | |
| 86,975,729 | |
| |
| | |
Commitments and contingencies | |
| | |
| |
| | |
Stockholder’s deficit: | |
| | |
Common stock, $.001 par value, 1,000 shares authorized, Issued and outstanding | |
| 1 | |
Additional paid-in capital | |
| 23,421,960 | |
Accumulated deficit | |
| (32,391,320 | ) |
Total liabilities and stockholder’s deficit | |
$ | 78,006,370 | |
The
accompanying notes are an integral part of these consolidated financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Consolidated
statement of operations
For the fiscal year ended | |
January
1, 2023 | |
| |
| |
Net sales: | |
$ | 184,643,679 | |
| |
| | |
Cost of sales (exclusive of items shown seperately below): | |
| | |
Food and beverage costs | |
| 54,215,174 | |
Labor and benefits | |
| 55,431,240 | |
Rent Expense | |
| 12,326,805 | |
Restaurant operating expenses | |
| 43,041,354 | |
Restaurant exits costs | |
| 30,287 | |
Total cost of sales (exclusive of items shown seperately
below) | |
| 165,044,860 | |
| |
| | |
Operating expenses: | |
| | |
Selling, general and administrative | |
| 13,779,594 | |
Depreciation and amortization | |
| 6,639,455 | |
Asset Impairment loss | |
| 1,331,421 | |
Total operating expenses | |
| 21,750,470 | |
Operating loss | |
| (2,151,651 | ) |
| |
| | |
Non-operating loss, net: | |
| | |
Interest expense | |
| (870,991 | ) |
Other income | |
| (302,438 | ) |
Total non-operating loss, net | |
| (1,173,429 | ) |
| |
| | |
Loss from operations before income taxes | |
| (3,325,080 | ) |
| |
| | |
Income tax expense | |
| (65,597 | ) |
| |
| | |
Net loss | |
$ | (3,390,677 | ) |
The
accompanying notes are an integral part of these consolidated financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Consolidated
statement of stockholder’s deficit
| |
Shares | | |
Common Stock | | |
Additional Paid-In Capital | | |
Accumulated Deficit | | |
Total | |
Balances - January 2, 2022 | |
| 1000 | | |
| 1 | | |
| 23,421,960 | | |
| (29,380,309 | ) | |
| (5,958,348 | ) |
Cumulative effect of Adoption of ASU 2016-02 at January 3, 2022 | |
| | | |
| | | |
| | | |
| 379,666 | | |
| 379,666 | |
Net loss | |
| | | |
| | | |
| | | |
| (3,390,677 | ) | |
| (3,390,677 | ) |
Balances - January 1, 2023 | |
| 1000 | | |
$ | 1 | | |
$ | 23,421,960 | | |
$ | (32,391,320 | ) | |
$ | (8,969,359 | ) |
The
accompanying notes are an integral part of these consolidated financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Consolidated
statement of cash flows
For the fiscal year ended | |
January
1, 2023 | |
Cash flows from operating activities: | |
| | |
Net loss | |
$ | (3,390,677 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | |
Depreciation and amortization | |
| 6,639,455 | |
Asset impairment loss | |
| 1,331,421 | |
Loss on disposal of property and equipment | |
| 62,534 | |
Non-cash lease cost | |
| 12,088,327 | |
Inventory obsolescense | |
| 49,237 | |
Deferred income taxes | |
| 25,259 | |
Interest accretion on debt | |
| 403,963 | |
Loss on lease termination | |
| 285,527 | |
Proceeds from landlords for construction reimbursements | |
| 736,720 | |
Lease termination payments | |
| (537,500 | ) |
Changes in operating assets and liabilities | |
| | |
Accounts receivable | |
| (494,671 | ) |
Inventories | |
| 9,907 | |
Other current assets | |
| (296,771 | ) |
Deposits | |
| 32,251 | |
Accounts payable | |
| 750,742 | |
Accrued expenses and other liabilities | |
| (3,136,447 | ) |
Operating lease liability | |
| (12,995,977 | ) |
Income taxes receivable | |
| (124,239 | ) |
Unearned revenue | |
| (725,851 | ) |
Net cash provided by operating activities | |
| 713,210 | |
| |
| | |
Cash flows from operating activities: | |
| | |
Purchases of property and equipment | |
| (10,351,431 | ) |
Purchases of intangibles | |
| (28,579 | ) |
Net cash used in investing activities | |
| (10,380,010 | ) |
| |
| | |
Cash flows from financing activities: | |
| | |
Borrowings under revolving line of credit | |
| 11,250,000 | |
Payment of revolving line of credit | |
| (1,000,000 | ) |
Net cash provided by investing activities | |
| 10,250,000 | |
| |
| | |
Net increase in cash and cash equivalents | |
| 583,200 | |
Cash and cash equivalents, beginning of year | |
| 2,778,601 | |
Cash and cash equivalents, end of year | |
$ | 3,361,801 | |
| |
| | |
Supplemental disclosure of cash flow information: | |
| | |
Cash paid during the year for interest | |
$ | 477,882 | |
Cash paid during the year for income taxes | |
$ | 170,581 | |
Accrued capital expenditures | |
$ | (645,274 | ) |
Right of use assets obtained in exchange of lease liabilities | |
$ | 4,378,563 | |
Right of use assets reduced for terminated leases | |
$ | 1,060,854 | |
The
accompanying notes are an integral part of these consolidated financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
Note
A – Organization and Summary of Significant Accounting Policies
Business
and Basis of Presentation
The
principal business of Barbeque Integrated, Inc., a wholly-owned subsidiary of Barbeque Holding, LLC, and its subsidiaries, Smokey Bones,
LLC and Integrated Card Solutions, LLC (collectively, “the Company”), is to own and operate food and beverage restaurant
facilities located in the Eastern and Midwest United States. The Company commenced its operations upon the acquisition of the assets
and liabilities of Smokey Bones Barbeque and Grill (SB) restaurants from GMRI, Inc., GMR Restaurants of Pennsylvania, Inc., and Darden
Concepts, Inc. on December 31, 2007.
Fiscal
Year
The
Company operates on a 52 or 53 week fiscal year. The 2022 fiscal year was a 52 week year ended on January 1, 2023.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company. All significant intercompany transactions are eliminated in the
consolidation process.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S.
GAAP), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates and such differences could be material.
Working
Capital
Our
operations have not required significant working capital, and, like many restaurant companies, we may have negative working capital during
the year. Revenues are received primarily in credit card or cash receipts, and restaurant operations do not require significant receivables
or inventories. The Company provided net cash from operations of $713,210 for the year ended January 1, 2023.
Cash
and Cash Equivalents
Cash
and cash equivalents consist primarily of cash and accounts receivable from credit card processors. The Company considers all highly
liquid investment instruments purchased with original maturities of three months or less from date of purchase to be cash equivalents.
Accounts receivable from credit card processors are both short-term and liquid in nature and are typically converted to cash within three
days of the sales transaction. At January 1, 2023, the Company had $1,928,822 in receivables from credit card processors, which were
subsequently collected.
Inventories
Inventory
consists of food, beverages and merchandise and is stated at the lower of cost or net realizable value. Cost is determined utilizing
the first-in, first-out method. Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors
in evaluating lower of cost or market.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
Property
and Equipment
Property
and equipment are capitalized and recorded at cost, less accumulated depreciation. Depreciation and amortization is provided for utilizing
the straight-line method over the estimated useful lives of the assets, which generally are as follows:
Furniture,
fixtures and equipment | |
| 3-7
years | |
Leasehold
improvements | |
| 7-20
years | |
Leasehold
improvements are amortized over the shorter of the estimated useful lives of the improvements, or the remaining term of the lease. Normal
repair and maintenance costs are charged to expense as incurred. Renovations, betterments and major repairs that materially extend the
life of properties are capitalized and the assets replaced, if any, are retired. Upon the sale or retirement of property and equipment,
the accounts are relieved of the cost and the related accumulated depreciation and amortization and any resulting gain or loss is included
in the accompanying consolidated statements of operations.
The
Company capitalizes all direct costs incurred in the construction and renovation of its restaurants. Upon completion, these costs are
reclassified from construction in progress to the applicable property and equipment classification and depreciated.
Impairment
of Long-Lived Assets
The
Company evaluates impairment whenever events or changes in circumstances indicate that the carrying amount of an asset grouping may not
be recoverable.
For
long-lived assets, including intangibles, the Company assesses periodically whether there are indicators of impairment. If such indicators
are present, the Company assesses the recoverability of the long-lived assets by determining whether the carrying value of such assets
can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest
charges, is less than the book value, the excess of the net book value over the estimated fair value, based on discounted future cash
flows and appraisals, is charged to operations in the period in which such impairment is determined by management. For the year ended
January 1, 2023, the Company recorded impairment of long-lived assets of $1,331,421 included in asset impairment loss in the accompanying
consolidated statements of operations.
Intangible
Assets
Intangible
assets that are not deemed to have an indefinite life are amortized over their estimated useful life.
Deferred
Loan Costs
The
Company capitalized costs relating to its debt financing and is amortizing these costs over the life of the related debt using the straight
line method, which approximates the effective interest method. Debt issuance costs related to a recognized debt liability are presented
in the balance sheet as a direct deduction to the carrying amount of the debt liability.
Insurance
Accruals
The
Company maintains insurance coverage to cover material potential losses related to workers’ compensation, general liability and
certain employment claims. During fiscal year 2022, the Company had a $25,000 self-insured retention limit for any covered general liability
claim. Accrued liabilities related to general liability claims of $265,301 as of January 1, 2023 are included in accrued expenses in
the accompanying consolidated balance sheets. Amounts have been recorded based on the Company’s estimates of the anticipated ultimate
costs to settle all claims, both reported and unreported.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
Revenue
Recognition
Revenues
are recognized in accordance with current guidance for revenue recognition as codified in Accounting Standards Topic 606 (“ASC
606”). Under ASC 606, revenue is recognized upon the transfer of promised products or services to customers in an amount that reflects
the consideration the Company received in exchange for those products or services. Revenue is recognized when payment is tendered at
the time of sale. The Company presents sales net of sales tax and other sales related discounts.
Unearned
revenue pertains to gift cards that have been sold but not yet redeemed and earned awards under the Company’s loyalty program but
not yet redeemed. Revenue is recognized when gift cards and loyalty rewards are redeemed by the customer. Breakage for unredeemed amounts
is estimated based on historical experience and is recognized as revenue in proportion to the pattern of rights exercised by the customer.
The Company recognized $165,000 as breakage for the year ended January 1, 2023.
Food
and Beverage Costs
Food
and beverage costs include inventory, warehousing and related purchasing and distribution costs.
Vendor
Rebates
Third
party vendor funds received in connection with marketing agreements are recognized as a reduction of marketing expense during the period
in which the marketing activities occur. Third party vendor funds received in connection with volume purchase agreements are recognized
as a reduction of cost of goods sold during the period in which purchases occur. Differences between estimated and actual periodic amounts
are settled in accordance with the terms of the agreements.
Advertising
Costs
Advertising
costs are recorded as expenses in the period in which the costs are incurred. The total amount charged to advertising expense was $3,595,469
for the year ended January 1, 2023 and are included as a selling, general and administrative expense in the accompanying consolidated
statements of operations.
Income
Taxes
Deferred
income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities
as measured by the tax rates that are anticipated to be in effect when those differences reverse. The deferred tax provision generally
represents the net change in deferred tax assets and liabilities during the period. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance
is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company
recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities based on the technical merits of the position.
Accounting
Pronouncements Adopted in 2022
ASU
2016-02 In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which
requires lessees to recognize right of use (ROU) assets and lease liabilities on the balance sheet. The Company adopted the new standard
as of January 3, 2022 using the modified retrospective method with an option to use certain practical expedients. The Company elected
the transition method that allows it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment
to the opening balance of retained earnings in the period of adoption. The comparative period information has not been restated and continues
to be reported under the accounting standard in effect for that period.
The
Company recognized operating lease liabilities and corresponding ROU assets for substantially all of the leases it previously accounted
for as operating leases, including leases related to closed restaurant properties. The initial ROU assets were calculated as the present
value of the remaining operating lease payments using the incremental borrowing rate as of January 3, 2022, reduced by accrued occupancy
costs such as closed restaurant exit obligations, deferred rent, unamortized lease incentives and impairment of ROU asset on certain
underperforming restaurant operations consistent with leaseholds impaired prior to adoption of the new standard.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
The
unamortized deferred gain on sale leaseback transaction (see Note G) and the initial impairment of ROU assets were adjusted through a
cumulative adjustment to opening balance of retained earnings. The $379,666 adjustment consisted of $1,839,839 recognition of deferred
gain on sale leaseback reduced by a $1,460,173 impairment of the initial ROU assets related to closed store locations.
Subsequent
to adoption of ASU 2016-02, the Company assesses whether an agreement contains a lease at inception and reviews all leases for finance
or operating classification once control is obtained. ROU assets represent the Company’s right to an underlying asset for the lease
term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities
are recognized at lease commencement date based on the present value of lease payments over the lease term. The ROU asset also includes
lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company
uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options
to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably
certain to be exercised when such options are required to achieve a minimum lease term for new restaurant properties and significant
leasehold improvements costs are incurred near the end of a lease term. The Company also uses judgement in determining its incremental
borrowing rate, which is based on its current borrowing rates or published market rates on debt with terms similar to the underlying
lease. Lease cost amortization is recognized on a straight-line over the lease term unless the related ROU asset has been adjusted for
an impairment charge.
ASU
2019-12 In December 2019, the FASB issued ASU 2019-12, Income Taxes (“Topic 740”) as part of its Simplification Initiative.
This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles
in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and
amending existing guidance. The Company adopted the new standard as of January 3, 2022. The standard did not have a significant impact
on the Company’s financial statements.
Note
B – Intangible Assets
Intangible
assets consist of the following:
| |
| | |
| | |
Remaining | |
| |
January 1, 2023 | | |
Useful Life | | |
Useful Life | |
Definite lived intangible assets: | |
| | | |
| | | |
| | |
Trade name | |
$ | 11,619,922 | | |
| 15
years | | |
| - | |
Licenses | |
| 431,430 | | |
| 13
years | | |
| 13
years | |
Favorable lease | |
| 458,380 | | |
| 19
years | | |
| 4
years | |
Other | |
| 34,286 | | |
| 5
years | | |
| 5
years | |
| |
| 12,544,018 | | |
| | | |
| | |
Accumulated amortization | |
| (12,319,160 | ) | |
| | | |
| | |
Intangible assets, net | |
$ | 224,858 | | |
| | | |
| | |
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
The
amortization expense for intangible assets was approximately $797,000 for the year ended January 1, 2023 and is included in depreciation
and amortization in the accompanying consolidated statements of operations. Future amortization expense will be as follows:
For
years ended | |
Amount | |
2023 | |
| 36,204 | |
2024 | |
| 36,202 | |
2025 | |
| 36,202 | |
2026 | |
| 36,202 | |
2027 | |
| 12,077 | |
Thereafter | |
| 67,971 | |
| |
$ | 224,858 | |
Note
C – Property and Equipment
Property and equipment, net, consists of the following:
| |
January 1, 2023 | |
| |
| |
Leasehold improvements | |
$ | 30,817,856 | |
Furniture, fixtures and equipment | |
| 42,917,557 | |
| |
| 73,735,413 | |
Less: Accumulated depreciation and amortization | |
| (45,121,092 | ) |
| |
$ | 28,614,321 | |
Depreciation
and amortization expense for the year ended January 1, 2023 was $5,842,236.
Note
D – Fair Value Measurements
The
Company does not have a material amount of financial assets or liabilities that are required under U.S. GAAP to be measured on a recurring
basis at fair value. The Company is not a party to any material derivative financial instruments. The Company does not have a material
amount of non-financial assets or non-financial liabilities that are required under U.S. GAAP to be measured at fair value on a recurring
basis. The Company has not elected to use the fair value measurement option, as permitted under U.S. GAAP, for any assets or liabilities
for which fair value measurement is not presently required. The Company believes the fair values of cash equivalents, accounts receivable
and accounts payable approximate their carrying amounts due to their short duration. Due to the negotiation of its promissory note close
to its fiscal year-end, the Company believes that the fair value of its Related party note payable approximates carrying value. The fair
value of the related party note payable, which is classified as Level 2 in the fair value hierarchy, is determined based on market prices
or, if market prices are not available, the present value of the underlying cash flows discounted at our incremental borrowing rates.
Note
E – Financing Obligations
Promissory
Note
On
November 10, 2022, the Company entered into a promissory note with a related party (“Promissory Note”). The Promissory Note’s
original draw repaid the Company’s outstanding revolving line of credit and interest and allows for additional unspecified amount
of advances upon request. The Promissory Note has a fixed interest rate of 9.5% accruing daily. Interest accretes to the outstanding
balance. The Promissory Note has a maturity date of November 10, 2027, allows for prepayments and requires mandatory prepayment in the
event of sale, public offering or liquidation. As of January 1, 2023, the Promissory Note had an outstanding balance of $19,553,963,
including $403,963 in accreted interest.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
Revolving
Line of Credit
On
April 20, 2021, the Company entered into a $20,000,000 revolving credit loan authorization agreement with BMO Harris Bank N.A. (“BMO
Agreement”). The BMO Agreement did not have a stated maturity and was due on demand. Interest on the BMO borrowings was paid quarterly
at interest rates based on either LIBOR + 2.5% or Prime rate minus 0.25%. This revolving line of credit was fully repaid the balance
upon executing the Promissory Note.
Note
F – Exit Activities and Operating Lease Obligations
The
Company periodically evaluates the performance of its operating restaurants. In fiscal 2022, the Company closed one location upon expiration
of the lease. The costs incurred to close the restaurants in fiscal 2022 primarily relate to demarking the restaurants, removing equipment
and lease termination and are included in restaurant exit costs on the accompanying consolidated statements of operations.
In
fiscal 2022, the Company entered into an early lease termination agreement on a closed location. At January 1, 2023, the balance amounted
to approximately $808,000 and is included in lease exit obligation on the accompanying consolidated balance sheet.
Closed
restaurant operating expenses, net of sublease income, totaling $30,287 for the year ended January 1, 2023 are included as restaurant
exit cost in the accompanying consolidated statement of operations.
Note
G – Operating Leases
The
Company leases restaurant facilities and equipment under non-cancelable operating leases having initial terms of 10 to 20 years for facilities
and 2 to 3 years for equipment. Most of these restaurant facility leases also have renewal clauses of 5-10 years exercisable at the option
of the Company while the equipment leases have 1 year renewals. Certain leases contain contingent rent, determined as a percentage of
sales as defined in the applicable lease agreement and obligate the Company to pay occupancy costs such as property taxes, insurance
and utilities. Variable lease payments, if any, included in rent expense consist of contingent rent, rent payments based on changes in
an index and occupancy related costs such as common area maintenance expenses and property taxes. The Company includes renewal periods
in its operating lease commitment when the renewals are considered reasonably assured of being exercised. We elected the package of practical
expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward prior conclusions about lease
identification, classification and initial direct costs for leases entered into prior to adoption of Topic 842. Additionally, we elected
to not separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we elected the short-term
lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition
and new leases we may enter into in the future.
Upon transition, on January 3, 2022. The Company recorded the following increases (decreases) to the respective line items on the Consolidated
Balance Sheet:
| |
Adjustment as of January 3, 2022 | |
Right of use assets, net | |
$ | 44,608,885 | |
Lease exit obligation | |
| (3,903,352 | ) |
Other Liabilities | |
| (2,374,333 | ) |
Deferred rent | |
| (5,559,393 | ) |
Operating lease liability | |
| 57,906,136 | |
Retained earnings | |
| 379,666 | |
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
Supplemental
information related to the operating lease liability is as follows:
Fiscal year ending | |
January
1, 2023 | |
Operating leases, property | |
$ | 52,321,563 | |
Operating leases, equipment | |
| 109,158 | |
Total operating leases | |
| 52,430,721 | |
Current portion of operating leases, property | |
| (12,478,646 | ) |
Current portion of operating leases, equipment | |
| (62,396 | ) |
Total current portion | |
| (12,541,042 | ) |
Long-term portion | |
$ | 39,889,679 | |
| |
| | |
Weight average remaining term in years | |
| | |
Operating leases, property | |
| 4.5 | |
Operating leases, equipment | |
| 1.4 | |
Weight average discount rate | |
| | |
Operating leases, property | |
| 5.00 | % |
Operating leases, equipment | |
| 5.00 | % |
Maturities
of the operating lease liabilities is as follows at January 1, 2023:
| |
Operating | | |
Operating | | |
| |
| |
Leases | | |
Leases | | |
| |
Fiscal
year ending | |
| Property | | |
| Equipment | | |
| Total | |
2023 | |
$ | 12,762,463 | | |
$ | 63,753 | | |
$ | 12,826,216 | |
2024 | |
| 12,023,569 | | |
| 39,563 | | |
| 12,063,132 | |
2025 | |
| 10,844,362 | | |
| 11,396 | | |
| 10,855,758 | |
2026 | |
| 9,541,776 | | |
| - | | |
| 9,541,776 | |
2027 | |
| 9,067,927 | | |
| - | | |
| 9,067,927 | |
Thereafter | |
| 7,365,138 | | |
| - | | |
| 7,365,138 | |
Total
lease payments | |
| 61,605,235 | | |
| 114,712 | | |
| 61,719,947 | |
Less
amount representing interest | |
| (9,283,672 | ) | |
| (5,554 | ) | |
| (9,289,226 | ) |
Present
value of lease liabilities | |
| 52,321,563 | | |
| 109,158 | | |
| 52,430,721 | |
Less
current portion | |
| (12,478,646 | ) | |
| (62,396 | ) | |
| (12,541,042 | ) |
Long-term
portion of lease liabilities | |
$ | 39,842,917 | | |
$ | 46,762 | | |
$ | 39,889,679 | |
In
April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to
the COVID-19 pandemic as lease modifications. The election applies to any lessor-provided lease concession related to the impact of the
COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations
of the lessee. For the year ended December 27, 2020, the Company was granted approximately $2,100,000 in non-substantial lease concessions
in the form of rent payment deferrals related to the COVID-19 pandemic. The deferrals require monthly repayment primarily through December
31, 2021. All deferrals had been repaid by January 2, 2023. The Company elected to not account for these rent concessions as lease modifications.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
Note
H – Concentrations
Financial
instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash
equivalents. The Company maintains cash balances at financial institutions. Accounts at these institutions are insured by the Federal
Deposit Insurance Corporation (“FDIC”). Balances may, at times, exceed FDIC insurance limits.
The
Company has agreements with one primary distributor for the delivery of food items and supplies which are purchased from multiple vendors
but warehoused at the distributor’s facilities. This distributor provided for approximately 90.0% of food shipments (approximately
$41.8 million) during the year ended January 1, 2023. The Company does not anticipate any interruption in deliveries from this distributor.
In the event deliveries were disrupted for any reason, management believes alternative sources for shipment of purchases are available.
In addition, the Company has suppliers that provide products or services to the restaurants. Management believes numerous alternative
suppliers exist and no disruption is anticipated.
Note
I – Income Taxes
The Company’s income tax expense was comprised of the following:
| |
Year End | |
| |
January 1, 2023 | |
Current: | |
| | |
Federal | |
$ | - | |
State | |
| 40,338 | |
| |
| 40,338 | |
Deferred: | |
| | |
Federal | |
| 25,259 | |
| |
$ | 25,259 | |
The
Company accounts for income taxes whereby deferred income tax assets and liabilities are computed annually for differences between the
financial reporting and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on
enacted tax rates and laws applicable to periods in which the differences are expected to affect taxable income.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
The components of the deferred tax assets and liability at January 1, 2023 was as follows:
| |
January
1, 2023 | |
Deferred income tax assets: | |
| | |
Amortization of intangibles | |
$ | 31,446 | |
Lease termination | |
| 208,898 | |
Lease liabilities | |
| 13,540,496 | |
Tax credit carryforwars | |
| 17,326,065 | |
Net operating loss carryforward | |
| 3,238,194 | |
Accrued payroll | |
| 317,035 | |
Insurance reserves | |
| 155,223 | |
163(j) interest limitation | |
| 224,929 | |
Other | |
| 302,215 | |
| |
| 35,344,501 | |
| |
| | |
Deferred income tax liability: | |
| | |
Right of use assets | |
| (10,100,530 | ) |
Property and equipment depreciation | |
| (3,244,261 | ) |
| |
| (13,344,791 | ) |
| |
| | |
| |
| 21,999,710 | |
Less: Valuation allowance | |
| (22,282,486 | ) |
Net deferred income tax liability | |
$ | (282,776 | ) |
A
valuation allowance is utilized to reduce the carrying amount of deferred tax assets reported if, based on the weight of the evidence,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of January 1, 2023, the Company
has a deferred tax liability of $282,775 representing the benefit management has estimated will more likely than not be realized. After
consideration of all of the evidence, both positive and negative, management has determined that a valuation allowance at January 1,
2023 is necessary to reserve for its deferred tax assets.
The
income tax rate for the year ended January 1, 2023 was primarily impacted by tax credits and an increase to the valuation allowance.
As
of January 1, 2023, the Company estimates indefinite pre-tax net operating loss carryforwards of approximately $11,324,000 and pre-tax
state and city net operating loss carryforwards of approximately $987,000. The Company’s net operating losses are not subject to
annual Section 382 limitations due to lack of ownership changes impacting the future realization.
The
Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized
in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement
with the relevant tax authority. Increases or decreases to the unrecognized tax benefits could result from management’s belief
that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute
of limitation for certain tax positions.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
The
Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The table below
summarizes the open tax years and ongoing examinations in major jurisdictions as of January 1, 2023:
Jurisdiction | |
| Open
Years | | |
| In
Process | |
United
States – Federal Income Tax | |
| 2019-2022 | | |
| N/A | |
United
States – various states | |
| 2019-2022 | | |
| N/A | |
The
Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of January 1, 2023, the Company
had no material uncertain tax positions and provisions for interest or penalties related to uncertain tax positions.
On
March 27, 2020, former President Trump signed into law the CARES Act. The legislation enacts various measures to assist companies affected
by the COVID-19 pandemic. Key income tax-related provisions of the bill include temporary modifications to net operating loss utilization
and carryback limitations, allowance of refundable alternative minimum tax credits, reduced limitation of charitable contributions, reduced
limitation of business interest expense, and technical corrections to depreciation of qualified improvement property.
The
Company continues to evaluate the impact from the passage of the CARES Act in the financial statements as of January 1, 2023. The Company
utilized deferred payments of payroll tax which amounted to accrual of $0 as of January 1, 2023. Other new tax regulations under the
CARES Act do not have a material impact on the financial statements. The Company has also reviewed the effects of the Act in determining
the realizability of its deferred tax assets and did not change its conclusion that a valuation allowance is needed.
On
December 27, 2020, former President Trump signed into law the Consolidated Appropriations Act, an omnibus spending bill that includes
an array of COVID-related tax relief for individuals and businesses. The tax-related measures contained in the Act revise and expand
provisions enacted earlier in the year by the Families First Coronavirus Response Act and the CARES Act. The Act also extends a number
of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar year
2022, which were deductible at 50% for year ended December 31, 2020. The Company determined that income tax effects related to the passage
of the Consolidated Appropriations Act were not material to the financial statements for the year ended January 1, 2023.
On
August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The act includes the largest-ever
U.S. investment committed to combat climate change, allocating $369 billion to energy security and clean energy programs over the next
10 years, including provisions incentivizing manufacturing of clean energy equipment. Starting on January 1, 2023, the IR Act imposed
a 15% alternative minimum tax (AMT) on corporations with book income in excess of $1 billion. The Company is not expected to be subject
to the new excise and AMT tax requirements. The Inflation Reduction Act of 2022 will not have a significant impact on the Company’s
financial statements.
Note
J –Contingencies
The
Company’s management and its legal counsel assess contingent liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that
may result in such proceedings, management and the Company’s legal counsel evaluate the perceived merits of any legal proceedings
or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a loss has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that
a loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to consolidated financial statements - continued
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees or may materially adversely affect the financial
position of the Company, in which case the nature of the guarantee or other matter would be disclosed. The Company does not believe any
reserves need to be established for any of the periods presented.
Note
K – Related Party Transactions
On
December 31, 2007, the Company entered into a management services agreement (“Services Agreement”) with Sun Capital Partners
Management V, LLC (“Sun”), a related party. The management fee and other reimbursable expenses paid to Sun during the fiscal
year ended January 1, 2023 are included in selling, general and administrative expense in the accompanying consolidated statements of
operations.
As
disclosed in Note E, the Company entered into a promissory note with Sun Barbecue, LLC to refinance its existing debt and repay the Company’s
outstanding revolving line of credit and interest for a total borrowing of approximately $19,292,000.
Note
L – Subsequent Events
Management
has evaluated subsequent events for potential disclosure in or adjustment to the consolidated financial statements through April 14,
2023, the date that the accompanying consolidated financial statements were available to be issued.
Exhibit
99.2
Condensed
Consolidated Interim Financial Statements
Barbeque
Integrated, Inc. and Subsidiaries
As
of and for the six month period ended July 2, 2023
Barbeque
Integrated, Inc. and Subsidiaries
Condensed
consolidated balance sheet
| |
July 2, 2023 | |
Assets | |
| | |
Current assets: | |
| | |
Cash and cash equivalents | |
$ | 3,645,466 | |
Accounts and other receivables, net | |
| 1,070,259 | |
Inventories, net | |
| 2,655,772 | |
Other current assets | |
| 2,548,067 | |
Total current assets | |
| 9,919,564 | |
| |
| | |
Property and equipment, net | |
| 26,831,415 | |
Right of Use Assets, net | |
| 37,481,033 | |
Intangible assets, net | |
| 206,757 | |
Deposits | |
| 563,465 | |
Total assets | |
$ | 75,002,234 | |
| |
| | |
Liabilities and Stockholder’s Equity | |
| | |
Current liabilities: | |
| | |
Accounts payable | |
| 4,767,533 | |
Accrued expenses | |
| 5,142,062 | |
Current portion of operating lease liability | |
| 12,543,451 | |
Unearned revenue | |
| 2,567,612 | |
Total current liabilities | |
| 25,020,658 | |
| |
| | |
Related party note payable | |
| 20,498,662 | |
Operating lease liability | |
| 37,551,978 | |
Deferred tax liability, net | |
| 68,843 | |
Lease exit obligation | |
| 541,685 | |
Total Liabilities | |
| 83,681,826 | |
| |
| | |
Commitments and contingencies (see Notes G and J) | |
| | |
| |
| | |
Stockholder’s deficit: | |
| | |
Common stock, $.001 par value, 1,000 shares authorized, Issued and outstanding | |
| 1 | |
Additional paid-in capital | |
| 23,421,960 | |
Accumulated deficit | |
| (32,101,553 | ) |
Total liabilities and stockholder’s deficit | |
$ | 75,002,234 | |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Condensed
consolidated statements of operations
For the six month period ended | |
July 2, 2023 | |
| |
| |
Net sales: | |
$ | 92,285,945 | |
| |
| | |
Cost of sales (exclusive of items shown seperately below): | |
| | |
Food and beverage costs | |
| 25,557,411 | |
Labor and benefits | |
| 27,572,875 | |
Rent Expense | |
| 6,025,731 | |
Restaurant operating expenses | |
| 21,307,973 | |
Restaurant exits costs | |
| 42,948 | |
Total cost of sales (exclusive of items shown seperately
below) | |
| 80,506,938 | |
| |
| | |
Operating expenses: | |
| | |
Selling, general and administrative | |
| 7,532,016 | |
Depreciation and amortization | |
| 3,158,511 | |
Total operating expenses | |
| 10,690,527 | |
Operating income | |
| 1,088,480 | |
| |
| | |
Non-operating loss, net: | |
| | |
Interest expense | |
| (996,582 | ) |
Other income | |
| 20,367 | |
Total non-operating loss, net | |
| (976,215 | ) |
| |
| | |
Income from operations before income taxes | |
| 112,265 | |
| |
| | |
Income tax benefit | |
| 177,502 | |
| |
| | |
Net income | |
$ | 289,767 | |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Condensed
consolidated statements of stockholder’s deficit
| |
Shares | | |
Common
Stock | | |
Additional Paid-In Capital | | |
Accumulated Deficit | | |
Total | |
Balances - January 1, 2023 | |
| 1000 | | |
$ | 1 | | |
$ | 23,421,960 | | |
$ | (32,391,320 | ) | |
$ | (8,969,359 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| | | |
| | | |
| | | |
| 289,767 | | |
| 289,767 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balances - July 2, 2023 | |
| 1000 | | |
| 1 | | |
| 23,421,960 | | |
| (32,101,553 | ) | |
| (8,679,592 | ) |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Condensed
consolidated statements of cash flows
For the six month period ended | |
July 2, 2023 | |
Cash flows from operating activities: | |
| | |
Net income | |
$ | 289,767 | |
Adjustments to reconcile net (loss) income to net cash provided by operating
activities: | |
| | |
Depreciation and amortization | |
| 3,158,511 | |
Non-cash lease cost | |
| 3,828,822 | |
Interest accretion on debt | |
| 944,699 | |
Loss on lease termination | |
| (267,197 | ) |
Changes in operating assets and liabilities | |
| | |
Accounts receivable | |
| 528,384 | |
Inventories | |
| 86,024 | |
Other current assets | |
| (757,266 | ) |
Accounts payable | |
| 11,277 | |
Accrued expenses and other liabilities | |
| (1,065,903 | ) |
Operating lease liability | |
| (4,534,462 | ) |
Income taxes liability | |
| (213,933 | ) |
Unearned revenue | |
| (367,554 | ) |
Net cash provided by operating activities | |
| 1,641,169 | |
| |
| | |
Cash flows used in investing activities: | |
| | |
Purchases of property and equipment | |
| (1,357,504 | ) |
Net cash used in investing activities | |
| (1,357,504 | ) |
| |
| | |
Net increase in cash and cash equivalents | |
| 283,665 | |
Cash and cash equivalents, beginning of period | |
| 3,361,801 | |
Cash and cash equivalents, end of period | |
| 3,645,466 | |
| |
| | |
Supplemental disclosure of cash flow information: | |
| | |
Cash paid during the period for interest | |
$ | 21,708 | |
Cash paid during the period for income taxes | |
$ | 30,171 | |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
Barbeque
Integrated, Inc. and Subsidiaries
Notes to condensed consolidated financial statements - continued
Note
A – Organization and Summary of Significant Accounting Policies
Business
and Basis of Presentation
The
principal business of Barbeque Integrated, Inc., a wholly-owned subsidiary of Barbeque Holding, LLC, and its subsidiaries, Smokey Bones,
LLC and Integrated Card Solutions, LLC (collectively, “the Company”), is to own and operate food and beverage restaurant
facilities located in the Eastern and Midwest United States. The Company commenced its operations upon the acquisition of the assets
and liabilities of Smokey Bones Barbeque and Grill (SB) restaurants from GMRI, Inc., GMR Restaurants of Pennsylvania, Inc., and Darden
Concepts, Inc. on December 31, 2007.
Fiscal
Year
The
Company operates on a 52-week calendar and its fiscal year ends on the last Sunday of the calendar year. Consistent with industry practice,
the Company measures its stores’ performance based upon 7-day work weeks. Using the 52-week cycle ensures consistent weekly reporting
for operations and ensures that each week has the same days since certain days are more profitable than others. The use of this fiscal
year means a 53rd week is added to the fiscal year every 5 or 6 years. In a 52-week year, all four quarters are comprised of 13 weeks.
In a 53-week year, one extra week is added to the fourth quarter. The reporting period for the six months ended July 2, 2023, is comprised
of 26 weeks.
Principles
of Consolidation
The
condensed consolidated interim financial statements include the accounts of the Company. All significant intercompany transactions are
eliminated in the consolidation process.
Use
of Estimates
The
preparation of interim financial statements in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well
as disclosures of contingent assets and liabilities at the date of the interim financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material.
Working
Capital
Our
operations have not required significant working capital, and, like many restaurant companies, we may have negative working capital during
the year. Revenues are received primarily in credit card or cash receipts, and restaurant operations do not require significant receivables
or inventories. The Company provided net cash from operations of $1,641,169 for the six months ended July 2, 2023.
Cash
and Cash Equivalents
Cash
and cash equivalents consist primarily of cash and accounts receivable from credit card processors. The Company considers all highly
liquid investment instruments purchased with original maturities of three months or less from date of purchase to be cash equivalents.
Accounts receivable from credit card processors are both short-term and liquid in nature and are typically converted to cash within three
days of the sales transaction. At July 2, 2023, the Company had $1,972,849, in receivables from credit card processors, which were subsequently
collected.
Inventories
Inventory
consists of food, beverages and merchandise and is stated at the lower of cost or net realizable value. Cost is determined utilizing
the first-in, first-out method. Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors
in evaluating lower of cost or market.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to condensed consolidated interim financial statements - continued
Property
and Equipment
Property
and equipment are capitalized and recorded at cost, less accumulated depreciation. Depreciation and amortization is provided for utilizing
the straight-line method over the estimated useful lives of the assets, which generally are as follows:
Furniture,
fixtures and equipment | |
3-7
years |
Leasehold
improvements | |
7-20
years |
Leasehold
improvements are amortized over the shorter of the estimated useful lives of the improvements, or the remaining term of the lease. Normal
repair and maintenance costs are charged to expense as incurred. Renovations, betterments and major repairs that materially extend the
life of properties are capitalized and the assets replaced, if any, are retired. Upon the sale or retirement of property and equipment,
the accounts are relieved of the cost and the related accumulated depreciation and amortization and any resulting gain or loss is included
in the accompanying condensed consolidated statements of operation.
The
Company capitalizes all direct costs incurred in the construction and renovation of its restaurants. Upon completion, these costs are
reclassified from construction in progress to the applicable property and equipment classification and depreciated.
Impairment
of Long-Lived Assets
The
Company evaluates impairment whenever events or changes in circumstances indicate that the carrying amount of an asset grouping may not
be recoverable.
For
long-lived assets, including intangibles, the Company assesses periodically whether there are indicators of impairment. If such indicators
are present, the Company assesses the recoverability of the long-lived assets by determining whether the carrying value of such assets
can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest
charges, is less than the book value, the excess of the net book value over the estimated fair value, based on discounted future cash
flows and appraisals, is charged to operations in the period in which such impairment is determined by management. For the six months
ended July 2, 2023, the Company did not identify any indicators of potential impairment.
Intangible
Assets
Intangible
assets that are not deemed to have an indefinite life are amortized over their estimated useful life.
Insurance
Accruals
The
Company maintains insurance coverage to cover material potential losses related to workers’ compensation, general liability and
certain employment claims. During fiscal years 2023 and 2022, the Company had a $25,000 self-insured retention limit for any covered
general liability claim. Accrued liabilities related to general liability claims of $154,171 as of July 2, 2023, respectively, are included
in accrued expenses in the accompanying condensed consolidated balance sheet. Amounts have been recorded based on the Company’s
estimates of the anticipated ultimate costs to settle all claims, both reported and unreported.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to condensed consolidated interim financial statements - continued
Revenue
Recognition
Revenue
is recognized in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers.
Revenue is recognized upon the transfer of promised products or services to customers in an amount that reflects the consideration the
Company received in exchange for those products or services. Revenue is recognized when payment is tendered at the time of sale. The
Company presents sales net of sales tax and other sales related discounts.
Unearned
revenue pertains to gift cards that have been sold but not yet redeemed and earned awards under the Company’s loyalty program but
not yet redeemed. Revenue is recognized when gift cards and loyalty rewards are redeemed by the customer. Breakage for unredeemed amounts
is estimated based on historical experience and is recognized as revenue in proportion to the pattern of rights exercised by the customer.
Food
and Beverage Costs
Food
and beverage costs include inventory, warehousing and related purchasing and distribution costs.
Vendor
Rebates
Third
party vendor funds received in connection with marketing agreements are recognized as a reduction of marketing expense during the period
in which the marketing activities occur. Third party vendor funds received in connection with volume purchase agreements are recognized
as a reduction of cost of goods sold during the period in which purchases occur. Differences between estimated and actual periodic amounts
are settled in accordance with the terms of the agreements.
Advertising
Costs
Advertising
costs are recorded as expenses in the period in which the costs are incurred. The total amount charged to advertising expense was $1,910,158
for the six months ended July 2, 2023 and are included as a selling, general and administrative expense in the accompanying condensed
consolidated statement of operations.
Income
Taxes
Deferred
income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities
as measured by the tax rates that are anticipated to be in effect when those differences reverse. The deferred tax provision generally
represents the net change in deferred tax assets and liabilities during the period. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance
is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company
recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities based on the technical merits of the position.
Accounting
Standards Adopted in the Current Fiscal Year
Additional
new accounting guidance became effective for the Company as of the beginning of fiscal 2023 that the Company reviewed and concluded was
either not applicable to its operations or had no material effect on its condensed consolidated interim financial statements in the current
or future fiscal years.
Newly
Issued Accounting Standards Not Yet Adopted
The
Company reviewed all other newly issued accounting pronouncements and concluded that they either are not applicable to the Company’s
operations or that no material effect is expected on the Company’s condensed consolidated interim financial statements when adoption
is required in the future.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to condensed consolidated interim financial statements - continued
Note
B – Intangible Assets
Intangible assets consist of the following:
| |
| | |
| | |
Remaining | |
| |
| | |
Useful | | |
Useful | |
| |
July 2, 2023 | | |
Life | | |
Life | |
Definite lived intangible assets: | |
| | | |
| | | |
| | |
Trade name | |
$ | 11,619,922 | | |
| 15
years | | |
| - | |
Licenses | |
| 431,430 | | |
| 13
years | | |
| 13
years | |
Favorable lease | |
| 458,380 | | |
| 19
years | | |
| 4
years | |
Other | |
| 34,286 | | |
| 5
years | | |
| 5
years | |
| |
| 12,544,018 | | |
| | | |
| | |
Accumulated amortization | |
| (12,337,261 | ) | |
| | | |
| | |
Intangible assets, net | |
$ | 206,757 | | |
| | | |
| | |
The
amortization expense for intangible assets was approximately $18,000 for the six months ended July 2, 2023, and is included in depreciation
and amortization in the accompanying condensed consolidated statement of operations. Future amortization expense will be as follows:
Fiscal year: | |
Amount | |
Remainder 2023 | |
| 18,104 | |
2024 | |
| 36,202 | |
2025 | |
| 36,202 | |
2026 | |
| 36,202 | |
2027 | |
| 12,077 | |
Thereafter | |
| 67,970 | |
| |
$ | 206,757 | |
Note
C – Property and Equipment
Property and equipment, net, consists of the following:
| |
July 2, 2023 | |
| |
| |
Leasehold improvements | |
$ | 31,058,783 | |
Furniture, fixtures and equipment | |
| 44,034,134 | |
| |
| 75,092,917 | |
Less: Accumulated depreciation and amortization | |
| (48,261,502 | ) |
| |
$ | 26,831,415 | |
Depreciation
and amortization expense for the six months ended July 2, 2023 was $3,140,410.
Note
D – Fair Value Measurements
The
Company does not have a material amount of financial assets or liabilities that are required under U.S. GAAP to be measured on a recurring
basis at fair value. The Company is not a party to any material derivative financial instruments. The Company does not have a material
amount of non-financial assets or non-financial liabilities that are required under U.S. GAAP to be measured at fair value on a recurring
basis.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to condensed consolidated interim financial statements - continued
The
Company has not elected to use the fair value measurement option, as permitted under U.S. GAAP, for any assets or liabilities for which
fair value measurement is not presently required. The Company believes the fair values of cash equivalents, accounts receivable and accounts
payable approximate their carrying amounts due to their short duration. Due to the sale of the Company sold to a third party as disclosed
in Note L below, there were no changes in the terms of the Company’s related party note payable and it was repaid at the carrying
value of the date of the transaction. The Company believes that the fair value of its Related party note payable approximates carrying
value. The fair value of the related party note payable, which is classified as Level 3 in the fair value hierarchy, is determined based
on market prices or, if market prices are not available, the present value of the underlying cash flows discounted at our incremental
borrowing rates.
Note
E – Financing Obligations
Promissory
Note
On
November 10, 2022, the Company entered into a promissory note with a related party (“Promissory Note”). The Promissory Note’s
original draw repaid the Company’s outstanding debt and interest and allows for additional unspecified amount of advances upon
request. The Promissory Note has a fixed interest rate of 9.5% accruing daily. Interest accretes to the outstanding balance. The Promissory
Note has a maturity date of November 10, 2027, allows for prepayments and requires mandatory prepayment in the event of sale, public
offering or liquidation. As of July 2, 2023, the Promissory Note had an outstanding balance of $20,498,662, including $1,206,679 in accreted
interest.
Note
F – Exit Activities and Operating Lease Obligations
The
Company periodically evaluates the performance of its operating restaurants. The costs incurred to close the restaurants in fiscal 2023
primarily relate to demarking the restaurants, removing equipment and lease termination and expenses as incurred. At July 2, 2023, the
balance amounted to approximately $542,000 and is included in lease exit obligation on the accompanying condensed consolidated balance
sheet. Closed restaurant operating expenses, net of sublease income, totaling $42,948 for the year ended July 2, 2023 are included as
restaurant exit cost in the accompanying condensed consolidated statement of operations.
Note
G – Operating Leases
The
Company recognized lease expense of approximately $6,000,000 million for the six months ended July 2, 2023.
Operating
lease right-of-use and operating lease liabilities relating to operating leases are as follows:
| |
Six Months Ended | |
| |
July 2, 2023 | |
ROU Assets | |
| | |
Property | |
$ | 50,318,314 | |
Equipment | |
| 291,814 | |
Total | |
| 50,610,128 | |
Accumulated amortization | |
| (13,129,095 | ) |
ROU assets, net | |
$ | 37,481,033 | |
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to condensed consolidated interim financial statements - continued
| |
Six Months Ended | |
| |
July 2, 2023 | |
Operating Lease Liability | |
| | |
Property | |
$ | 49,989,964 | |
Equipment | |
| 105,465 | |
Total operating leases | |
| 50,095,429 | |
Current portion of operating leases, property | |
| (12,477,832 | ) |
Current portion of operating leases, equipment | |
| (65,619 | ) |
Total current portion | |
| (12,543,451 | ) |
Long-term portion | |
$ | 37,551,978 | |
| |
| | |
Weight average remaining term in years | |
| | |
Operating leases, property | |
| 4.0 | |
Operating leases, equipment | |
| 1.5 | |
Weight average discount rate | |
| | |
Operating leases, property | |
| 5.25 | % |
Operating leases, equipment | |
| 6.02 | % |
Maturities of the operating lease liabilities is as follows at July 2, 2023:
Fiscal year: | |
Amount | |
Remainder 2023 | |
$ | 6,513,650 | |
2024 | |
| 12,578,899 | |
2025 | |
| 11,367,215 | |
2026 | |
| 10,044,631 | |
2027 | |
| 9,569,944 | |
Thereafter | |
| 7,699,353 | |
Total lease payments | |
| 57,773,692 | |
Less imputed interest | |
| (7,678,263 | ) |
Present value of lease liabilities | |
| 50,095,429 | |
Less current portion | |
| (12,543,451 | ) |
Long-term portion of lease liabilities | |
$ | 37,551,978 | |
Note
H – Concentrations
Financial
instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash
equivalents. The Company maintains cash balances at financial institutions. Accounts at these institutions are insured by the Federal
Deposit Insurance Corporation (“FDIC”). Balances may, at times, exceed FDIC insurance limits. The Company has agreements
with one primary distributor for the delivery of food items and supplies which are purchased from multiple vendors but warehoused at
the distributor’s facilities. This distributor provided for approximately 89.3% of food shipments (approximately $21.6 million)
during the six months ended July 2, 2023. The Company does not anticipate any interruption in deliveries from this distributor. In the
event deliveries were disrupted for any reason, management believes alternative sources for shipment of purchases are available. Management
believes numerous alternative suppliers exist and no disruption is anticipated.
Barbeque
Integrated, Inc. and Subsidiaries
Notes
to condensed consolidated interim financial statements - continued
Note
I – Income Taxes
The Company’s benefit for income taxes:
| |
Six Months Ended | |
| |
July 2, 2023 | |
Benefit for Income Taxes | |
$ | (177,502 | ) |
Effective tax rate | |
| -169 | % |
The
difference between the statutory tax rate of 21% and the effective tax rate of -169% in the six months ended July 2, 2023, was primarily
due to decreases in the valuation allowance, nondeductible expenses and the impact of state income taxes.
Note
J –Contingencies
The
Company’s management and its legal counsel assess contingent liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that
may result in such proceedings, management and the Company’s legal counsel evaluate the perceived merits of any legal proceedings
or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a loss has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s condensed consolidated interim financial statements. If the assessment
indicates that a loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees or may materially adversely affect the
financial position of the Company, in which case the nature of the guarantee or other matter would be disclosed. The Company does not
believe any reserves need to be established for any of the periods presented.
Note
K – Related Party Transactions
On
December 31, 2007, the Company entered into a management services agreement (“Services Agreement”) with Sun Capital Partners
Management V, LLC (“Sun”), a related party. The management fee and other reimbursable expenses paid to Sun during the six
months ended July, 2, 2023, are not material and included in selling, general and administrative expense in the accompanying condensed
consolidated statements of operations.
Note
L – Subsequent Events
Management
has evaluated subsequent events for potential disclosure in or adjustment to the condensed consolidated interim financial statements
through October 27, 2023, the date that the accompanying condensed consolidated interim financial statements were available to be issued.
On
July 16, 2023, the Company closed one of its locations due to an expiring lease agreement. Expenses relating to this closure amounted
to approximately $184,000 through October 27, 2023.
On
September 5, 2023, the Company received an advance of $1,000,000 through its Promissory Note (Note D).
On
September 25, 2023, the Company sold all the outstanding equity interests to FAT Brands Inc. (the “Buyer”) for a purchase
price of $30,000,000, subject to certain adjustments, which was paid by the Buyer in cash at closing. The parties agreed following the
closing to cooperate to finalize certain customary adjustments to the purchase price with respect to working capital. As a part of the
Company sale, the Company repaid the outstanding balance due through its Related Party Promissory Note.
Exhibit
99.3
Unaudited
Pro Forma Condensed Combined Financial Statements
On
September 25, 2023, FAT Brands, Inc. (“the Company”) completed the acquisition of Barbeque Integrated, Inc. and Subsidiaries
(“BBQI”) for a total purchase price of $31.8 million in cash (the “BBQI Acquisition”).
The
following unaudited pro forma condensed combined balance sheet as of June 25, 2023 gives effect to the BBQI Acquisition as if it had
occurred on June 25, 2023, and the following unaudited pro forma condensed combined statements of operations for the twenty-six weeks
ended June 25, 2023 and for the year ended December 25, 2022 give effect to the BBQI Acquisition as if it had occurred on December 27,
2021 (the “Pro Forma Financial Statements”). The Pro Forma Financial Statements are based on historical financial information
of the entities, as adjusted to give effect to the Acquisition. The Pro Forma Financial Statements have been prepared in accordance with
Article 11 of Regulation S-X.
The
following Pro Forma Financial Statements do not reflect the financial condition at the date or results of operations of the Company for
the periods indicated. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available
information, and in many cases are based on estimates and preliminary information. The assumptions underlying the pro forma adjustments
are described in the accompany notes to the unaudited pro forma combined financial statements. However, the Pro Forma Financial Statements
may not be indicative of our future performance and do not necessarily reflect what our financial condition and results of operations
would have been had the acquisition to which the pro forma adjustments relate occurred on the dates indicated above.
Unaudited
Pro Forma Combined Balance Sheet
As of June 25, 2023
(in
thousands)
| |
Historical
Results | | |
| | |
| |
| |
Fat
Brands, Inc. | | |
BBQI | | |
BBQI
Transaction Accounting Adjustments (Note 4) | | |
Pro
Forma | |
| |
| | |
| | |
| | |
| |
ASSETS | |
| | | |
| | | |
| | | |
| | |
Current assets: | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 30,569 | | |
$ | - | | |
$ | - | | |
$ | 30,569 | |
Cash and cash equivalents | |
| - | | |
| 3,645 | | |
| (3,645 | ) | (a) |
| - | |
Restricted cash | |
| 26,564 | | |
| - | | |
| - | | |
| 26,564 | |
Accounts Receivable, net
of allowances | |
| 29,006 | | |
| 1,070 | | |
| 1,973 | | (a) |
| 32,049 | |
Inventory | |
| 6,254 | | |
| 2,656 | | |
| - | | |
| 8,910 | |
Assets classified as held
for sale | |
| 3,887 | | |
| - | | |
| - | | |
| 3,887 | |
Prepaids and other current
assets | |
| - | | |
| 2,548 | | |
| (2,548 | ) | (a) |
| - | |
Other
current assets | |
| 8,004 | | |
| - | | |
| 2,548 | | (a) |
| 10,552 | |
Total current assets | |
| 104,284 | | |
| 9,919 | | |
| (1,672 | ) | |
| 112,531 | |
Non-current restricted
cash | |
| 14,743 | | |
| - | | |
| - | | |
| 14,743 | |
Other intangible assets,
net | |
| 617,755 | | |
| 207 | | |
| (207 | ) | (b) |
| 617,755 | |
Amortizable intangible
assets, net | |
| - | | |
| - | | |
| 8,800 | | (b) |
| 8,800 | |
Goodwill | |
| 293,282 | | |
| - | | |
| - | | |
| 293,282 | |
Operating lease right of
use assets | |
| 101,587 | | |
| 37,481 | | |
| 72,127 | | (b)(c) |
| 211,195 | |
Property and equipment,
net | |
| 79,577 | | |
| 26,831 | | |
| 550 | | (b) |
| 106,958 | |
Other
assets | |
| 4,613 | | |
| 564 | | |
| - | | |
| 5,177 | |
Total
assets | |
$ | 1,215,841 | | |
$ | 75,002 | | |
$ | 79,598 | | |
$ | 1,370,441 | |
LIABILITIES AND STOCKHOLDERS’
EQUITY | |
| | | |
| | | |
| | | |
| | |
Current
liabilities: | |
| | | |
| | | |
| | | |
| | |
Accounts payable | |
$ | 16,303 | | |
$ | 4,768 | | |
$ | - | | |
$ | 21,071 | |
Accrued expenses and other
liabilities | |
| 51,156 | | |
| 5,142 | | |
| - | | |
| 56,298 | |
Accrued interest payable | |
| 16,722 | | |
| - | | |
| - | | |
| 16,722 | |
Accrued Advertising | |
| 14,032 | | |
| - | | |
| - | | |
| 14,032 | |
Deferred income, current
portion | |
| 1,862 | | |
| 2,568 | | |
| 238 | | (b) |
| 4,668 | |
Dividend payable on preferred
shares | |
| 1,278 | | |
| - | | |
| - | | |
| 1,278 | |
Liabilities related to
assets classified as held for sale | |
| 3,479 | | |
| - | | |
| - | | |
| 3,479 | |
Operating lease liability,
current portion | |
| 14,904 | | |
| 12,543 | | |
| (8,680 | ) | (c) |
| 18,767 | |
Redeemable preferred stock | |
| 91,836 | | |
| - | | |
| - | | |
| 91,836 | |
Long-term debt, current
portion | |
| 35,848 | | |
| - | | |
| - | | |
| 35,848 | |
Acquisition
purchase price payable | |
| 4,000 | | |
| - | | |
| - | | |
| 4,000 | |
Total
current liabilities | |
| 251,420 | | |
| 25,021 | | |
| (8,442 | ) | |
| 267,999 | |
Deferred income, net of
current portion | |
| 22,529 | | |
| - | | |
| - | | |
| 22,529 | |
Long-term debt, net of
current portion | |
| 1,018,494 | | |
| - | | |
| 31,846 | | (d) |
| 1,050,340 | |
Related party note payable | |
| - | | |
| 20,499 | | |
| (20,499 | ) | (e) |
| - | |
Operating lease liability,
net of current portion | |
| 95,815 | | |
| 37,552 | | |
| 68,013 | | (c) |
| 201,380 | |
Deferred income tax liabilities,
net | |
| 29,147 | | |
| 69 | | |
| - | | |
| 29,216 | |
Other
liabilities | |
| 1,631 | | |
| 541 | | |
| - | | |
| 2,172 | |
Total liabilities | |
| 1,419,036 | | |
| 83,682 | | |
| 70,918 | | |
| 1,573,636 | |
| |
| | | |
| | | |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | | |
| | | |
| | |
Preferred stock | |
| 43,566 | | |
| - | | |
| - | | |
| 43,566 | |
Common stock | |
| (28,877 | ) | |
| - | | |
| - | | |
| (28,877 | ) |
Accumulated deficit | |
| (217,884 | ) | |
| (32,102 | ) | |
| 32,102 | | |
| (217,884 | ) |
Additional
paid in capital | |
| - | | |
| 23,422 | | |
| (23,422 | ) | |
| - | |
Total
stockholders’ equity | |
| (203,195 | ) | |
| (8,680 | ) | |
| 8,680 | | |
| (203,195 | ) |
Total
liabilities and stockholders’ equity | |
$ | 1,215,841 | | |
$ | 75,002 | | |
$ | 79,598 | | |
$ | 1,370,441 | |
Unaudited
Pro Forma Combined Statement of Operations
For
the Six Months Ended June 25, 2023
(in
thousands, except share and per share amounts)
| |
Historical
Results | | |
| | |
| |
| |
Fat
Brands, Inc. | | |
BBQI | | |
BBQI
Transaction Accounting Adjustments (Note 4) | | |
Pro
Forma | |
| |
| | |
| | |
| | |
| |
Revenues | |
| | | |
| | | |
| | | |
| | |
Royalties | |
$ | 45,236 | | |
$ | - | | |
$ | - | | |
$ | 45,236 | |
Restaurant sales | |
| 125,379 | | |
| 92,286 | | |
| - | | |
| 217,665 | |
Advertising fees | |
| 19,019 | | |
| - | | |
| - | | |
| 19,019 | |
Factory revenues | |
| 18,851 | | |
| - | | |
| - | | |
| 18,851 | |
Franchise fees | |
| 1,565 | | |
| - | | |
| - | | |
| 1,565 | |
Other revenue | |
| 2,405 | | |
| - | | |
| - | | |
| 2,405 | |
Total revenues | |
| 212,455 | | |
| 92,286 | | |
| - | | |
| 304,741 | |
Costs and expenses | |
| | | |
| | | |
| | | |
| | |
General and administrative expense | |
| 38,362 | | |
| 7,532 | | |
| - | | |
| 45,894 | |
Cost of restaurant and factory revenues | |
| 118,589 | | |
| - | | |
| 80,507 | | (aa) |
| 199,096 | |
Food and beverage costs | |
| - | | |
| 25,557 | | |
| (25,557 | ) | (aa) |
| - | |
Labor and benefits | |
| - | | |
| 27,573 | | |
| (27,573 | ) | (aa) |
| - | |
Rent expense | |
| - | | |
| 6,026 | | |
| (6,026 | ) | (aa) |
| - | |
Restaurant operating expenses | |
| - | | |
| 21,308 | | |
| (21,308 | ) | (aa) |
| - | |
Restaurant exit costs | |
| - | | |
| 43 | | |
| (43 | ) | (aa) |
| - | |
Depreciation and amortization | |
| 14,177 | | |
| 3,159 | | |
| 422 | | (bb) |
| 17,758 | |
Refranchising (gain) loss | |
| 338 | | |
| - | | |
| - | | |
| 338 | |
Impairment of goodwill and other intangible
assets | |
| - | | |
| - | | |
| - | | |
| - | |
Advertising expense | |
| 22,137 | | |
| - | | |
| - | | |
| 22,137 | |
Total
other income (expense) | |
| 193,603 | | |
| 91,198 | | |
| 422 | | |
| 285,223 | |
Income
(Loss) from operations | |
| 18,852 | | |
| 1,088 | | |
| (422 | ) | |
| 19,518 | |
Other
income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (45,098 | ) | |
| (996 | ) | |
| (278 | ) | (cc) |
| (46,372 | ) |
Interest expense related
to preferred shares | |
| (9,354 | ) | |
| - | | |
| - | | |
| (9,354 | ) |
Other
income (expense), net | |
| 265 | | |
| 20 | | |
| - | | |
| 285 | |
Total
other income (expense) | |
| (54,187 | ) | |
| (976 | ) | |
| (278 | ) | |
| (55,441 | ) |
(Loss)
income before income tax expense | |
| (35,335 | ) | |
| 112 | | |
| (700 | ) | |
| (35,923 | ) |
Income
tax provision (benefit) | |
| 3,882 | | |
| (178 | ) | |
| (182 | ) | (dd) |
| 3,522 | |
Net
loss | |
| (39,217 | ) | |
| 290 | | |
| (518 | ) | |
| (39,445 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (39,217 | ) | |
| 290 | | |
| (518 | ) | |
| (39,445 | ) |
Dividends on preferred
shares | |
| (3,381 | ) | |
| - | | |
| - | | |
| (3,381 | ) |
| |
| (42,598 | ) | |
| 290 | | |
| (518 | ) | |
| (42,826 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss
per common share | |
$ | (2.58 | ) | |
$ | - | | |
$ | - | | |
$ | (2.59 | ) |
Basic and diluted weighted average shares
outstanding | |
| 16,521,590 | | |
| - | | |
| - | | |
| 16,521,590 | |
Unaudited
Pro Forma Combined Condensed Statement of Operations
For
the Year Ended December 25, 2022
(in
thousands, except share and per share amounts)
| |
Historical
Results | | |
| | |
| |
| |
Fat
Brands, Inc. | | |
BBQI | | |
BBQI
Transaction Accounting Adjustments (Note 4) | | |
Pro
Forma | |
| |
| | |
| | |
| | |
| |
Revenues | |
| | | |
| | | |
| | | |
| | |
Royalties | |
$ | 87,921 | | |
$ | - | | |
$ | - | | |
$ | 87,921 | |
Restaurant
sales | |
| 241,001 | | |
| 184,644 | | |
| - | | |
| 425,645 | |
Advertising
fees | |
| 37,997 | | |
| - | | |
| - | | |
| 37,997 | |
Factory
revenues | |
| 33,504 | | |
| - | | |
| - | | |
| 33,504 | |
Franchise
fees | |
| 3,706 | | |
| - | | |
| - | | |
| 3,706 | |
Other
revenue | |
| 3,095 | | |
| - | | |
| - | | |
| 3,095 | |
Total
revenues | |
| 407,224 | | |
| 184,644 | | |
| - | | |
| 591,868 | |
Costs
and expenses | |
| | | |
| | | |
| | | |
| | |
General
and Adminstrative expense | |
| 113,313 | | |
| 13,780 | | |
| - | | |
| 127,093 | |
Cost
of restaurant and factory revenues | |
| 221,627 | | |
| - | | |
| 165,045 | | (aa) |
| 386,672 | |
Food
and beverage costs | |
| - | | |
| 54,215 | | |
| (54,215 | ) | (aa) |
| - | |
Labor
and benefits | |
| - | | |
| 55,431 | | |
| (55,431 | ) | (aa) |
| - | |
Rent
expense | |
| - | | |
| 12,327 | | |
| (12,327 | ) | (aa) |
| - | |
Restaurant
operating expenses | |
| - | | |
| 43,042 | | |
| (43,042 | ) | (aa) |
| - | |
Restaurant
exit costs | |
| - | | |
| 30 | | |
| (30 | ) | (aa) |
| - | |
Depreciation
and amortization | |
| 27,015 | | |
| 6,639 | | |
| 83 | | (bb) |
| 33,737 | |
Impairment
of goodwill and other intangible assets | |
| 14,000 | | |
| 1,332 | | |
| - | | |
| 15,332 | |
Refranchising
(gain) loss | |
| 4,178 | | |
| - | | |
| - | | |
| 4,178 | |
Advertising
expense | |
| 44,612 | | |
| - | | |
| - | | |
| 44,612 | |
Acquisition
costs | |
| 383 | | |
| - | | |
| - | | |
| 383 | |
Total
costs and expenses | |
| 425,128 | | |
| 186,796 | | |
| 83 | | |
| 612,007 | |
Income
(Loss) from operations | |
| (17,904 | ) | |
| (2,152 | ) | |
| (83 | ) | |
| (20,139 | ) |
Other
income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest
expense, net | |
| (78,477 | ) | |
| (871 | ) | |
| (1,677 | ) | (cc) |
| (81,025 | ) |
Interest
expense related to preferred shares | |
| (16,372 | ) | |
| - | | |
| - | | |
| (16,372 | ) |
Other
income (expense), net | |
| 5,375 | | |
| (302 | ) | |
| - | | |
| 5,073 | |
Total
other income (expense) | |
| (89,474 | ) | |
| (1,173 | ) | |
| (1,677 | ) | |
| (92,324 | ) |
Income
(Loss) before income tax expense | |
| (107,378 | ) | |
| (3,325 | ) | |
| (1,760 | ) | |
| (112,463 | ) |
Income
tax provision (benefit) | |
| 18,810 | | |
| 66 | | |
| (458 | ) | (dd) |
| 18,418 | |
Net
loss | |
$ | (126,188 | ) | |
$ | (3,391 | ) | |
$ | (1,302 | ) | |
$ | (130,881 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| (126,188 | ) | |
| (3,391 | ) | |
| (1,302 | ) | |
| (130,881 | ) |
Dividends
on preferred shares | |
| (6,636 | ) | |
| - | | |
| - | | |
| (6,636 | ) |
| |
| (132,824 | ) | |
| (3,391 | ) | |
| (1,302 | ) | |
| (137,517 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic
and diluted loss per common share | |
$ | (8.06 | ) | |
$ | - | | |
$ | - | | |
$ | (8.35 | ) |
Basic
and diluted weighted average shares outstanding | |
| 16,476,090 | | |
| - | | |
| - | | |
| 16,476,090 | |
Notes
to Unaudited Pro Forma Condensed Combined Financial Statements
NOTE
1 – BASIS OF PRESENTATION
The
Pro Forma Financial Statements are based on historical financial statements of the entities, as adjusted to give effect to the BBQI Acquisition.
The pro forma condensed combined balance sheet as of June 25, 2023 gives effect to the BBQI Acquisition as if it had occurred on June
25, 2023. The pro forma condensed combined statements of operations for the twenty-six weeks ended June 25, 2023 and for the year ended
December 25, 2022 give effect to the BBQI Acquisition as if it had occurred on December 27, 2021 (the beginning of the Company’s
2022 fiscal year). In addition to the historical financial statements included as exhibits to this Form 8-K/A, the Pro Forma Financial
Statements should be read in conjunction with the following information or documents filed with the U.S. Securities and Exchange Commission
(the “SEC”): the Company’s Form 10-K as of December 25, 2022 filed with the SEC on February 24, 2023, the Form 10-Q
as of June 25, 2023 filed with the SEC on August 4, 2023 and the Form 8-K filed with the SEC on September 26, 2023.
NOTE
2 – PRELIMINARY PURCHASE PRICE ALLOCATION
The
Pro Forma Financial Statements include various assumptions, including those related to the preliminary purchase price allocations of
the assets acquired and liabilities assumed of BBQI on preliminary estimates of fair value by management and third-party valuation experts.
The final purchase price allocations may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets
and assumed liabilities as well as final post-closing adjustments, if any. Accordingly, the pro forma adjustments are preliminary and
may be subject to change.
The
preliminary assessment of the fair value of the net assets and liabilities acquired by the Company through the BBQI Acquisition was estimated
at $31.8 million. The preliminary allocation of the consideration to the net tangible and intangible assets acquired is presented in
the table below (in millions):
Accounts receivable | |
$ | 3.0 | |
Inventory | |
| 2.7 | |
Prepaids and other current assets | |
| 2.5 | |
Other intangible assets, net | |
| 8.8 | |
Operating lease right of use assets | |
| 109.4 | |
Other assets | |
| 0.6 | |
Property and equipment, net | |
| 27.4 | |
Below market leases | |
| 0.2 | |
Accounts payable | |
| (4.8 | ) |
Accrued expenses and other liabilities | |
| (5.1 | ) |
Deferred income – current | |
| (2.8 | ) |
Operating lease liability, current portion | |
| (3.9 | ) |
Operating lease liability, net of current portion | |
| (105.6 | ) |
Deferred income tax liabilities, net | |
| (0.1 | ) |
Other liabilities | |
| (0.5 | ) |
Total net identifiable
assets | |
$ | 31.8 | |
NOTE
3 – IDENTIFIABLE INTANGIBLE ASSETS
Our
preliminary valuation estimates of the identifiable intangible assets acquired in connection with the BBQI Acquisition are based on initial
valuations performed by management and third-party experts. However, these estimates are preliminary, as we have not completed our analysis
of all the facts surrounding the business acquired and therefore have not finalized the accounting for these transactions. Our preliminary
estimate of identifiable intangible assets total $8.8 million in trademarks.
NOTE
4 – PRO FORMA ADJUSTMENTS
The
pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have
been reflected in the Pro Forma Financial Statements:
Balance
Sheet Pro Forma Adjustments
|
(a) |
Represents
reclassifications that have been made to the historical presentation to conform to the financial statement presentation of the Company. |
|
|
|
|
(b) |
Reflects
the adjustment of historical tangible and intangible assets acquired by the Company to their estimated fair values. The estimates
of fair value may differ from amounts the Company will calculate after completing a detailed valuation analysis, and the difference
could have a material effect on the accompanying unaudited pro forma condensed combined financial statements. |
|
|
|
|
(c) |
Reflects
the adjustment of historical assets and liabilities for the rights and obligations created by leases with a term of more than twelve
months to the present value as of the acquisition date, pursuant to ASU 2016-02, Leases (Topic 842), using the Company’s
incremental borrowing rate of 8.4%. BBQI has certain operating leases for company-owned restaurant properties and for a corporate
office. |
|
|
|
|
(d) |
The
increase to debt reflects the sale of $31.8 million aggregate principal amount of new fixed rate asset backed notes bearing interest
at 8.00%. |
|
|
|
|
(e) |
The
decrease to related party note payable reflects the extinguishment of BBQI’s outstanding debt upon consummation of the acquisition. |
Statement
of Operations Pro Forma Adjustments
|
(aa) |
Represents
reclassifications that have been made to the historical presentation of BBQI to conform to
the financial presentation of the Company.
|
|
(bb) |
Represents
the adjustment to reflect the amortization related to amortizing intangible assets (see (b) above). |
|
|
|
|
(cc)
|
Represents
the net increase in interest expense resulting from the issuance of new fixed rate debt (see (d) above), partially offset by the
decrease in interest expense resulting from the extinguishment of BBQI’s outstanding debt upon consummation of the acquisition
(see (e) above). |
|
|
|
|
(dd) |
Represents
the income tax expense effect based on a statutory income tax rate of 26%. |
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