Item 8. Financial Statements and Supplementary Data.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
1.Nature of Operations and Summary of Significant Accounting Policies
Organization
On December 16, 2020 (the "Closing Date"), the Company, formerly known as Opes Acquisition Corp., consummated a business combination transaction (the “Business Combination”) pursuant to which it acquired (i) the private operating company formerly called BurgerFi International, LLC (“BurgerFi” or “Predecessor”). In connection with the closing of the Business Combination, the Company changed its name to BurgerFi International, Inc. (the “Company” or “Successor”). The financial results described herein for the dates and periods prior to the Business Combination relate to the operations of the Predecessor, BurgerFi prior to the consummation of the Business Combination. The Consolidated Financial Statements after the Closing Date include the accounts of the Company and its wholly owned subsidiaries including BurgerFi.
Basis of presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
As a result of the Business Combination, the Company is the acquirer for accounting purposes and BurgerFi is the acquiree and accounting predecessor. The Company’s financial statement presentation distinguishes the Company’s financial performance into two distinct periods, the period up to the Closing Date (labeled “Predecessor”) and the period including and after that date (labeled “Successor”).
The Business Combination was accounted for using the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired.
Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. See Note 5 – Business Combinations for a discussion of the estimated fair values of assets and liabilities recorded in connection with the Company’s acquisition of BURGERFI.
As a result of the application of the acquisition method of accounting as of the Closing Date of the Business Combination, the accompanying Consolidated Financial Statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are presented on a different basis and are therefore, not comparable.
The historical financial information of Opes Acquisition Corp. prior to the Business Combination (a special purpose acquisition company, or “SPAC”) has not been reflected in the Predecessor financial statements as these historical amounts have been determined to be not useful information to a user of the financial statements. SPACs deposit the proceeds from their initial public offerings into a segregated trust account until a business combination occurs, where such funds are then used to pay consideration for the acquiree and/or to pay stockholders who elect to redeem their shares of common stock in connection with the business combination. The operations of a SPAC, until the closing of a business combination, other than income from the trust account investments and transaction expenses, are nominal. Accordingly, no other activity in the Company was reported for periods prior to December 16, 2020 besides BURGERFI’s operations as Predecessor.
Reclassifications
Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.
58
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Nature of operations
The Company, through its wholly owned subsidiary BurgerFi International, LLC, (a Delaware limited liability company) and additional Subsidiaries (collectively, “BurgerFi”) is the exclusive franchisor of the BurgerFi concept. The BurgerFi concept is a quick service restaurant offering handcrafted natural Angus gourmet burgers, hot dogs, chicken, fresh cut fries, craft beers, wine and freshly prepared custards in an urban environment. Franchises are sold in restricted geographical territories. BurgerFi has prepared its Franchise Disclosure Document as required by the United States Federal Trade Commission and has registered or will register in those states where required in order to legally sell its franchises. It is currently the BurgerFi’s plan to offer franchises for sale in those states where demographics of the population represent a demand for the services. BurgerFi grants franchises to independent operators who in turn pay an initial franchise fee, royalties and other fees as stated in the franchise agreement.
Store activity for the years ended December 31, 2020 and 2019 is as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
2020
|
|
|
|
2019
|
|
Franchised stores, beginning of year
|
|
|
117
|
|
|
|
|
109
|
|
Stores opened during the year
|
|
|
9
|
|
|
|
|
15
|
|
Stores transferred/sold to the Company
|
|
|
(2
|
)
|
|
|
|
0
|
|
Stores closed during the year
|
|
|
(22
|
)
|
|
|
|
(7
|
)
|
Franchised stores, end of year
|
|
|
102
|
|
|
|
|
117
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
2020
|
|
|
|
2019
|
|
Company-owned stores, beginning of year
|
|
|
13
|
|
|
|
|
11
|
|
Stores opened during the year
|
|
|
2
|
|
|
|
|
3
|
|
Stores transferred/sold to the Company
|
|
|
2
|
|
|
|
|
0
|
|
Stores closed during the year
|
|
|
-
|
|
|
|
|
(1
|
)
|
Company-owned stores, end of year
|
|
|
17
|
|
|
|
|
13
|
|
End of year store totals included two and five international stores at December 31, 2020 and 2019, respectively.
59
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Liquidity and COVID-19
Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand. As of December 31, 2020, we maintained a cash and cash equivalents balance of approximately $40 million.
Our primary requirements for liquidity are to fund our working capital needs, operating and finance lease obligations, capital expenditures and general corporate needs. Our requirements for working capital are generally not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our ongoing capital expenditures are principally related to opening new BurgerFis, existing BurgerFi capital investments (both for remodels and maintenance), as well as investments in our digital and corporate infrastructure.
We believe our existing cash and cash equivalents, combined with the actions we have taken in response to COVID-19, will be sufficient to fund our operating and finance lease obligations, capital expenditures, and working capital needs for at least the next 12 months and the foreseeable future.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law. As a result of the required changes to consumer behavior to largely off-premises dining, as well as promotional activities associated with delivery, we have seen some recovery in sales at the end of the second quarter. Our most significant declines in sales were in late March through the third week in April. Beginning in May and through the end of 2020, sales began to recover.
From May 4, 2020 to May 11, 2020, the Company has applied for and has received approximately $2.2 million from stimulus loans under the SBA Paycheck Protection Program of the CARES Act. The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. The Company intends to apply to the lender for forgiveness of the stimulus loan. The Company’s eligibility for the stimulus loan, expenditures that qualify toward forgiveness, and the final balance of the stimulus loan that may be forgiven are subject to audit and final approval by the SBA. While the Company believes the loan was properly obtained, there can be no assurance regarding the outcome of an SBA review.
The stimulus loans are being accounted for under ASC 470, Debt, whereby interest expense is being accrued at the contractual rate and future debt maturities are based on the assumptions that none of the principal balance will be forgiven. Forgiveness, if any, will be recognized as a gain on extinguishment if the lender legally releases the Company based on the criteria set forth in the debt agreement and the CARES Act.
Principles of Consolidation
The Successor Consolidated Financial Statements include all amounts of the Company and its subsidiaries. The Predecessor Consolidated Financial Statements include all amounts of BURGERFI and its subsidiaries. All intercompany balances and transactions have been eliminated.
We also consider for consolidation entities in which we have certain interests, where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (“VIE”), is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it.
The consolidated financial statements present the consolidated financial position, results from operations and cash flows of BurgerFi International, Inc., and its wholly owned subsidiaries. All material balances and transactions between the entities have been eliminated in consolidation.
60
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting year. Actual results could differ from those estimates.
Segment Reporting
The Company owns and operates BurgerFi restaurants in the United States, and also have domestic and international franchisees. The chief operating decision makers (the “CODMs”) are the Company’s President, Chief Operating Officer and Chief Financial Officer. As the CODMs review financial performance and allocate resources at a consolidated level on a recurring basis, the Company has one operating reporting segment and one reportable segment.
Variable Interest Entities
For VIE(s), the Company assesses whether the Company is the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIE. The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the performance of the entity and the obligation to absorb the losses or the right to receive the benefits that could potentially be significant to the entity.
The Company has evaluated its business relationships with franchisees to identify potential VIEs. While the Company holds a variable interest in some of the franchised restaurants owned by an affiliated entity, the Company is not the primary beneficiary since it does not have the power to direct the activities of these franchised restaurants. As a result, the Company does not consolidate those VIEs. At December 31, 2020, the Company is a guarantor for six operating leases for those entities, BF Secaucus, LLC; BF Tallahassee, LLC; BF Fort Myers, LLC; BF NY82, LLC; BF Naples Tamiami, LLC; and BF Naples Immokalee. Additionally, the Company is a guarantor for a lease for The Burger Bunch, LLC, an unrelated party. The Company may become responsible for the payments under its guarantee. The Company has determined that its maximum exposure to loss on the VIEs that it is not the primary beneficiary on results from the lease guarantees amounts to approximately $6,200,000.
Additionally, on April 23, 2018 (the “Takeover Date”), the Company entered into an asset purchase and management agreement (the “APM”) with a multiple unit franchisee. The APM allowed the Company to acquire the assets of two of the franchisee’s restaurants for the consideration of the Company making the monthly principal and interest payments on the franchisee’s three bank loans through 2027. The closing on asset purchase would occur only when the debt was paid in full. The outstanding principal on the loans was approximately $1,291,000 on the Takeover Date. The APM allowed the Company to take over the management and operation of the two restaurants with full control over all operational decision making. Under the APM, the Company provided all capital for all of the restaurants’ expenditures it deemed appropriate, and paid all costs and expenses associated with the operations. All cash flow and profits or losses derived from the operations after the Takeover Date belong to the Company. The Company had evaluated the franchisee which is a party to the APM for VIE accounting under ASC 810 “Consolidation” and had determined that the franchisee under the APM was a VIE and that the Company was the primary beneficiary, effective on the Takeover Date until December 31, 2020. During 2020 BurgerFi negotiated a release of the lien from the banks on the equipment in these restaurants. Also, during 2020, BurgerFi was able to have the leases on the restaurants assigned to BurgerFi. On December 31, 2020, BurgerFi had discontinued the management of the two restaurants by termination of the APM and the franchise agreements.
As a result of the discontinuation of the termination the franchisee was deconsolidated on December 31, 2020 which resulted in $791,000 gain on extinguishment of debt.
61
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The acquisition was accounted for as a business combination under the acquisition method as of the Takeover Date, and accordingly, the results of its operations are included in the Company’s consolidated financial statements from that date until December 31, 2020 as noted above. Net sales for the consolidated VIE for the Successor period from December 16, 2020 to December 31, 2020 and for the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019 were $200,000, $3,700,000 and $3,900,000, respectively. Net income (loss) for the consolidated VIE for the Successor period from December 16, 2020 to December 31, 2020 and for the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019 was $50,000, $10,000 and ($75,000), respectively.
The consideration was the fair value of the three loans at the Takeover Date and the assets are recorded based on the fair values of the assets acquired, net of current liabilities as of the Takeover Date as follows (in thousands):
Cash
|
|
$
|
39
|
|
Accounts Receivable
|
|
|
1
|
|
Inventory
|
|
|
28
|
|
Other current assets
|
|
|
24
|
|
Property & equipment
|
|
|
1,126
|
|
Other assets
|
|
|
4
|
|
Current liabilities
|
|
|
(330
|
)
|
Net tangible and identifiable intangible assets acquired
|
|
|
892
|
|
Goodwill
|
|
|
397
|
|
Net assets acquired
|
|
$
|
1,289
|
|
Included in the consolidated financial statements are the following from variable interest entities for which the Company was the primary beneficiary (in thousands):
|
|
Predecessor
|
|
|
|
December 31,
2019
|
|
Cash
|
|
$
|
3
|
|
Property and equipment
|
|
|
853
|
|
Goodwill
|
|
|
398
|
|
Total Assets
|
|
$
|
1,254
|
|
Current notes payable
|
|
$
|
1,207
|
|
Notes payable – net of current portion
|
|
|
—
|
|
Total liabilities
|
|
|
1,207
|
|
Total members’ equity
|
|
|
47
|
|
Total Liabilities and Members’ Equity
|
|
$
|
1,254
|
|
The three loans were collateralized by the VIEs’ assets and the creditors of the loans did not have recourse to the general credit of the Company. The carrying value of the VIEs assets which had collateralized the loans are noted above.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less as cash equivalents. Cash and cash equivalents also include approximately $11,000 and $339,000 as of December 31, 2020 and 2019, respectively, of amounts due from commercial credit card companies, such as Visa, MasterCard, Discover, and American Express, which are generally received within a few days of the related transactions. At times, the balances in the cash and cash equivalents accounts may exceed federal insured limits. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. The Company limits uninsured balances to only large, well-known financial institutions and believes that it is not exposed to significant credit risk on cash and cash equivalents.
62
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Restricted Cash
Restricted cash consists of (i) cash collected (net of redemptions) from gift cards, (ii) cash balances for the advertising co-op, (iii) Level-up loyalty program cash collections, (iii) cash held in escrow in an amount equal to the PPP loans as required by the SBA upon a change of control, and (iii) initial franchise deposits in escrow. The Company is the custodian of these account balances, but these accounts are in place for specific, restricted purposes, which typically are resolved within twelve months. The Company classifies the restricted cash accounts as current assets.
Accounts Receivable
Accounts receivable consist of amounts due from franchisees for training and royalties and are stated at the amount invoiced. Accounts receivable are stated at the amount management expects to collect from balances outstanding at year end. Management provides for probable uncollectible amounts through a charge to earnings and a credit to allowance for uncollectible accounts based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for uncollectible accounts and a credit to accounts receivable. The allowance for uncollectible accounts was approximately $0 at December 31, 2020 and $65,000 at December 31, 2019.
Inventories
Inventories primarily consist of food and beverages. Inventories are accounted for at lower of cost or net realizable value using the first-in, first-out (FIFO) method. Spoilage is expensed as incurred.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is provided by the straight-line method over an estimated useful life. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful life of the asset (generally up to ten years) or the term of the related lease. The estimated lives for machinery and equipment, computer equipment, furniture and fixtures, and vehicles range from five to seven years. Maintenance and repairs which are not considered to extend the useful lives of the assets are charged to operations as incurred. Expenditures for additions and improvements are capitalized. Expenditures for renewals and betterments, which materially extend the useful lives of assets or increase their productivity, are capitalized. The Company capitalizes construction costs during construction of the restaurant and will begin to depreciate them once the restaurant is placed in service. Wage costs directly related to and incurred during a restaurant’s construction period are capitalized. Interest costs incurred during a restaurant’s construction period are capitalized. Upon sale or retirement, the cost of assets and related accumulated depreciation and amortization are removed from the accounts and any resulting gains or losses are included in operating expense.
Impairment of Long-Lived Assets
Our long-lived assets include the Company-operated restaurant assets and related definite-lived intangible assets, which include franchise agreements and tradenames and trademarks.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We assess the recoverability of our long-lived assets by comparing the carrying amount of the asset group to future undiscounted net cash flows expected to be generated by our individual Company-operated restaurants. If the carrying amount of the long-lived asset group is not recoverable on an undiscounted cash flow basis, then impairment is recognized to the extent that the carrying amount exceeds its fair value and is included in “Impairment of long-lived assets.” Our estimates in this review process include the anticipated future cash flows from Company-operated restaurants, which is used in assessing the recoverability of the respective long-lived assets.
Our fair value estimates are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment. Should actual cash flows and our future estimates vary adversely from those estimates we used, we may be required to recognize additional impairment charges in future years.
63
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Other Intangible Assets
Definite-lived intangible assets are amortized on a straight-line basis using the following estimated useful lives of the related classes of intangibles: 1 to 5 years for computer software; 7 to 10 years for franchise agreements; and 30 years for Trademarks.
The Company reviews definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. Indefinite-lived intangible assets are tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the assets may be impaired. Our annual impairment test for indefinite-lived intangible assets may be completed through a qualitative assessment to determine if the fair value of the indefinite-lived intangible assets is more likely than not greater than the carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that the estimated carrying value exceeds the fair value, we test for impairment using a quantitative process. If the Company determines that impairment of its intangible assets may exist, the amount of impairment loss is measured as the excess of carrying value over fair value. Our estimates in the determination of the fair value of indefinite-lived intangible assets include the anticipated future revenue of Company-operated and franchised restaurants and the resulting cash flows.
Goodwill
As of December 31, 2020 and 2019, in connection with the Business Combination with BurgerFi and the APM described above, the Company has a balance of approximately $119,542,000 and $398,000, respectively, of goodwill on its consolidated balance sheet. The Company accounts for goodwill in accordance with FASB ASC No. 350, Intangibles—Goodwill and Other (“ASC 350”). ASC 350 requires goodwill to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. The Company evaluates goodwill in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. This impairment test involves comparing the fair value of the reporting unit with its carrying value (including goodwill). The Company estimates the fair values of its reporting unit using a combination of the income, or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the estimated fair value of the reporting unit is less than its carrying value, a goodwill impairment exists for the reporting unit and an impairment loss is recorded. There were no impairments of goodwill recognized for the years ended December 31, 2020 and 2019.
Share-Based Compensation
The Company has granted share-based compensation awards to certain employees under the 2020 Omnibus Equity Incentive Plan (the “Plan”). The Company measures the cost of employee services received in exchange for an equity award, which may include grants of employee stock options and restricted shares, based on the fair value of the award at the date of grant. The Company recognizes share-based compensation expense over the requisite service period unless the awards are subject to performance conditions, in which case we recognize compensation expense over the requisite service period to the extent performance conditions are considered probable. The Company will determine the grant date fair value of stock options using a Black-Scholes-Merton option pricing model (the “Black-Scholes Model”). The grant date fair value of restricted share awards (“RSAs”) and performance-based awards are determined using the fair market value of the Company’s common stock on the date of grant, as set forth in the applicable plan document, unless the awards are subject to market conditions, in which case we use a Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved.
64
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Warrant Liability
The private placement warrants, consisting of the warrants exercisable under the PIPE transaction (3,000,000 shares), the private placement warrants (445,000 shares) and the working capital warrants (150,000 shares), include provisions that affect the settlement amount. Such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument, and as such, the warrants are accounted for as liabilities in accordance with ASC 815-40, with changes in fair value included in the consolidated statement of operations.
The liability classified warrants were priced using a Dynamic Black Scholes model. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price, risk free interest rate and volatility assumptions. The warrant liability was $22,113,000 on December 16, 2020 and $16,516,000 on December 31, 2020. The change in value of warrant liability between the two measurement dates was $5,597,000 and is recognized in the consolidated statement of operations for the period from December 16, 2020 to December 31, 2020. There were no warrants outstanding in the Predecessor periods.
The public warrants (11,500,000 shares) and the UPO warrants (750,000) contain no such provisions and are classified in equity.
Fair Value Measurements – Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy is required to prioritize the inputs used to measure fair value. The three levels of the fair value hierarchy are described as follows:
|
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
•
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
Restaurant Acquisitions and Dispositions
The Company accounts for the acquisition of restaurants from franchisees using the acquisition method of accounting for business combinations.
The acquisition method of accounting involves the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed. This allocation process requires the use of estimates and assumptions to derive fair values and to complete the allocation. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed represents goodwill derived from the acquisition.
Net Income per Common Share
Net income per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. The Company has considered the effect of (1) warrants outstanding to purchase 15,095,000 shares of common stock and (2) 750,000 shares of common stock and warrants to purchase 750,000 shares of common stock in the unit purchase option, and (3) 1,300,000 shares of restricted stock grants in the calculation of income per share.
The historical partnership equity structure of BurgerFi did not include outstanding member units and as such, earnings per share information is omitted for the Predecessor periods.
65
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Reconciliation of Net Income per Common Share
Basic and diluted income (loss) per common share is calculated as follows:
|
|
Successor
|
|
|
|
December 16,
2020 through
December 31,
2020
|
|
Numerator:
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
5,348,000
|
|
Reversal of Gain on change in value of warrant liability
|
|
|
(5,597,000
|
)
|
Net loss available to common shareholders - diluted
|
|
$
|
(249,000
|
)
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
17,541,838
|
|
Effect of dilutive securities
|
|
|
|
|
Restricted stock grants and warrants
|
|
|
3,468,872
|
|
UPOs
|
|
|
415,405
|
|
Diluted weighted-average shares outstanding
|
|
|
21,426,115
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.30
|
|
Diluted net loss per common share
|
|
$
|
(0.01
|
)
|
Concentration of Risk
BurgerFi had no customers which accounted for 10% or more of consolidated revenue for the Successor period from December 16, 2020 to December 31, 2020 and for the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019. As of December 31, 2020, BurgerFi had one main in-line distributor of food, packaging and beverage products, excluding breads, that provided approximately 95% of BurgerFi restaurants purchasing in the U.S. and four additional in-line distributors of Coca-Cola products and beer, wine and liquor that, in the aggregate, provided approximately 5% of the BurgerFi restaurant purchasing in the U.S. We believe that our vulnerability to risk concentrations related to significant vendors and sources of our raw materials is mitigated as we believe that there are other vendors who would be able to service our requirements. However, if a disruption of service from any of our main in-line distributors was to occur, we could experience short-term increases in our costs while distribution channels were adjusted.
BurgerFi restaurants are principally located throughout the United States. BurgerFi has company owned and franchise owned locations in 23 states, with the largest number in Florida. We believe the risk of geographic concentration is not significant. We could be adversely affected by changing consumer preferences resulting from concerns over nutritional or safety aspects of beef, chicken, french fries or other products we sell or the effects of food safety events or disease outbreaks.
The Company is subject to credit risk through its accounts receivable consisting primarily of amounts due from franchisees for royalties and franchise fees. This concentration of credit risk is mitigated, in part, by the number of franchisees and the short-term nature of the franchise receivables.
New Accounting Standards Adopted
Fair Value Measurement
In August 2018, the FASB issued new guidance on disclosure requirements for fair value measurements. The objective of the new guidance is to provide additional information about assets and liabilities measured at fair value in the
66
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
statement of financial position or disclosed in the notes to financial statements. New incremental disclosure requirements include the amount of fair value hierarchy level 3 changes in unrealized gains and losses and the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements. The Company adopted this guidance during the 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) that updated and replaced existing revenue recognition guidance. The guidance includes a five-step framework to determine the timing and amount of revenue to recognize related to contracts with customers. Additionally, the guidance requires new and significantly enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts as well as judgments made by a company when following the framework.
Revenue from Contracts with Customers
On January 1, 2019, the Company adopted ASC 606, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2019. The Company elected a practical expedient to aggregate the effect of all contract modifications that occurred before the adoption date, which did not have a material impact to the consolidated financial statements. Results for reporting periods beginning on or after January 1, 2019 are presented under ASC 606.
Upon transition, on January 1, 2019, we recorded a decrease to opening members’ equity of $1,201,546, with a corresponding decrease of $348,730 in current deferred initial franchise fees liability, and an increase of $1,550,276 in long-term deferred initial franchise fee liabilities.
Revenue Recognition
Revenue consists of restaurant sales and franchise licensing revenue. Generally, revenue is recognized as performance obligations transfer to the customer in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.
Restaurant Revenue
Revenue from restaurant sales is presented net of discounts and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from restaurant sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Sales from our gift cards are deferred and recognized upon redemption for goods or services. Revenue is reported gross on the accompanying consolidated statements of operations with employee complimentary meals recorded as a component of labor expenses. Revenue from restaurant sales is generally paid at the time of sale. Credit cards and delivery service partners sales are generally collected shortly after the sale occurs.
The revenue from electronic gift cards is deferred when purchased by the customer and revenue is recognized when the gift cards are redeemed. The Company is a Delaware limited liability company and is subject to Delaware escheatment laws. Delaware escheatment laws state that gift cards are presumed to be abandoned after five years and the balance remitted should represent the maximum cost to the issuer of merchandise.
BurgerFi contracts with delivery service partners for delivery of goods and services to customers. The Company has determined that the delivery service partners are agents, and the Company is the principal. Therefore, restaurant sales through delivery services are recognized at gross sales and delivery service revenue is recorded as expense.
Prior Period Revision
During the preparation of the consolidated financial statements for the successor period from December 16, 2020 to December 31, 2020 and predecessor period from January 1, 2020 to December 15, 2020, the Company identified certain immaterial errors related to the classification of the other restaurant sales discounts. The Company previously presented these other sales discounts as part of Labor and Related Expenses and Other Operating Expenses instead of as a reduction of Restaurant Sales in its unaudited consolidated statements of operations for the six-month periods ended June 30, 2020 and 2019, and nine-month periods ended September 30, 2020 and 2019, and its consolidated
67
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
statement of operations for the year ended December 31, 2019, which resulted in overstatements of restaurant sales, labor and related expenses, and other operating expenses in certain of those periods.
In accordance with SAB No.99, “Materiality”, and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the errors and determined that the related impact was not material to the Company’s financial statements for any prior annual or interim period. Accordingly, the Company revised the unaudited consolidated statements of operations for the six-month periods ended June 30, 2020 and 2019, and for the nine-month periods ended September 30, 2020 and 2019, and the consolidated statement of operations for the year ended December 31, 2019, including the related notes presented herein, as applicable. The errors did not impact operating income (loss), or net income in the consolidated statements of operations, or the consolidated balance sheets or consolidated statements of cash flows for any of those periods.
A summary of the revisions to previously reported financial information is as follows:
Revised Consolidated Statement of Operations Data for the
six months ended June 30, 2020 (Unaudited)
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Restaurant Sales
|
|
$
|
12,097
|
|
|
$
|
(315
|
)
|
|
$
|
11,782
|
|
Total Revenue
|
|
$
|
15,864
|
|
|
$
|
(315
|
)
|
|
$
|
15,549
|
|
Labor and Related Expenses
|
|
$
|
3,463
|
|
|
$
|
(315
|
)
|
|
$
|
3,148
|
|
Total Operating Expenses
|
|
$
|
14,930
|
|
|
$
|
(315
|
)
|
|
$
|
14,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised Consolidated Statement of Operations Data for the
nine months ended September 30, 2020 (Unaudited)
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Restaurant Sales
|
|
$
|
18,892
|
|
|
$
|
(441
|
)
|
|
$
|
18,451
|
|
Total Revenue
|
|
$
|
24,939
|
|
|
$
|
(441
|
)
|
|
$
|
24,498
|
|
Labor and Related Expenses
|
|
$
|
5,482
|
|
|
$
|
(409
|
)
|
|
$
|
5,073
|
|
Other Operating Expenses
|
|
$
|
4,575
|
|
|
$
|
(32
|
)
|
|
$
|
4,543
|
|
Total Operating Expenses
|
|
$
|
24,832
|
|
|
$
|
(441
|
)
|
|
$
|
24,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised Consolidated Statement of Operations Data for the
six months ended June 30, 2019 (Unaudited)
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Restaurant Sales
|
|
$
|
11,977
|
|
|
$
|
(294
|
)
|
|
$
|
11,683
|
|
Total Revenue
|
|
$
|
17,518
|
|
|
$
|
(294
|
)
|
|
$
|
17,224
|
|
Labor and Related Expenses
|
|
$
|
3,880
|
|
|
$
|
(294
|
)
|
|
$
|
3,586
|
|
Total Operating Expenses
|
|
$
|
15,021
|
|
|
$
|
(294
|
)
|
|
$
|
14,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised Consolidated Statement of Operations Data for the nine
months ended September 30, 2019 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Sales
|
|
$
|
17,641
|
|
|
$
|
(477
|
)
|
|
$
|
17,164
|
|
Total Revenue
|
|
$
|
25,336
|
|
|
$
|
(477
|
)
|
|
$
|
24,859
|
|
Labor and Related Expenses
|
|
$
|
5,784
|
|
|
$
|
(477
|
)
|
|
$
|
5,307
|
|
Total Operating Expenses
|
|
$
|
23,181
|
|
|
$
|
(477
|
)
|
|
$
|
22,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised Consolidated Statement of Operations Data for the
year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Sales
|
|
$
|
23,855
|
|
|
$
|
(672
|
)
|
|
$
|
23,183
|
|
Total Revenue
|
|
$
|
34,227
|
|
|
$
|
(672
|
)
|
|
$
|
33,555
|
|
Labor and Related Expenses
|
|
$
|
7,839
|
|
|
$
|
(672
|
)
|
|
$
|
7,167
|
|
Total Operating Expenses
|
|
$
|
31,178
|
|
|
$
|
(672
|
)
|
|
$
|
30,506
|
|
68
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Revenue from BF Commissary
The Company’s wholly owned subsidiary, BF Commissary, LLC (“BF Commissary”), which commenced operations in 2019, produces and sells BurgerFi’s vegetable burgers to a distributer based on agreed-upon cost plus freight cost. The Company recognizes revenue upon pick-up of orders at the designated pick up points or when the distributor obtains control of the products. For the years ended December 31, 2020 and 2019, the Company recognized revenue of $851,000 and $710,000, respectively, from BF Commissary and is presented as part of restaurant sales in the consolidated statements of operations.
Franchise Revenue
The franchise agreements require the franchisee to pay an initial, non-refundable fee of $37,500 and continuing fees based upon a percentage of sales. Owners can make a deposit equal to 50% of the total franchise fee to reserve the right to open additional locations. The remaining balance of the franchise fee is due upon signing by the franchisee of the applicable location’s lease or mortgage. Franchise agreements and deposit agreements outline a schedule for store openings. Failure to meet the schedule can result in forfeiture of deposits made.
Franchise revenue is comprised of certain initial franchise fees and ongoing sales-based royalty fees from a franchised BurgerFi restaurant. Generally, the licenses granted to develop, open and operate each BurgerFi franchise in a specified territory are the predominant performance obligations transferred to the licensee in our contracts, and represent symbolic intellectual property. Ancillary promised services, such as training and assistance during the initial opening of a BurgerFi restaurant are typically combined with the licenses and considered as one performance obligation per BurgerFi franchise. Certain initial services such as site selection and lease review are considered distinct services that are recognized at a point in time when the performance obligations have been provided, generally when the BurgerFi has been opened. We determine the transaction price for each contract and allocate it to the distinct services based on their standalone selling price based on the costs to provide the service and a profit margin. The remainder of the transaction price is recognized over the remaining term of the franchise agreement once the BurgerFi restaurant has been opened. Because we are transferring licenses to access our intellectual property during a contractual term, revenue is recognized on a straight-line basis over the license term. Generally, payment for the initial franchise fee is received upon execution of the licensing agreement These payments are initially deferred and recognized as revenue as the performance obligations are satisfied.
Franchise deposits received in advance for locations not expected to open within one year are classified as long-term liabilities. Forfeiture of deposits is recognized as other revenue once contracts have been terminated for failure to comply. All terminations are communicated to the franchisee in writing using formal termination letters.
Revenue from sales-based royalties (i.e. royalty and other fees, brand development and advertising co-op royalty) is recognized as the related sales occur. The sales-based royalties are invoiced and collected from the franchisees on a weekly basis. Rebates from vendors received on franchisee’s sales are also recognized as revenue from sales-based royalties.
The Company’s contract liabilities consist of initial franchise fees and the related direct costs, which we refer to as deferred initial franchise fees, are deferred until the franchisee begins operations.
69
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Revenue recognized during the Successor period from December 16, 2020 to December 31, 2020 and for the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019 disaggregated by type is as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 16,
2020 through
December 31,
2020
|
|
|
|
January 1,
2020 through
December 15,
2020
|
|
|
Year Ended
December 31,
2019
|
|
Restaurant sales
|
|
$
|
1,326
|
|
|
|
$
|
23,139
|
|
|
$
|
22,473
|
|
BF Commissary sales
|
|
|
24
|
|
|
|
|
827
|
|
|
|
710
|
|
Franchising revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-based royalties
|
|
|
255
|
|
|
|
|
5,366
|
|
|
|
6,805
|
|
Rebate royalties
|
|
|
—
|
|
|
|
|
750
|
|
|
|
564
|
|
Brand development and advertising co-op royalties
|
|
|
74
|
|
|
|
|
1,441
|
|
|
|
1,720
|
|
Initial franchise fees
|
|
|
17
|
|
|
|
|
272
|
|
|
|
254
|
|
Initial distinct services
|
|
|
8
|
|
|
|
|
90
|
|
|
|
204
|
|
Other revenue - terminations of franchises
|
|
|
—
|
|
|
|
|
693
|
|
|
|
825
|
|
Total revenue
|
|
$
|
1,704
|
|
|
|
$
|
32,578
|
|
|
$
|
33,555
|
|
The following table shows the Company’s revenue disaggregated according to the timing of transfer of goods or services:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 16,
2020 through
December 31,
2020
|
|
|
|
January 1,
2020 through
December 15,
2020
|
|
|
Year Ended
December 31,
2019
|
|
Revenue recognized at a point in time
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant revenue
|
|
$
|
1,326
|
|
|
|
$
|
23,139
|
|
|
$
|
22,473
|
|
BF Commissary sales
|
|
|
24
|
|
|
|
|
827
|
|
|
|
710
|
|
Royalty and other fees
|
|
|
255
|
|
|
|
|
6,116
|
|
|
|
7,369
|
|
Terminated franchise fees
|
|
|
—
|
|
|
|
|
693
|
|
|
|
825
|
|
Brand development and advertising co-op royalties
|
|
|
74
|
|
|
|
|
1,441
|
|
|
|
1,720
|
|
Franchising revenue – distinct initial services
|
|
|
8
|
|
|
|
|
90
|
|
|
|
204
|
|
Total revenue recognized at a point in time
|
|
$
|
1,687
|
|
|
|
$
|
32,306
|
|
|
$
|
33,301
|
|
Revenue recognized over time
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchising fees
|
|
|
17
|
|
|
|
|
272
|
|
|
|
254
|
|
Total revenue recognized over time
|
|
|
17
|
|
|
|
|
272
|
|
|
|
254
|
|
Total Revenue
|
|
$
|
1,704
|
|
|
|
$
|
32,578
|
|
|
$
|
33,555
|
|
The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020 and 2019 is $3,306,000 and $4,688,000, respectively. The Company expects to recognize this amount as revenue evenly over the 10-year franchise license term. This amount excludes any variable consideration related to sales-based royalties.
70
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Contract Balances
Opening and closing balances of contract liabilities and receivables from contracts with customers for the years ended December 31, 2020 and 2019 are as follows (in thousands):
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
2020
|
|
|
|
2019
|
|
Franchising receivables
|
|
$
|
480
|
|
|
|
$
|
369
|
|
Advertising co-op funds
|
|
|
—
|
|
|
|
|
159
|
|
Gift card liability
|
|
|
430
|
|
|
|
|
586
|
|
Deferred revenue, current
|
|
|
490
|
|
|
|
|
438
|
|
Deferred revenue, long-term
|
|
|
2,816
|
|
|
|
|
4,250
|
|
Franchise Revenue
Revenue recognized during the period ended which were included in the balance of deferred franchise revenue at the beginning of the period are as follow:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 16,
2020 through
December 31,
2020
|
|
|
|
January 1,
2020 through
December 15,
2020
|
|
|
Year Ended
December 31,
2019
|
|
Franchise Fees
|
|
$
|
41
|
|
|
|
$
|
1,023
|
|
|
$
|
1,283
|
|
An analysis of deferred revenue is as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
December 31,
2020
|
|
|
|
December 15,
2020
|
|
|
December 31,
2019
|
|
Balance, beginning of period
|
|
$
|
3,053
|
|
|
|
$
|
4,688
|
|
|
$
|
3,935
|
|
Initial franchise fees received
|
|
|
278
|
|
|
|
|
413
|
|
|
|
2,036
|
|
Revenue recognized for stores opened during period
|
|
|
(25
|
)
|
|
|
|
(362
|
)
|
|
|
(458
|
)
|
Revenue recognized related to franchise agreement
Default
|
|
|
—
|
|
|
|
|
(693
|
)
|
|
|
(825
|
)
|
Balance, end of period
|
|
$
|
3,306
|
|
|
|
$
|
4,046
|
|
|
$
|
4,688
|
|
Presentation of Sales Taxes
The Company collects sales tax from customers and remits the entire amount to the respective states. The Company’s accounting policy is to exclude the tax collected and remitted from revenue and cost of sales. Sales tax payable amounted to approximately $172,000 and $142,000 at December 31, 2020 and 2019, respectively, and is presented in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
On June 21, 2018, the U.S. Supreme Court issued a landmark decision in South Dakota v. Wayfair. The Company has assessed the current guidance surrounding the court case and does not believe the Wayfair decision materially impacts its sales and use tax process. The Company continues to monitor changes resulting from the Wayfair decision.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company places its temporary cash investments with financial institutions and during 2020 and 2019, there were amounts on deposit in excess of federal insurance limits.
71
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense for the Successor period from December 16, 2020 to December 31, 2020 was $23,000. Advertising expense for the Predecessor period from January 1, 2020 to December 15, 2020 and for the twelve-month period ended December 31, 2019 were $454,000 and $554,000, respectively.
Brand Development Fund
The Company’s franchise agreements provide for franchisee contributions of a percentage of gross restaurant sales to a brand development fund administered by the Company. Amounts collected are required to be segregated and used for advertising and related costs, including reasonable costs of administering the fund. Contributed amounts are recognized as restricted cash. For the Successor period from December 16, 2020 to December 31, 2020, the Company had revenue of approximately $55,000 of contributions which are included in the brand development and advertising co-op royalties and approximately $35,000 of expenses incurred which are included in the brand development and Co-op advertising expenses. For the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019, the Company had approximately $1,156,000 and $1,455,000, respectively, of contributions which are included in the brand development and advertising co-op royalties and approximately $1,636,000 and $1,506,000, respectively of expenses incurred which are included in the brand development and co-op advertising expenses.
Advertising Co-Op Fund
During 2017, the Company established an advertising co-op fund in which several of the South Florida franchises participate. The members of the co-op elect to contribute a percentage of gross restaurant sales to a fund administered by the Company. Amounts collected are required to be segregated and used for local advertising and related costs, including reasonable costs of administering the fund. Consequently, contributed amounts, net of expended funds is recognized as restricted cash. For the Successor period from December 16, 2020 to December 31, 2020, the Company had revenue of approximately $19,000 of contributions and approximately $0 of expenses incurred which are included in the brand development and co-op royalties and brand development and co-op advertising expenses, respectively. For the Predecessor period from January 1, 2020 to December 15, 2020 and for the twelve-month period ended December 31, 2019, the Company had approximately $285,000 and $265,000, respectively, of contributions and approximately $648,000 and $226,000, respectively of expenses incurred which are included in the brand development and co-op royalties and brand development and co-op advertising expenses, respectively.
Pre-opening Costs
The Company follows ASC Topic 720-15, “Start-up Costs”, which provides guidance on the financial reporting of start-up costs and organization costs. In accordance with this ASC Topic, costs of pre-opening activities and organization costs are expensed as incurred. Pre-opening costs expensed for the Successor period from December 16, 2020 to December 31, 2020 was $24,000. Pre-opening costs expensed for the Predecessor period from January 1, 2020 to December 15, 2020 and for the twelve-month period ended December 31, 2019 were $189,000 and $425,000, respectively.
Deferred Rent
Rent expense on non-cancelable leases containing known future scheduled rent increases or free rent periods is recorded on a straight-line basis over the respective lease term. The lease term begins when the Company has the right to control the use of the leased property and includes the initial non-cancelable lease term plus any periods covered by renewal options that the Company is reasonably assured of exercising. The difference between rent expense and rent paid is accounted for as deferred rent and is amortized over the lease term.
72
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Operating Leases
The Company leases restaurant locations that have terms expiring between December 2020 and March 2035. The initial obligation period is generally 10 years. The restaurant facilities primarily have renewal clauses for two 5-year period or one 10-year period, exercisable at the option of the Company. The Company includes one 5-year renewal option in its lease term.
Certain lease agreements contain one or more of the following: tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions. The Company includes scheduled rent escalation clauses for the purpose of recognizing straight-line rent. Certain of these leases require the payment of contingent rentals based on a percentage of gross revenue, as defined, and certain other rent escalation clauses are based on the change in the Consumer Price Index. The Company received cash incentives from certain landlords for specified leasehold improvements which are deferred and accreted on a straight-line basis over the related lease term as a reduction of rent expense.
Income Taxes
Prior to the Business Combination, the Company, with the consent of its members, had elected to be taxed as a partnership under the provisions of the Internal Revenue code and similar state provisions. Partnerships are generally not subject to federal and state income taxes, the partners reflect their respective share of the Company’s taxable income or loss on their individual tax returns, Therefore, there was no federal income tax recorded by the Company for the year ended December 31, 2019 and the period from January 1, 2020 through December 16, 2020. In these periods, there were neither liabilities nor deferred tax assets relating to uncertain income tax provisions taken or expected to be taken on the tax returns.
The Successor company is being taxed as a corporation. The Predecessor and Successor companies were subject to state income taxes during these periods.
The Company accounts for income taxes under the asset and liability method. A deferred tax asset or liability is recognized whenever there are (1) future tax effects from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (2) operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the years in which those differences are expected to be recovered or settled.
Deferred tax assets are recognized to the extent the Company believes these assets will more likely than not be realized. In evaluating the realizability of deferred tax assets, the Company considers all available positive and negative evidence, including the interaction and the timing of future reversals of existing temporary differences, projected future taxable income, recent operating results and tax-planning strategies. When considered necessary, a valuation allowance is recorded to reduce the carrying amount of the deferred tax assets to their anticipated realizable value.
The Company records uncertain tax positions on the basis of a two-step process whereby we first determine if it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is then measured for purposes of financial statement recognition as the largest amount of benefit that is greater than 50% likely of being realized upon being effectively settled.
Interest accrued for uncertain tax positions, if any, is charged to “Interest expense.” Penalties accrued for uncertain tax positions are charged to “General and administrative.”
New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”) which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months and disclose certain information about the leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. As an emerging growth company, this guidance will be effective for our fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of the new standard on the consolidated financial statements.
73
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”) in June 2016, subsequently amended by various standard updates. This guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when determining credit loss estimates and requires financial assets to be measured net of expected credit losses at the time of initial recognition. As an emerging growth company, this guidance will be effective for our fiscal years beginning after December 15, 2022.
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. This guidance is effective for annual and interim reporting periods beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the full impact this guidance will have on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“Topic 848”) to provide optional guidance for a limited period of time, from March 12, 2020 through December 31, 2022, to ease the burden of financial reporting due to reference rate reform. An entity can elect to utilize the guidance at any time during the period. The Company is evaluating the effect this guidance will have on the consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), an amendment that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendment simplifies accounting for convertible instruments by removing major separation models required under current accounting guidance. In addition, the amendment removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception, and also simplifies the diluted earnings per share calculation in certain areas. The amendment is effective beginning after December 15, 2023 for smaller reporting companies. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
Restricted cash consisted of the following as of (in thousands):
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
2020
|
|
|
|
2019
|
|
PPP amount held in escrow
|
|
$
|
2,237
|
|
|
|
$
|
—
|
|
Cash proceeds from Business Combination held back for working capital reconciliation
|
|
|
996
|
|
|
|
|
-
|
|
Gift cards purchased
|
|
|
415
|
|
|
|
|
505
|
|
Advertising co-op funds
|
|
|
—
|
|
|
|
|
159
|
|
LevelUp loyalty program
|
|
|
15
|
|
|
|
|
63
|
|
Total Restricted Cash
|
|
$
|
3,663
|
|
|
|
$
|
727
|
|
74
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Property and equipment consisted of the following (in thousands):
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
2020
|
|
|
|
2019
|
|
Leasehold improvements
|
|
$
|
5,477
|
|
|
|
$
|
5,724
|
|
Machinery & equipment
|
|
|
1,360
|
|
|
|
|
2,821
|
|
Computer equipment
|
|
|
208
|
|
|
|
|
560
|
|
Furniture & fixtures
|
|
|
792
|
|
|
|
|
1,278
|
|
Vehicles
|
|
|
215
|
|
|
|
|
50
|
|
|
|
|
8,052
|
|
|
|
|
10,433
|
|
Less: Accumulated depreciation and amortization
|
|
|
(48
|
)
|
|
|
|
(4,132
|
)
|
Property and equipment – net
|
|
$
|
8,004
|
|
|
|
$
|
6,301
|
|
Depreciation expense for the Successor period from December 16, 2020 to December 31, 2020 was $48,000. Depreciation expense for the Predecessor period from January 1, 2020 to December 15, 2020 and for the twelve-month period ended December 31, 2019, was $1,025,000 and $795,000, respectively. In conjunction with the Business Combination, the basis of all property and equipment was recognized at fair value in purchase accounting.
4.Intangible Assets
The following is a summary of the components of intangible assets and the related amortization expense:
.
|
|
Successor December 31, 2020
|
|
|
|
Predecessor December 31, 2019
|
|
Intangible Assets at December 31, 2020 (in thousands)
|
|
Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
|
|
Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Franchise agreements
|
|
$
|
24,839
|
|
$
|
147
|
|
$
|
24,692
|
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Trade names / trademarks
|
|
|
83,033
|
|
|
115
|
|
|
82,918
|
|
|
|
|
25
|
|
|
—
|
|
|
25
|
|
Liquor license
|
|
|
235
|
|
|
—
|
|
|
235
|
|
|
|
|
210
|
|
|
—
|
|
|
210
|
|
Reef Kitchens license agreement
|
|
|
8,882
|
|
|
37
|
|
|
8,845
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
VegeFi product
|
|
|
135
|
|
|
1
|
|
|
134
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
117,124
|
|
$
|
300
|
|
$
|
116,824
|
|
|
|
$
|
235
|
|
$
|
—
|
|
$
|
235
|
|
Liquor license is considered to have an indefinite life and is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. No impairments were recognized for the years ended December 31, 2020 and 2019
75
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Amortization expense for the Successor period from December 16, 2020 to December 31, 2020 was $300,000. The intangible assets for the Predecessor period were determined to be indefinite life intangibles. As such, no amortization expense was recognized for the period from January 1, 2020 to December 15, 2020 and for the twelve-month period ended December 31, 2019. The estimated aggregate amortization expense for intangible assets over the next five years ending December 31 and thereafter is as follows:
|
|
|
|
(in thousands):
|
Successor
|
|
2021
|
|
|
$
|
7,218
|
|
2022
|
|
|
|
7,218
|
|
2023
|
|
|
|
7,218
|
|
2024
|
|
|
|
7,218
|
|
2025
|
|
|
|
7,218
|
|
Thereafter
|
|
|
|
80,499
|
|
Total
|
|
|
|
116,589
|
|
5.Business Combinations
December 16, 2020 Acquisition of BurgerFi International, LLC
On December 16, 2020, the Company consummated the Business Combination. This acquisition qualified as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with any excess recognized as goodwill.
The aggregate value of the consideration paid by OPES in the Business Combination was approximately $236.9 million.
|
|
|
|
|
Consideration Paid
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Cash
|
|
$
|
30,000
|
|
Stock
|
|
|
103,680
|
|
Contingent consideration
|
|
|
103,207
|
|
Total Consideration
|
|
$
|
236,887
|
|
Total consideration of $236,887,000 is represented in the above table for the acquisition of BurgerFi. The total consideration includes a) a cash payment of $30,000,000, b) the issuance of 6,603,773 common stock shares valued at approximately $103,680,000, c) contingent earnout consideration (Contingent Consideration) valued at approximately $103,207,000.
Contingent Consideration
The members of BurgerFi may be entitled to an additional 9,356,459 shares of Successor common stock if certain stock price targets are met by the Successor Company following the Business Combination (“Earnout Share Consideration”) on a pro-rata basis based on their pre-closing ownership percentages in BurgerFi International, LLC,
76
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
subject to the Company achieving certain share price targets in each of the following post-Closing periods (each an “Earnout Tranche”), as follows:
|
|
|
|
a.
|
If prior to the second anniversary of the Closing, the last reported closing price of Post-Combination Company common stock in any 20 trading days within any consecutive 30 trading day period is greater than or equal to $19.00 per share, the Post-Combination Company shall issue to Members 3,947,368 shares of common stock, based on a deemed price of $19.00 per share;
|
|
|
|
|
b.
|
If prior to the third anniversary of the Closing, the last reported closing price of Post-Combination Company common stock in any 20 trading days within any consecutive 30 trading day period is greater than or equal to $22.00 per share, the Post-Combination Company shall issue to Members 3,409,091 shares of common stock, based on a deemed price of $22.00 per share; and
|
|
|
|
|
c.
|
If prior to the third anniversary of the Closing, the last reported closing price of Post-Combination Company common stock in any 20 trading days within any consecutive 30 trading day prior is greater than or equal to $25.00 per share, the Post-Combination Company shall issue to Members 2,000,000 shares of common stock, based on a deemed price of $25.00 per share.
|
The fair values of the Contingent Consideration were determined using the trading price of the Company’s common stock at Closing Date and using a Monte Carlo simulation model. The contingent consideration is assessed to be non-compensatory and recorded in additional paid-in capital as reflected in the consolidated statement of changes in stockholders’ / members’ equity.
The input variables are noted in the table below:
|
|
Successor
|
|
|
|
2020
|
|
Risk-free interest rate
|
|
|
0.37
|
%
|
Expected life in years
|
|
3
|
|
Expected volatility
|
|
|
60
|
%
|
Expected dividend yield (a)
|
|
|
0
|
%
|
|
(a)
|
The Monte Carlo method assumes a reinvestment of dividends.
|
The Monte Carlo simulation model utilized multiple input variables to estimate the probability that the stock price targets will be achieved. Based on the features of the earnout, a Monte-Carlo Simulation was used to value the Contingent Consideration. The traded price of the common stock was simulated in each trial using Geometric Brownian Motion, and the simulated path was then analyzed to determine which, if any, earnout tranches would be payable within the given trial. The estimated payments were calculated by multiplying the shares earned for a given tranche by the simulated price as of the date that the earnout tranche was earned. The result was present valued using the risk-free rate. The average of all trials resulted in the valuation conclusion, which was determined to be approximately $ 103,207,000.
77
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The following table is preliminary and represents the allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values.
|
|
|
|
|
(in thousands)
|
|
Fair Value December 16, 2020
|
|
Cash
|
|
$
|
2,179
|
|
Cash - restricted
|
|
|
611
|
|
Accounts receivable
|
|
|
378
|
|
Inventory
|
|
|
260
|
|
Other current assets
|
|
|
1,235
|
|
Property and equipment
|
|
|
8,520
|
|
Intangible assets
|
|
|
117,124
|
|
Other assets
|
|
|
199
|
|
Accounts payable - trade
|
|
|
(1,952
|
)
|
Accrued expenses
|
|
|
(1,057
|
)
|
Gift card liability
|
|
|
(292
|
)
|
Revolving line of credit
|
|
|
(3,012
|
)
|
Current portion of deferred franchise fees
|
|
|
(521
|
)
|
Other deposit
|
|
|
(907
|
)
|
Deferred initial franchise fees, net of current portion
|
|
|
(2,531
|
)
|
Notes payable
|
|
|
(2,889
|
)
|
Fair Value of Tangible and Identifiable Intangible assets and liabilities assumed
|
|
$
|
117,345
|
|
Consideration paid
|
|
|
236,887
|
|
Goodwill
|
|
$
|
119,542
|
|
|
|
|
|
|
The assessment of fair value is preliminary and is based on information that was available to management and through the end of the fiscal year. If additional information of events or circumstances that existed at the acquisition date becomes available to management related to assets acquired or liabilities assumed subsequent to this preliminary assessment of fair value but not later than one year after the date of the acquisition, measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.
Goodwill is recognized as the excess of consideration over the net assets acquired of BurgerFi and represents the value derived by BurgerFi’s market share and expected growth in the market.
Acquired personal property assets consist of leasehold improvements, kitchen equipment, and restaurant furniture and fixtures, computer and point of sale systems, audio and video equipment (“Personal Property”), which were valued on in-use basis. The Company enlisted a third-party consultant to assist in the valuation of the Personal Property (the “Valuation”).
Identifiable intangible assets acquired consist of customer relationships of franchise agreements, Tradenames and trademarks, Liquor licenses, Reef Kitchens license agreements and the VegeFi product. The above were valued using the multi-period excess earnings method.
Identifiable intangible assets acquired consist of customer relationships of $24,839,000, trade names of $83,033,000 and Reef Kitchens license agreements of $8,882,000. The customer relationships were valued using the multi-period excess earnings method. The Company determined the useful life of the customer relationships to be 7 years. This is based on the average remaining terms of our franchise agreements with our franchisees. The trade names were valued using the relief-from-royalty method. The Company determined the useful life of the trade names to be 30 years. The Reef Kitchens license agreements and the customer relationships were valued using the multi-period excess earnings method. The Company determined the useful life of the Reef Kitchens license agreements to be 10 years. The identifiable intangible assets are amortized using the straight-line method over their respective useful lives.
78
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The accounting for this Business Combination is considered provisional because we have not finalized certain aspects of the purchase price allocation including the valuation of certain acquired customer-related intangible assets.
6.Related Party Transactions
The Company is affiliated with various entities through common control and ownership. The accompanying consolidated balance sheets reflect amounts related to periodic advances between the Company and these entities for working capital and other needs as due from related companies or due to related companies, as appropriate. The amounts due from related companies are not expected to be repaid within one year and accordingly, are classified as non-current assets in the accompanying consolidated balance sheets. These advances are unsecured and non-interest bearing.
There were approximately $74,000 and $3,611,000 included as due from related companies, and $0 and $271,000 included as due to related companies in the consolidated balance sheets as of December 31, 2020 and 2019, respectively
For the Successor period from December 16, 2020 to December 31, 2020 and the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019, the Company received royalty revenue from franchisees related through common control and ownership totaling approximately $17,000, and $322,000 and $1,182,000, respectively.
The Company pays certain payroll and administrative fees on behalf of the entities under common ownership. A management fee is then billed to the respective entities to cover these costs. Management fees are included as reductions to the related operating expenses. For the Successor period from December 16, 2020 to December 31, 2020 and the Predecessor period from January 1, 2020 to December 15, 2020, these fees were included in the royalty revenue charged to these entities. For the twelve-month period ended December 31, 2019, the Company billed approximately $60,000 of management fees.
The Company leases building space for its corporate office from an entity under common ownership with a significant shareholder. This lease has a 36 month term, effective January 1, 2020. For the Successor period from December 16, 2020 to December 31, 2020 and the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019, rent expense was approximately $1,000, $159,000 and $160,000, respectively.
7. Acquisitions – Franchisee/stores
In April 2020, the Company entered into an asset purchase agreement with a franchisee to purchase substantially all of the assets of a franchised store for an aggregate purchase price of $1,250,000. This purchase price consisted of: (a) $650,000 cash paid at closing and (b) a $600,000 promissory note to the franchisee (in thousands).
|
|
|
|
|
|
|
Predecessor
|
|
Inventory
|
|
$
|
15
|
|
Property & equipment
|
|
|
250
|
|
Net tangible and identifiable intangible assets acquired
|
|
|
265
|
|
Goodwill
|
|
|
985
|
|
Net assets acquired
|
|
$
|
1,250
|
|
79
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Other assets consisted of the following (in thousands):
|
|
Successor
|
|
|
|
Predecessor
|
|
December 31,
|
|
2020
|
|
|
|
2019
|
|
Lease Acquisition Costs, net of accumulated amortization
|
|
$
|
18
|
|
|
|
$
|
48
|
|
Deposits and other non-current assets
|
|
|
233
|
|
|
|
|
190
|
|
Other assets
|
|
$
|
251
|
|
|
|
$
|
238
|
|
9.Commitments and Contingencies
Leases
The Company has entered into various operating leases for each of the restaurants owned and operated by BFRM and for its corporate headquarters. For the Successor period from December 16, 2020 to December 31, 2020 and the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019, rent expense was approximately $40,000, $2,819,000 and $2,281,000, respectively. These lease agreements expire on various dates through 2026 and have renewal options. Approximate future minimum payments on these operating leases for the years ended December 31 are as follows (in thousands):
2021
|
|
$
|
3,029
|
|
2022
|
|
|
3,329
|
|
2023
|
|
|
3,369
|
|
2024
|
|
|
3,047
|
|
2025
|
|
|
3,071
|
|
Thereafter
|
|
|
25,506
|
|
Sale Commitment
In February 2020, the Company entered into an asset purchase agreement with an unrelated third party for the sale of substantially all of the assets used in connection with the operation of BF Dania Beach, LLC for an aggregate purchase price of $1,299,000. During January to April 2020, the Company received three cash deposits totaling $906,500 in connection with this transaction. The closing of this transaction has been delayed due additional negotiation that has been on-going through the report date of April 28, 2021.In the event the transaction is terminated, the Company will keep operating the restaurant, and return the $906,500 to the unrelated third-party purchaser. Assets used in the operations of BF Dania Beach, LLC totaling $732,000 have been classified as held for sale in the December 31, 2020 balance sheet.
Contingencies
BurgerFi International, LLC filed a lawsuit against a franchisee and its principals seeking declaratory judgments and damages in an amount to be proven at trial for various breaches of the applicable franchise agreements resulting from the defendants’ closure of a restaurant, their failure to open a second restaurant, and their operational defaults at the closed restaurant. In April 2016, the defendants filed a counterclaim, asserting that they had no responsibility for their losses, and instead, alleged that the Company engaged in breach of contract, fraud, misrepresentation, conversion in connection with the operation of the restaurant, and various other allegations, seeking damages of over $5 million. The case is pending before the court. On December 30, 2016, the court stayed the case pending the resolution of bankruptcy filings made by some of the defendants. No further action has occurred.
80
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
A franchisee filed a suit against BFI seeking unspecified damages in connection with plaintiff’s execution of franchise agreements for the development of 11 BurgerFi restaurants in certain specified trade areas in New York and Connecticut. Plaintiff alleges that BFI fraudulently induced the franchisee to enter into these agreements, and in the complaint made the following claims against BFI: fraud in the inducement, negligent misrepresentation, breach of implied covenant of good faith and fair dealing, and violation of FDUTPA and Florida’s Franchise Misrepresentation Act. BFI denied any wrong-doing, and moved to dismiss plaintiff’s claims. On May 4, 2018, we filed a counterclaim for unspecified money damages, and a third-party complaint against the guarantors, asserting breach of contract for, among other things: (1) failing to adhere to BFI’s operating standards in connection with the operation of their BurgerFi restaurant in Poughkeepsie, NY, and (2) failing to open the required number of BurgerFi restaurants per the minimum performance schedule set forth in their multi-unit operator agreements. The parties settled the case as of October 28, 2020. Under that settlement, the franchisee parties dropped all of their claims, agreed to terminate all of their multi-unit operator and franchise agreements, agreed to never again assert claims against us, and quit claim transferred their franchised restaurant to us; and we dropped our claims for money damages against them.
On December 1, 2019, a complaint was filed by a former officer of the Company (“Plaintiff”) against BurgerFi International, LLC for certain alleged breaches of an employment agreement. BurgerFi International, LLC filed a motion to dismiss the complaint on February 13, 2020. On May 20, 2020, the motion to dismiss was heard being granted in part and denied in part. The portion of the complaint not dismissed was answered by BurgerFi International, LLC with affirmative defenses raised on July 7, 2020.The plaintiff served various discovery requests (including notices of non-party subpoenas) on July 9, 2020 as well as a motion to strike BurgerFi International, LLC’s affirmative defenses on July 16, 2020. BurgerFi International, LLC filed objections to the non-party subpoenas on July 20, 2020. defenses on July 16, 2020. BurgerFi International, LLC filed objections to the non-party subpoenas on July 20, 2020.
On September 11, 2020, a Motion to Dismiss was heard by the Court and certain claims were dismissed. The Complaint now involves claims for alleged Breach of Contract (Count I) and alleged Action for Equitable Relief Including an Accounting and Constructive Lien (Count II).
On July 8, 2020, the Company received a letter from an attorney hired on behalf of a former employee of the Company. This former employee was terminated for cause on May 5, 2020. This letter claims that the former employee was terminated wrongfully by the Company. The Company is of the opinion that allegations in this letter lack merit. We have reported the claim to our insurance carrier and outside counsel has been retained. Our counsel sent a letter to this former employee’s attorney lawyer denying all claims and the parties met for mediation on September 4, 2020 but were unable to resolve this matter We feel that all claims are meritless, and we plan to vigorously defend these allegations.
On February 22, 2021, the Company received correspondence from an attorney hired on behalf of a former officer of the Company claiming that the Company wrongfully terminated the employee in violation of the Florida Whistleblower statute. The Company does not believe the claim has any merit and has retained counsel to represent them. The parties are discussing a possible settlement and mediation.
On March 3, 2021, the Company received a letter from an attorney representing the franchisee that is in the process of purchasing a BurgerFi restaurant. The letter was sent in response to the Company’s demand letter to the franchisee requesting that he pays the balance of the purchase price and execute the franchise agreement that permits the operation of the restaurant. The franchisee has refused to do both and is now claiming that the purchase price was verbally lowered. In addition, the franchisee attorney’s letter claims that the Company owes his client monies resulting from the franchisee’s purchase of equipment in reliance on the Company’s supposed verbal representation to use the franchisee’s marketing services. Both of the franchisee’s claims are false and the Company expects to vigorously defend such allegations.
81
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Management is unable to determine the likelihood of a loss or range of loss, if any, which may result from the cases described above, therefore, no contingent liability has been recorded as of December 31, 2020.
The Company is subject to other legal proceedings and claims that arise during the normal course of business. Management believes that any liability, in excess of applicable insurance coverages or accruals, which may result from these claims, would not be significant to the Company’s financial position or results of operations.
10.Line of Credit
Line of Credit
Effective July 13, 2018, the Company entered into a $2,000,000 revolving line of credit agreement (“LOC”) with a bank. The LOC’s original maturity date was July 13, 2020 and has been extended to July 13, 2021. On October 31, 2019, the LOC was amended to increase the amount available under the LOC from $2,000,000 to $5,000,000. The Company has an outstanding balance on the revolving line credit of $3,012,000 and $2,317,000 as of December 31, 2020 and 2019, respectively. Prior to December 16, 2020, the majority member of the Company and his Family Trust were guarantors of, and the Family Trust were the pledger of collateral, for the Company’s obligations to the bank under the line of credit agreement. The annual interest on advances under the LOC is equal to the LIBOR Daily Floating rate plus 0.75%. See Note 16.
82
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Notes Payable (in thousands)
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 31,
2020
|
|
|
|
December 31,
2019
|
|
On May 11, 2020 the Company received loan proceeds in the amount of
$2,237 under the Paycheck Protection Program (“PPP”). The loans and
accrued interest are forgivable after eight weeks, as long as, the
Company uses the loan proceeds for eligible purposes, including
payroll, benefits, rent and utilities, and maintain its payroll levels. The
amount of loan forgiveness will be reduced if the Company terminates
employees or reduces salaries during the eight-week period. The
unforgiven portion of the PPP loans are payable over two years at an
interest rate of 1%, with a deferral of payments for the first seven months.
|
|
$
|
2,237
|
|
|
|
$
|
—
|
|
Installment note payable to an individual, issued in connection with the
Company’s April 2020 acquisition, monthly payments of $9, over a
seven-year amortization including 7% interest, with a maturity date
of June 1, 2024.
|
|
$
|
555
|
|
|
|
$
|
—
|
|
Installment note payable to bank, monthly payments of $9, including
interest at 7.75%, principal and interest due at the earlier of, September
23, 2024 or the date of the Company’s termination of the APM
(see Note 1).This note is secured by equipment, and is guaranteed
by the franchisee under the APM, its members and their affiliates.
As of December 31, 2019, this note was in default and classified as
current. The Company elected not to continue payment while
negotiating with the banks to release the lien on the restaurant
assets which the Company was managing under the APM. No
recourse to the general credit of the Company.
|
|
$
|
—
|
|
|
|
$
|
468
|
|
Installment note payable to bank, monthly payments of $4, including
interest at 5.3%, principal and interest due at the earlier of May 17, 2027 or
the date of the Company’s termination of the APM (see Note 1). This note
was secured by equipment, guaranteed by the franchisee under the APM,
its members and their affiliates. As of December 31, 2019, this note is in
default and classified as current. The Company elected not to
continue payment while negotiating with the banks to release
the lien on the restaurant assets which the Company was
managing under the APM. No recourse to the general
credit of the Company.
|
|
|
—
|
|
|
|
|
258
|
|
Installment note payable to bank, monthly payments of $3, including
interest at 5.0%, principal and interest due the earlier of August 4, 2026 or
the date of the Company’s termination of the APM (see Note 1). This note
is secured by equipment, guaranteed by the franchisee under the APM,
its members and their affiliates. As of December 31, 2019, this note was in
default and classified as current. No recourse to the general
credit of the Company.
|
|
|
—
|
|
|
|
|
409
|
|
Other notes payable No recourse to the general credit of the Company.
|
|
|
168
|
|
|
|
|
72
|
|
Total notes payable
|
|
$
|
2,960
|
|
|
|
$
|
1,207
|
|
Less: current portion
|
|
|
(1,438
|
)
|
|
|
|
(1,207
|
)
|
Total notes payable - long-term portion
|
|
$
|
1,522
|
|
|
|
$
|
—
|
|
83
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
12.
|
Supplemental Disclosure of Noncash Activities
|
As described in Note 1, on April 1, 2020, the Company acquired a restaurant from a franchisee, with financing on a note payable of $600,000.
As described in Note 5, consideration issued in the business combination included shares of stock valued at $103,680,000, and contingent consideration valued at $103,207,000.
13.Income Taxes (Successor)
The provision for (benefit) from income taxes is set forth below (in thousands):
|
|
Successor
|
|
|
|
December 16, 2020
Through
December 31, 2020
|
|
Current:
|
|
|
|
|
U.S. Federal
|
|
$
|
4
|
|
State
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
Current tax provision
|
|
|
4
|
|
Deferred:
|
|
|
|
|
U.S. Federal
|
|
|
(314
|
)
|
State
|
|
|
(56
|
)
|
Foreign
|
|
|
-
|
|
Deferred tax provision (benefit)
|
|
|
(370
|
)
|
Income tax provision (benefit)
|
|
$
|
(366
|
)
|
Deferred tax assets (liabilities) are set forth below (in thousands):
|
|
Year Ended
|
|
|
|
December 31, 2020
|
|
Deferred tax assets:
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
33
|
|
Fixed assets
|
|
|
(1,876
|
)
|
Intangible assets
|
|
|
(87
|
)
|
Goodwill
|
|
|
(20
|
)
|
Deferred franchise fees
|
|
|
752
|
|
Deferred rent
|
|
|
7
|
|
Stock compensation
|
|
|
203
|
|
Accrued expenses
|
|
|
—
|
|
Accrued paid time off
|
|
|
21
|
|
Unrealized gain/loss on disposal of assets
|
|
|
3
|
|
Transaction costs
|
|
|
127
|
|
Net operating losses
|
|
|
1,550
|
|
Total net Deferred Tax Assets
|
|
$
|
713
|
|
The Company has determined that no valuation allowance on any of its deferred tax assets was necessary as of December 31, 2020.
As of December 31, 2020, the Company’s federal net operating loss carryforwards for income tax purposes was $6,944,000 which can be carried forward indefinitely.
84
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The current portion of refundable income taxes was $215 as of December 31, 2020. There were no long-term refundable income taxes as of December 31, 2020.
The reconciliation of income tax computed at the U.S. federal statutory rate of 21% to reported income tax is set forth below:
|
|
Successor
|
|
|
|
December 16, 2020
Through
December 31, 2020
|
|
Income tax provision at the U.S. federal statutory rate
|
|
$
|
1,046
|
|
Permanent differences
|
|
|
(181
|
)
|
Change in derivative liability
|
|
|
(1,175
|
)
|
State taxes (tax effected)
|
|
|
(56
|
)
|
Total tax expense (benefit)
|
|
$
|
(366
|
)
|
14.STOCKHOLDERS’ EQUITY (Successor)
In conjunction with the Business Combination, all membership interests that were in existence for the Predecessor were acquired by the Successor on December 16, 2020.
The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share. Immediately following the Business Combination, there were:
•
|
17,541,838 shares of common stock issued and outstanding;
|
•
|
15,095,000 warrants outstanding, each exercisable for one share of common stock at an exercise price of $11.50 including 11,500,000 in Public Warrants, 3,000,000 in Private Placement Warrants, 445,000 in Private Warrants and 150,000 in Working Capital Warrants.
|
•
|
750,000 Unit Purchase Option “UPO” units that are exercisable for one share of common stock at an exercise price of $10.00 and warrants exercisable for one share of common stock at an exercise price of $11.50
|
The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At December 31, 2020 and 2019, there were no shares of preferred stock issued or outstanding.
The Company exchanged 675,000 UPO units for 283,670 common shares in a cashless exercise in February 2021.
Warrants
The Public Warrants became exercisable 30 days after the completion of the Business Combination; provided that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available. The Company has agreed that as soon as practicable, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of common stock issuable upon exercise of the Public Warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the Public Warrants is not effective within the specified period following the consummation of Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
85
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The Company may redeem the Public Warrants:
|
|
|
|
●
|
in whole and not in part;
|
|
|
|
|
●
|
at a price of $0.01 per warrant;
|
|
|
|
|
●
|
at any time during the exercise period;
|
|
|
|
|
●
|
upon a minimum of 30 days’ prior written notice of redemption; and
|
|
|
|
|
●
|
if, and only if, the last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which the Company sends the notice of redemption to the warrant holders.
|
|
|
|
|
●
|
if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.
|
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
The Placement Warrants are identical to the Public Warrants, except that the Placement Warrants and the common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The Private Warrants are identical to the Public Warrants, except that the Private Warrants and the common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants may be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. Due to this provision, the Private Warrants are accounted for as liabilities.
The Working Capital Warrants are identical to the Public Warrants, except that the Working Capital Warrants and the common stock issuable upon the exercise of the Working Capital Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Working Capital Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Working Capital Warrants are held by someone other than the initial purchasers or their permitted transferees, the Working Capital Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
86
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Unit Purchase Option
The Company has an outstanding Unit Purchase Option Agreement with EarlyBirdCapital (and its designees), to purchase up to 750,000 Units (Units include 1 common share and 1 warrant per Unit) exercisable at $10.00 per Unit. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires on March 17, 2023. The option grants to holders demand and “piggyback” rights for periods of five and seven years, respectively, from March 13, 2018 with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a price below its exercise price.
The Company exchanged 675,000 UPO units (which included a cashless conversion of the warrants to common shares, as a part of the unit) for 283,670 common shares in a cashless exercise in February 2021.
BurgerFi Acquisition Shares
The Company issued 6,603,774 common shares to the former members’ of BurgerFi as part of the Acquisition Agreement. This is included in the consideration as discussed in Note 5.
Share-Based Compensation
The Company has the ability to grant stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance compensation awards to current or prospective employees, directors, officers, consultants or advisors. During 2020, the Company approved the 2020 Omnibus Equity Incentive Plan (the “Plan”). The Plan was established to benefit the Company and its stockholders, by assisting the Company to attract, retain and provide incentives to key management employees, directors, and consultants of the Company, and to align the interests of such service providers with those of the Company’s stockholders. Accordingly, the Plan provides for the granting of Non-qualified Stock Options, Incentive Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards, Stock Appreciation Rights, Performance Stock Awards, Performance Unit Awards, Unrestricted Stock Awards, Distribution Equivalent Rights or any combination of the foregoing.
The aggregate number of Shares that may be issued under the Plan shall not exceed Two Million (2,000,000) Shares. The aggregate number of Shares reserved for Awards under the Plan (other than Incentive Stock Options) shall automatically increase on January 1 of each year, for a period of not more than ten (10) years, commencing on January 1 of the year following the year after the date the Plan became effective. in an amount equal to five percent (5%) of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, provided that the Committee may determine prior to the first day of the applicable fiscal year to lower the amount of such annual increase.
As of December 31, 2020, there were approximately 700,000 shares of common stock available for future grants under the 2020 Plan.
Restricted Shares
The Company grants RSAs with service, performance and market conditions. The RSAs granted with service conditions generally vest over 4 years. The market conditions include an index to the market value of the stock price of BurgerFi, and the performance conditions are based on key performance indicators, as identified in the employment agreements. The fair value of Restricted Shares granted is determined using the fair market value of the Company’s common stock on the date of grant, as set forth in the applicable plan document.
87
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The following table summarizes activity of Restricted Shares during 2020 (there was no activity prior to December 16, 2020):
|
|
Number of
Restricted Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Granted on December 16, 2020
|
|
|
1,300,000
|
|
|
$
|
15.30
|
|
Vested
|
|
|
(50,000
|
)
|
|
|
15.70
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non-vested at December 31, 2020
|
|
|
1,250,000
|
|
|
$
|
15.28
|
|
The total fair value of Restricted Shares that vested in 2020 was $785,000. As of December 31, 2020, there was approximately $19,000,000 of total unrecognized compensation cost related to unvested restricted stock or performance stock awards to be recognized over a weighted average period of 4-5 years.
The unrecognized portion of share-based compensation for unvested Market Condition shares (included in above) is approximately $927,000 over 2.96 years. As detailed below, the fair value of the Market Condition shares was determined using a Monte Carlo simulation model.
Performance Shares
The Company grants performance-based awards (restricted shares) to certain officers and key employees. The vesting of these awards is contingent upon meeting one or more defined operational or financial goals (a performance condition) or common stock share prices (a market condition).
The fair values of the performance condition awards granted for the Successor period from December 16, 2020 to December 31, 2020 were determined using the fair market value of the Company’s common stock on the date of grant. Share-based compensation expense recorded for performance condition awards is reevaluated at each reporting period based on the probability of the achievement of the goal. The achievement of this goal was not probable as of December 31, 2020 and therefore no expense was recognized.
The fair value of market condition awards granted for the Successor period from December 16, 2020 to December 31, 2020 were estimated using the Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the market conditions will be achieved and is applied to the trading price of our common stock on the date of grant.
The input variables are noted in the table below:
|
|
Successor
|
|
|
|
2020
|
|
Risk-free interest rate
|
|
|
0.18
|
%
|
Expected life in years
|
|
3
|
|
Expected volatility
|
|
|
65.9
|
%
|
Expected dividend yield (a)
|
|
|
0
|
%
|
(a)The Monte Carlo method assumes a reinvestment of dividends.
Share-based compensation expense is recorded ratably for market condition awards during the requisite service period and is not reversed, except for forfeitures, at the vesting date regardless of whether the market condition is met. During the Successor period, $33,000, representing a fair value of $10.45 per share, was recognized ratably as share-based compensation expense for the market condition awards.
88
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Service Condition Shares
The Company grants service-based awards (restricted shares) to certain officers and key employees. The vesting of these awards is contingent upon meeting the requisite service period.
The fair value of restricted stock awards is determined using the publicly-traded price of our common stock on the grant date. The fair value of option awards is calculated using the Black-Scholes option-pricing model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term, expected volatility, risk-free interest rate, dividend rate and service period.
The following table summarizes activity of the restricted shares during 2020 (there was no activity prior to December 16, 2020):
|
|
Performance Condition
|
|
|
Service Condition
|
|
|
Market Condition
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Granted
|
|
|
950,000
|
|
|
$
|
15.70
|
|
|
|
250,000
|
|
|
$
|
15.70
|
|
|
|
100,000
|
|
|
$
|
10.45
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
(50,000
|
)
|
|
|
15.70
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-vested at
December 31, 2020
|
|
|
950,000
|
|
|
$
|
15.70
|
|
|
|
200,000
|
|
|
$
|
15.70
|
|
|
|
100,000
|
|
|
$
|
10.45
|
|
Share-based Compensation
Total share-based compensation and the related income tax benefit recognized in the Company’s consolidated statements of operations were as follows:
|
|
Successor
|
|
(in thousands)
|
|
Year Ended
December 31, 2020
|
|
Performance condition awards
|
|
$
|
—
|
|
Service condition awards
|
|
|
785
|
|
Market condition awards
|
|
|
33
|
|
Share-based compensation
|
|
|
818
|
|
Less: Income tax benefit
|
|
|
—
|
|
Share-based compensation, net of income tax benefit
|
|
$
|
818
|
|
89
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
Warrant Liability
The private placement warrants, consisting of the warrants exercisable under the PIPE transaction (3,000,000 shares), the private placement warrants (445,000 shares) and the working capital warrants (150,000 shares), include provisions that affect the settlement amount. Such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument, and as such, the warrants are accounted for as liabilities in accordance with ASC 815-40, with changes in fair value included in the consolidated statement of operations.
The liability classified warrants were priced using a Dynamic Black Scholes model. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price, risk free interest rate and volatility assumptions. The warrant liability was $22,113,000 on December 16, 2020 and $16,516,000 on December 31, 2020. The change in value of warrant liability between the two measurement dates was $5,597,000 and is recognized in the consolidated statement of operations for the period from December 16, 2020 to December 31, 2020. There were no warrants outstanding in the Predecessor periods.
The public warrants (11,500,000 shares) and the UPO warrants (750,000) contain no such provisions and are classified in equity.
The following is an analysis of changes in the derivative liability:
|
|
|
|
|
Level 3 (Black Scholes)
|
Liability at 12-16-2020
|
$
|
22,113,000
|
Gain from 12-16-2020 to 12-31-2020
|
$
|
(5,597,000)
|
Liability at 12-31-2020
|
$
|
16,516,000
|
|
|
|
The fair value of the private warrant and working capital warrants are determined using the publicly-traded price of our common stock on the valuation dates of $15.70 on December 16, 2020 and $13.69 on December 31, 2020. The fair value is calculated using the Black-Scholes option-pricing model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term, expected volatility, risk-free interest rate, dividend rate and service period.
The fair value of private share warrants for the Successor period from December 16, 2020 to December 31, 2020 were estimated using a Dynamic Black Sholes model. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price, risk free interest rate and volatility assumptions. The calculated warrant price for private warrants was $6.15 and $4.60 on December 16, 2020 and December 31, 2020, respectively.
The input variables for the Black Scholes are noted in the table below:
|
|
Successor
|
|
|
|
2020
|
|
Risk-free interest rate
|
|
|
0.36
|
%
|
Expected life in years
|
|
5
|
|
Expected volatility
|
|
|
30.0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
90
BurgerFi International Inc., and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
15.Geographic Information
Revenue by geographic area for the Successor period from December 16, 2020 to December 31, 2020 and the Predecessor period from January 1, 2020 to December 15, 2020 and the twelve-month period ended December 31, 2019 is as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
(in thousands)
|
|
December 16,
2020 through
December 31,
2020
|
|
|
|
January 1,
2020 through
December 15,
2020
|
|
|
Year Ended
December 31,
2019
|
|
United States
|
|
$
|
1,702
|
|
|
|
$
|
32,520
|
|
|
$
|
33,428
|
|
Other Countries
|
|
|
2
|
|
|
|
|
58
|
|
|
|
127
|
|
Total
|
|
$
|
1,704
|
|
|
|
$
|
32,578
|
|
|
$
|
33,555
|
|
Revenue is shown based on the geographic location of our franchisees. Our long-lived assets are primarily located in the United States.
16.Subsequent Events
The Company has evaluated events and transactions that occurred between December 31, 2020 through April 28, 2021, which is the date that the consolidated financial statements were available to be issued for possible recognition or disclosure in the consolidated financial statements.
In January 2021, the Company paid its revolving line of credit to Bank of America. The balance at the time of payoff was $3,012,000.
The Company has begun the process of applying for PPP loan forgiveness in February of 2021, however, there is no assurance that the PPP loans will be forgiven.
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