bfi-20220630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-38417

__________________________________________________

BurgerFi International, Inc.

(Exact name of Registrant as specified in its Charter)

____________________________________________________


Delaware			82-2418815
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

200 West Cypress Creek Rd., Suite 220 Fort Lauderdale, FL			33309
(Address of principal executive offices)			(Zip Code)

(954) 618-2000

(Registrant’s telephone number, including area code)

On July 28, 2022, the Company changed its fiscal year from December 31 to the Monday closest to December 31

(Former name, former address and former fiscal year, if changed since last report)

________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

BFI

The Nasdaq Stock Market LLC

Redeemable warrants, each exercisable for one share of common stock at an exercise price of $11.50 per share

BFIIW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Common Stock outstanding as of August 9, 2022 was 22,253,232

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		Page
Part I Financial Information		1
Item 1.	Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
Part II Other Information		35
Item 1.	Legal Proceedings	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
Signatures		37

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Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may appear throughout this Quarterly Report on Form 10-Q, including without limitation, the following sections: Part 1, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A of such reports and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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Part I. Financial Information

BurgerFi International Inc., and Subsidiaries

Condensed Consolidated Balance Sheets


	Unaudited
(in thousands, except for per share data)	June 30, 2022		December 31, 2021
ASSETS
CURRENT ASSETS
Cash	$	15,747	$	14,889
Accounts receivable, net	1,387		1,689
Inventory	1,352		1,387
Asset held for sale	732		732
Other current assets	2,297		2,526
TOTAL CURRENT ASSETS	21,515		21,223
PROPERTY & EQUIPMENT, net	24,855		29,035
OPERATING RIGHT-OF-USE ASSET, net	52,216		—
GOODWILL	43,021		98,000
INTANGIBLE ASSETS, net	164,478		168,723
OTHER ASSETS	742		738
TOTAL ASSETS	$	306,827	$	317,719
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade and other	$	10,055	$	7,841
Accrued expenses	8,179		5,302
Short-term operating lease liability	9,486		—
Short-term borrowings, including finance leases	3,495		3,331
Other current liabilities	7,113		7,856
TOTAL CURRENT LIABILITIES	38,328		24,330
NON-CURRENT LIABILITIES
Long-term borrowings, including finance leases	55,949		56,797
Redeemable preferred stock, $0.0001 par value, 10,000,000 shares authorized, 2,120,000 shares issued and outstanding as of June 30, 2022 and December 31, 2021, $53 million principal redemption value	49,433		47,525
Long-term operating lease liability	43,742		—
Related party note	8,979		8,724
Deferred income taxes	902		1,353
Other non-current liabilities	2,957		5,715
TOTAL LIABILITIES	200,290		144,444
COMMITMENTS AND CONTINGENCIES - Note 7
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value, 100,000,000 shares authorized, 22,253,232 and 21,303,500 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	2		2
Additional paid-in capital	304,191		296,992
Accumulated deficit	(197,656)		(123,719)
TOTAL STOCKHOLDERS' EQUITY	106,537		173,275
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	306,827	$	317,719

See accompanying notes to condensed consolidated financial statements.

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BurgerFi International Inc., and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended				Six Months Ended
(in thousands, except for per share data)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
REVENUE
Restaurant sales	$	42,236	$	8,971	$	84,592	17,367
Royalty and other fees	2,611		2,254		4,714		4,277
Royalty - brand development and co-op	451		545		922		1,056

TOTAL REVENUE	45,298		11,770		90,228		22,700
Restaurant level operating expenses:
Food, beverage and paper costs	12,545		2,693		25,352		5,115
Labor and related expenses	12,328		2,402		24,910		4,607
Other operating expenses	7,421		2,114		14,613		3,847
Occupancy and related expenses	3,890		786		7,725		1,561
General and administrative expenses	7,406		3,549		13,432		6,524
Depreciation and amortization expense	4,730		2,171		9,174		4,279
Share-based compensation expense	909		2,595		8,285		3,117
Brand development, co-op and advertising expense	1,126		653		1,839		1,374
Goodwill impairment	55,168		—		55,168		—
Store closure costs	52		—		566		—
Pre-opening costs	—		502		474		628
TOTAL OPERATING EXPENSES	105,575		17,465		161,538		31,052
OPERATING LOSS	(60,277)		(5,695)		(71,310)		(8,352)
Other (loss) income	(47)		2,127		(80)		2,241
Gain on change in value of warrant liability	1,858		12,619		1,324		7,673
Interest expense	(2,246)		(33)		(4,318)		(41)
(Loss) income before income taxes	(60,712)		9,018		(74,384)		1,521
Income tax benefit (expense)	335		(27)		447		(740)
Net (loss) income	(60,377)		8,991		(73,937)		781
Weighted average common shares outstanding:
Basic	22,214,628		17,888,140		22,089,799		17,852,493
Diluted	22,214,628		18,752,938		22,089,799		20,145,284

Net (loss) income per common share:
Basic	$	(2.72)	$	0.50	(3.35)		0.04
Diluted	$	(2.72)	$	(0.19)	(3.35)		(0.34)

See accompanying notes to condensed consolidated financial statements.

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BurgerFi International Inc., and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)



	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
(in thousands, except for share data)	Shares	Amount
Balance as of March 31, 2021	17,830,507	$	2	$	261,820	$	(10,435)	$	251,387
Share-based compensation	—	—		2,595		—		2,595
Shares issued for warrant exercises	7,969	—		—		—		—
Net income	—	—		—		8,991		8,991
Balance as of June 30, 2021	17,838,476	$	2	$	264,415	$	(1,444)	$	262,973


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
(in thousands, except for share data)	Shares	Amount
Balance as of March 31, 2022	22,042,583	$	2	$	303,383	$	(137,279)	$	166,106
Share-based compensation	—	—		909		—		909
Shares issued for share-based compensation*	238,514	—		—		—		—
Shares withheld for taxes	(27,865)	—		(101)		—		(101)
Net loss	—	—		—		(60,377)		(60,377)
Balance as of June 30, 2022	22,253,232	$	2	$	304,191	$	(197,656)	$	106,537

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
(in thousands, except for share data)	Shares	Amount
Balance as of December 31, 2020	17,541,838	$	2	$	261,298	$	(2,225)	$	259,075
Share-based compensation	—	—		3,042		—		3,042
Shares issued for shares-based compensation	5,000	—		75		—		75
Shares issued for warrant exercises	7,969	—		—		—		—
Exchange of UPO units	283,669	—		—		—		—
Net income	—	—		—		781		781
Balance as of June 30, 2021	17,838,476	$	2	$	264,415	$	(1,444)	$	262,973

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
(in thousands, except for share data)	Shares	Amount
Balance as of December 31, 2021	21,303,500	$	2	$	296,992	$	(123,719)	$	173,275
Share-based compensation	—	—		4,475		—		4,475
Shares issued for share-based compensation	965,676	—		3,810		—		3,810
Shares issued in acquisition of Anthony's*	123,131	—		—		—		—
Shares withheld for taxes	(139,075)	—		(1,086)		—		(1,086)
Net loss	—	—		—		(73,937)		(73,937)
Balance as of June 30, 2022	22,253,232	$	2	$	304,191	$	(197,656)	$	106,537

*Timing of share issuance differs from recognition of related financial statement dollar amounts.

See accompanying notes to condensed consolidated financial statements.

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BurgerFi International Inc., and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended
(in thousands)	June 30, 2022		June 30, 2021
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net (loss) income	$	(73,937)	$	781
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Goodwill impairment	55,168		—
Provision for bad debts	32		37
Depreciation and amortization	9,174		4,279
Gain on extinguishment of debt	—		(2,237)
Deferred income taxes	(447)		740
Share-based compensation	8,285		3,117
Forfeited franchise deposits	(433)		(67)
Gain on change in value of warrant liability	(1,324)		(7,673)
Loss on disposal of property and equipment	385		—
Non-cash lease cost	112		—
Other non-cash interest	2,290		—
Changes in operating assets and liabilities
Accounts receivable	270		121
Inventory	35		5
Other assets	225		(56)
Accounts payable - trade	2,120		928
Accrued expenses and other current liabilities	1,895		899
Other long-term liabilities	38		380
NET CASH PROVIDED BY OPERATING ACTIVITIES	3,888		1,254
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(1,056)		(3,839)
Proceeds from the sale of property and equipment	1,025		—

NET CASH USED IN INVESTING ACTIVITIES	(31)		(3,839)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on borrowings	(1,667)		(3,041)
Debt issuance costs	(164)		—
Repayments of finance leases	(82)		—
Tax payments for restricted stock upon vesting	(1,086)		—
NET CASH USED IN FINANCING ACTIVITIES	(2,999)		(3,041)
NET INCREASE (DECREASE) IN CASH	858		(5,626)
CASH, beginning of period	14,889		40,383
CASH, end of period	$	15,747	34,757


Supplemental cash flow disclosures:
Cash paid for interest	$	1,454	$	—

See accompanying notes to condensed consolidated financial statements.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

1.Organization and Summary of Significant Accounting Policies

Organization

BurgerFi International, Inc. and its wholly owned subsidiaries (“BurgerFi,” or the “Company,” also “we,” “us,” and “our”), is a multi-brand restaurant company that develops, markets and acquires fast-casual and premium-casual dining restaurant concepts around the world, including corporate-owned stores and franchises located in the United States, Puerto Rico and Saudi Arabia. On November 3, 2021, the Company acquired (the “Anthony's acquisition”) 100% of the outstanding shares of Hot Air, Inc. (“Hot Air”). Hot Air, through its subsidiaries, owns the business of operating upscale casual dining restaurants in the specialty pizza and wings segment under the name “Anthony's Coal Fired Pizza & Wings” (“Anthony's”).

As of June 30, 2022, the Company had 183 franchised and corporate-owned restaurants of the two following brands:

BurgerFi. BurgerFi is a fast-casual “better burger” concept with 122 franchised and corporate-owned restaurants as of June 30, 2022, offering burgers, hot dogs, crispy chicken, frozen custard, hand-cut fries, shakes, beer, wine and more.

Anthony’s. Anthony’s is a pizza and wing brand that operated 61 corporate-owned casual restaurant locations, as of June 30, 2022. The concept is centered around a coal fired oven, and its menu offers “well-done” pizza, coal fired chicken wings, homemade meatballs, and a variety of handcrafted sandwiches and salads.

Basis of presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated balance sheet as of December 31, 2021 is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021 contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

As of June 30, 2022, the Company operated on a calendar year-end. Anthony's uses a 52-week or 53-week fiscal year-end and its fiscal year ends on the Monday closest to December 31. Differences arising from the different fiscal year-ends were not deemed material for the period ended June 30, 2022 and the year ended December 31, 2021.

Reclassifications

Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.

Principles of Consolidation

The condensed 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.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Corporate-owned stores and Franchised stores

Store activity for the six month period ended June 30, 2022 and the year ended December 31, 2021 are as follows:


	June 30, 2022			December 31, 2021
	Corporate-owned	Franchised	Total	Corporate-owned	Franchised	Total
Total BurgerFi and Anthony's	86	97	183	86	93	179

BurgerFi stores, beginning of the period	25	93	118	17	102	119
BurgerFi stores opened	3	5	8	10	6	16
BurgerFi stores transferred	(3)	3	—	(1)	1	—
BurgerFi stores closed	—	(4)	(4)	(1)	(16)	(17)
BurgerFi total stores, end of the period	25	97	122	25	93	118

Anthony's stores, beginning of period	61	—	61	61	—	61
Anthony's total stores, end of the period	61	—	61	61	—	61

End of quarter and end of year store totals included 1 international store at June 30, 2022 and December 31, 2021.

Net (Loss) Income per Common Share

Net (loss) income per common share is computed by dividing net (loss) 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 15,063,800 shares of common stock and (2) 75,000 shares of common stock and warrants to purchase 75,000 shares of common stock in the unit purchase option, (3) 1,620,869 shares of restricted stock unit grants in the calculation of income per share, and (4) the impact of any dividends associated with our redeemable preferred stock.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Reconciliation of Net (Loss) Income per Common Share

Basic and diluted net (loss) income per common share is calculated as follows:


(in thousands, except for per share data)	Three Months Ended				Six Months Ended
Numerator:	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net (loss) income attributable to common shareholders	$	(60,377)	$	8,991	$	(73,937)	$	781
Reversal of gain on change in value of warrant liability	—		(12,619)		—		(7,673)
Net (loss) available to common shareholders - diluted	$	(60,377)	$	(3,628)	$	(73,937)	$	(6,892)

Denominator:
Weighted-average shares outstanding, basic	22,214,628		17,888,140		22,089,799		17,852,493
Effect of dilutive securities:
Restricted stock grants and warrants	—		847,417		—		2,261,954
UPOs	—		17,381		—		30,837
Diluted weighted-average shares outstanding	22,214,628		18,752,938		22,089,799		20,145,284

Basic net (loss) income per common share	$	(2.72)	$	0.50	$	(3.35)	$	0.04
Diluted net loss per common share	$	(2.72)	$	(0.19)	$	(3.35)	$	(0.34)

For the three and six months ended June 30, 2022, there were no dilutive warrants.

New Accounting Standards Adopted

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), 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 are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company elected the package of practical expedients permitted under the new guidance, which includes allowing the Company to continue utilizing historical classification of leases. The Company adopted the requirements of the new standard as of the first day of fiscal year 2022 using the modified retrospective approach without restating comparative periods. See Note 13. Leases for further disclosures upon adoption.

2. Property & Equipment

Property and equipment consisted of the following:


(in thousands)	June 30, 2022		December 31, 2021
Leasehold improvements	$	17,805	$	19,900
Kitchen equipment and other equipment	9,329		7,810
Computers and office equipment	1,414		1,425
Furniture and fixtures	2,627		2,340
Vehicles	88		88
	31,263		31,563
Less: Accumulated depreciation and amortization	(6,408)		(2,528)
Property and equipment – net	$	24,855	$	29,035

Depreciation and amortization expense totaled $2.6 million and $4.9 million for the three and six months ended June 30, 2022. Depreciation and amortization expense totaled $0.4 million and $0.7 million for the three and six months ended June 30, 2021.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

3. Intangible Assets

The following is a summary of the components of intangible assets and the related amortization expense:


	June 30, 2022						December 31, 2021
(in thousands)	Amount		Accumulated Amortization		Net Carrying Value		Amount		Accumulated Amortization		Net Carrying Value
Franchise agreements	$	24,839	$	5,470	$	19,369	$	24,839	$	3,696	$	21,143
Trade names / trademarks	143,750		5,615		138,135		143,750		3,220		140,530
Liquor licenses	6,678		—		6,678		6,678		—		6,678
Other intangible assets	1,311		1,015		296		1,311		939		372
	$	176,578	$	12,100	$	164,478	$	176,578	$	7,855	$	168,723

Liquor licenses are considered to have an indefinite life and reviewed for impairment at the end of each reporting period. The Company also reviews both indefinite and definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Intangible asset amortization expense for the three and six months ended June 30, 2022 was $2.1 million and $4.2 million. Intangible asset amortization expense totaled $1.8 million and $3.6 million for the three and six months ended June 30, 2021.

4. Goodwill

The following table presents goodwill by reportable segment as of June 30, 2022:


(in thousands)	Goodwill, gross		Accumulated Impairment Loss		Goodwill, net
BurgerFi	$	123,981	$	(123,981)	$	—
Anthony's	80,684		(37,663)		43,021
Total	$	204,665	$	(161,644)	$	43,021

The Company conducts its goodwill impairment test annually in December, or more frequently if indicators of impairment exist. The Company evaluates it's goodwill based on its two reporting units, Anthony's and BurgerFi. As a result of a significant sustained decline in the Company’s share price and market capitalization during the six months ended June 30, 2022, the Company conducted its impairment test as of June 30, 2022. The impairment test was conducted in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”) for the reporting units' goodwill.

ASC 350 requires goodwill and other indefinite lived assets to be tested for impairment at the reporting unit level. For ASC 350 testing purposes, the Company compared the fair value of the reporting units with its carrying amounts. The fair value of the reporting units were estimated giving consideration to the Income Approach, including the discounted cash flow method, and the Market Approach, including the similar transactions method and guideline public company method. Significant inputs and assumptions in the ASC 350 analysis included forecasts (e.g., revenue, operating costs, capital expenditures, etc.), discount rate, long-term growth rate, tax rates, etc. for the reporting units under the Income Approach and market-based enterprise value to revenue multiples under the Market Approach.

As a result of the ASC 350 analysis, the Company recognized a non-cash pre-tax impairment loss of $55.2 million during the three and six months ended June 30, 2022 to write down the remaining carrying value of goodwill for the BurgerFi brand by $17.5 million and the carrying value of goodwill for the Anthony's brand by $37.7 million. The non-cash impairment loss is included in the unaudited condensed consolidated statement of operations under the caption “goodwill impairment” for the three and six months ended June 30, 2022.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

5. Acquisitions

On November 3, 2021, the Company acquired 100% of the outstanding common shares and voting interests of Hot Air.

The allocation of the excess purchase price was based upon preliminary estimates and assumptions and is subject to revision when the Company receives final information. Accordingly, the measurement period for such purchase price allocations will end when the information, or the facts and circumstances, become available, but will not exceed twelve months from the date of acquisition.

We had $0.2 million in adjustments to goodwill since December 31, 2021, which were made to reflect the facts and circumstances in existence as of the date of closing of the Anthony's acquisition (the “Anthony's Closing Date”) and include updates to estimates of provisional amounts recorded for certain accruals and receivables as of the Anthony's Closing Date. The accounting for the Anthony's acquisition is considered provisional because certain aspects of the purchase price allocation including the valuation of certain acquired tax assets and accruals have not been finalized.

For the six months ended June 30, 2021, unaudited proforma revenue and net loss were $82.7 million and $6.8 million.

6. Related Party Transactions

The Company is affiliated with various entities through common control and ownership.

The Company received royalty revenue from franchisees related to a significant stockholder totaling approximately $0.1 million for the each of the three and six months ended June 30, 2022 and $0.2 million and $0.3 million for each of the three and six months ended June 30, 2021.

The Company leased building space for its former corporate office from an entity under common ownership with a significant stockholder. This lease had a 36-month term, effective January 1, 2020. For the three and six months ended June 30, 2022, rent expense was approximately $0.1 million. For the three and six months ended June 30, 2021, rent expense was approximately $0.1 million. In January 2022, the Company exercised its right to terminate this lease effective as of July 2022.

Pursuant to a lease amendment entered into in February 2022, the Company leases building space for it's corporate office from an entity controlled by the Company's Executive Chairman of the Board. This lease has a 10 year term with an option to renew. For the three and six months ended June 30, 2022, rent expense was approximately $0.1 million and $0.2 million

The Company also leased building space for a restaurant located in Virginia from an entity (i) in which the Company's Executive Chairman of the Board has an indirect minority ownership interest, and (ii) which is managed by an entity in which the Company's Executive Chairman of the Board has an indirect ownership interest. This lease was terminated in May 2022 upon transfer of the restaurant to a franchisee. Rent expense for the three and six months ended June 30, 2022 was de minimis. There was no rent expense for the three and six months ended June 30, 2021.

In August 2022, the Company amended, effective as of September 1, 2022, the independent contractor agreement entered into in April 2021 with a corporation (the “Consultant”) for which the Chief Operating Officer (the “Consultant Principal”) of Lionheart Capital, LLC, an entity controlled by the Company’s Executive Chairman of the Board, serves as President. Pursuant to the terms of the agreements, the Consultant shall provide certain strategic advisory services to the Company in exchange for total annual cash compensation and expense reimbursements of $0.1 million, payable monthly.

On January 3, 2022, the Consultant Principal was granted 37,959 unrestricted shares of common stock of the Company and recorded share-based compensation associated with this grant of approximately $0.2 million during the six months ended June 30, 2022.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

7. Commitments and Contingencies

Leases

The Company has entered into various lease agreements. For the three and six months ended June 30, 2022 rent expense was approximately $4.2 million, and $8.0 million. For the three and six months ended June 30, 2021 rent expense was approximately $0.9 million, and $1.7 million. These lease agreements expire on various dates through 2033 and have renewal options. Refer to Note 13 Leases.

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. The closing of this transaction has been delayed due to additional negotiation that has been on-going. In the event the transaction is terminated, the Company will begin operating the restaurant, and return the deposit to the unrelated third-party purchaser. Assets used in the operations of BF Dania Beach, LLC totaling $0.7 million have been classified as held for sale in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

Contingencies

Eric Gilbert v. BurgerFi International, Inc., Ophir Sternberg, et al. (Court of Chancery of the State of Delaware, Case No. 2022-0185- , filed on February 25, 2022). Mr. Gilbert filed a class action lawsuit against BurgerFi International, Inc. and each of the members of the Board of Directors alleging that the Company’s Amended and Restated Bylaws improperly contains a provision restricting written consents by the stockholders. Mr. Gilbert sought an amendment to the bylaws, as well as attorney’ fees and costs. On March 23, 2022, BurgerFi made conforming amendments to its bylaws to remove the provision restricting written consents by the stockholders. On March 24, 2022, Mr. Gilbert filed and the Court entered an order voluntarily dismissing the action as moot and retaining jurisdiction to determine Mr. Gilbert’s application for award of attorney’s fees and expenses. At this stage, it is difficult to provide an evaluation of the likelihood of an unfavorable outcome or a reasonable estimate of the amount or range of potential loss. Based on the information known to date, the Company’s potential liability appears to be reasonably possible, but the amount or range of potential loss cannot be reasonably estimated.

Corey Winograd v BurgerFi International, LLC (Fifteenth Judicial Circuit Court of Palm Beach County, Florida, Case No. 502019-CA015256, filed December 1, 2019). Corey Winograd, the former chief executive officer of the Company, filed this suit against BurgerFi for certain alleged breaches of an employment agreement, claiming damages in excess of $15 million. BurgerFi filed a motion to dismiss the complaint on February 13, 2020. On May 20, 2020, the motion to dismiss was heard, which was granted in part and denied in part. The portion of the complaint not dismissed was answered by BurgerFi with affirmative defenses raised on July 7, 2020. Mr. Winograd served various discovery requests (including notices of non-party subpoenas) on July 9, 2020 as well as a motion to strike BurgerFi’s affirmative defenses on July 16, 2020. BurgerFi filed objections to the non-party subpoenas on July 20, 2020. On September 11, 2020, BurgerFi filed a motion to dismiss and certain claims were dismissed by the court. Mr. Winograd filed an amended complaint on August 31, 2021, which BurgerFi answered on September 30, 2021. In December 2021, Mr. Winograd filed a motion for summary judgment, which the Court denied on February 8, 2022. In February 2022, Mr. Winograd filed another motion for summary judgment, which the Court denied on May 25, 2022. During March and April of 2022, Mr. Winograd deposed several witnesses. On August 8, 2022, the parties entered into a settlement agreement whereby a former shareholder of the Company, pursuant to the terms of that certain Membership Interest Purchase Agreement, dated as of June 29, 2020, by and among OPES Acquisition Corp., BurgerFi International LLC, and certain other parties thereto, paid Mr. Winograd directly to settle this matter on behalf of the Company and such former shareholder.

Second 82nd SM, LLC v. BF NY 82, LLC, BurgerFi International, LLC and BurgerFi International, Inc. (Supreme Court of the State of New York County of New York, index No. 654907/2021, filed August 11, 2021). A lawsuit was filed by Second 82nd SM, LLC (“Landlord”) against BF NY 82, LLC (“Tenant”) whereby Landlord brought a seven-count lawsuit for, among other things, breach of the lease agreement and underlying guaranty of the lease. The amount of damages Landlord is seeking is over $0.5 million, which constitutes back rent, late charges, real estate taxes, illuminated sign charges and water/sewer charges. On November 3, 2021, the Company filed a Motion to Dismiss the Complaint. On November 17,

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

2021, the Tenant filed an Answer to Landlord’s Complaint and a cross claim against the Company, which the Company answered on December 7, 2021. On December 22, 2021, the Company filed its Response in Opposition to Landlord’s Motion for Summary Judgment and Memo in further Support of its Motion to Dismiss. The parties continue to discuss possible settlement, including turning over possession of the premises to the Landlord. The Company is unable to predict the ultimate outcome of this matter, however, losses may be material to the Company’s financial position and results of operations.

Lion Point Capital Allegation. Beginning March 9, 2021 through June 22, 2022, the Company received letters from counsel to Lion Point Capital, LLC, a stockholder of the Company (“Lion Point”), alleging that the Company failed to timely register Lion Point’s shares in violation of the registration rights agreement to which Lion Point is a party, which allegedly resulted in losses in excess of $26 million. The Company responded to each claim denying that any breach had occurred or that Lion Point incurred any damages caused by the delay in the filing of the registration statement registering Lion Point's shares. We believe that all claims are meritless, and we plan to vigorously defend these allegations. 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 June 30, 2022; any losses, however, may be material to the Company's financial position and results of operations.

John Rosatti, as Trustee of the John Rosatti Revocable Trust U/A/D 08/27/2001 (the “JR Trust”) v. BurgerFi International, Inc. (Circuit Court for the Eleventh Judicial Circuit, Florida, File No. 146578749). On March 28, 2022, the JR Trust filed a suit against BurgerFi alleging that the JR Trust suffered losses in excess of $10 million relating to BurgerFi’s alleged failure to timely file a registration statement. The parties attended a mediation on August 9, 2022 but were unable to resolve the suit. The Company believes this case is without merit and intends to defend the case vigorously. Management is unable to determine the likelihood of a loss or range of loss, if any, which may result from the case, therefore, no contingent liability has been recorded as of June 30, 2022; any losses, however, may be material to the Company's financial position and results of operations.

Burger Guys of Dania Pointe, et. al. v. BFI, LLC (Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. 50-2021-CA -006501-XXXX-MB, filed May 21, 2021). In response to a demand letter issued by BurgerFi to Gino Gargiulo, a former franchisee, demanding that Mr. Gargiulo pay the balance owed under an asset purchase agreement wherein BurgerFi sold the Dania Beach, Florida BurgerFi location to Mr. Gargiulo, Mr. Gargiulo filed suit against BurgerFi claiming, in addition to other matters, that no further monies are owed under the asset purchase agreement and alleges that BurgerFi is responsible for one of Gargiulo’s former failed franchises in Sunny Isles, Florida, losses he has allegedly sustained at his Dania Beach location, as well as reimbursement of expenses in connection with his marketing company. Mr. Gargiulo seeks damages in excess of $2 million in the aggregate. The parties attended mediation on January 20, 2022, but it ended in an impasse. Mr. Gargiulo amended his complaint in April 2022, which, among other matters, amended the defendant parties. In May 2022, the Company filed a motion to dismiss the amended complaint and a motion to stay discovery, both of which are pending with the Court. We believe that all claims are meritless, and we plan to vigorously defend these allegations. 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 June 30, 2022; any losses, however, may be material to the Company's financial position and results of operations.

All Round Food Bakery Products, Inc. v. BurgerFi International, LLC and Neri’s Bakery Products, Inc. et al (Supreme Court Westchester County, New York (Index Number 52170-2020)). In a suit filed in February 2020, the plaintiff, All Round Food Bakery Products, Inc. (“All Round Food”) alleges breach of contract and lost profits in excess of $1 million over the course of the supply agreement with the Company and Neri’s Bakery Products, Inc. (“Neri’s” and together with the Company, the “Defendants”). The Defendants assert, among other matters, that the supply agreement amongst the parties, whereby All Round Food was warehousing BurgerFi products produced by Neri’s, was terminated when All Round Food failed to cure its material breach of the supply agreement after due notice. The parties are attending mediation to attempt to resolve the dispute. We believe that all claims are meritless, and we plan to vigorously defend these allegations. 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 June 30, 2022; any losses, however, may be material to the Company's financial position and results of operations.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Employment Related Matters

In July 2021, the Company received a demand letter from the attorney of one of our now former hourly restaurant employees. The letter alleges that the former employee was sexually harassed by one of her co-workers. The demand letters claim that we discriminated and retaliated against the former employee based on her gender and age and also alleged intentional infliction of emotional distress, negligent hiring, negligent training, and negligent supervision. The claimant alleges damages of more than $0.8 million.

In November 2021, a former employee filed suit alleging that she was sexually harassed by one of her co-workers. The lawsuit claims that we discriminated and retaliated against her and alleged intentional infliction of emotional distress, retaliation, and battery. The claimant alleges damages of $0.3 million.

In February 2020, a former employee filed a charge of discrimination with the EEOC alleging age discrimination. In June 2021, the claimant filed a demand for arbitration. The parties agreed to mediate the matter before commencing the arbitration proceedings but were unable to resolve the case. A final hearing is scheduled to take place in May 2022. In July 2022, the parties agreed to settle the matter, and the Company paid a nominal amount after insurance coverage.

While we believe that all claims of the above-mentioned Employment Related Claims, which are covered under the Company’s insurance policies, are meritless, and we plan to defend these allegations, it is reasonably possible that the Company may ultimately be required to pay substantial damages to the claimants, which could be up to $1.1 million or more in aggregate compensatory damages, attorneys’ fees and costs. 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.

General Liability and Other Claims.

The Company is subject to other legal proceedings and claims that arise during the normal course of business, including landlord disputes, slip and fall cases, and various food related matters. While we intend to vigorously defend these matters, it is reasonably possible that the Company may be required to pay substantial damages to the claimants. 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.

8. Debt


(in thousands)	June 30, 2022		December 31, 2021
Term loan	$	56,135	$	57,761
Related party note	10,000		10,000
Revolving line of credit	2,500		2,500
Other notes payable	836		874
Finance lease liability	1,018		—
Total Debt	$	70,489	$	71,135
Less: Unamortized debt discount to related party note	(1,021)		(1,276)
Less: Unamortized debt issuance costs	(1,045)		(1,007)
Total Debt, net	68,423		68,852
Less: Short-term borrowings, including finance leases	(3,495)		(3,331)
Total Long-term borrowings, including finance leases and related party note	$	64,928	$	65,521

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Credit Agreement

The Company has a credit agreement with a syndicate of commercial banks that provides up to $71.8 million in financing (“Credit Agreement”). The Credit Agreement, which terminates on June 15, 2024, provides the Company with lender financing structured as a $57.8 million term loan, a $4 million revolving loan, and a $10 million delayed draw term loan facility (the “Delayed Draw Term Loan Facility”) provided by a related party which is a significant stockholder. The terms of the Credit Agreement require the Company to repay the principal of the term loan in quarterly installments with the balance due at the maturity date.

The loan and revolving line of credit are secured by substantially all of the Company’s assets and incurs cash interest on outstanding amounts at 4.75% per annum through June 15, 2023 and 6.75% from June 16, 2023 through maturity. Pursuant to the terms of an amendment to the Credit Agreement effective as of March 9, 2022, certain of the covenants of the Credit Agreement were amended, and the Company, together with the other borrower and the guarantors party to the Credit Agreement, agreed to pay incremental deferred interest of 2% per annum, in the event that the obligations under the Credit Agreement are not repaid on or prior to June 15, 2023; provided, however, that if no event of default has occurred and is continuing then (1) no incremental deferred interest will be due if all of the obligations under the Credit Agreement have been paid on or prior to December 31, 2022, and (2) only 50% of the incremental deferred interest will be owed if all of the obligations under the Credit Agreement have been paid from and after January 1, 2023 and on or prior to March 31, 2023.

Interest expense for the three and six months ended June 30, 2022 was $2.2 million and $4.3 million. Included within interest expense for the three and six months ended June 30, 2022 is amortization of debt issuance costs in the amount of $0.1 million and $0.3 million and the amortization of related party note debt discount in the amount of $0.1 million and $0.3 million. Additionally, included within interest expense for the three and six months ended June 30, 2022 is non-cash interest expense on the redeemable preferred stock in the amount of $1.0 million and $1.9 million. Interest expense for the three and six months ended June 30, 2021 was de minimis.

9. Income Taxes

The Company is subject to federal and state income taxes in the United States. The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if its estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. For the three and six months ended June 30, 2022, the Company concluded that it has a recent history of losses and has recognized a valuation allowance against the balance of its existing deferred tax assets.

For the three and six months ended June 30, 2022, the Company's effective income tax rate was 0.55% and 0.60%, respectively, differing from the U.S. corporate statutory federal income tax rate of 21%, and the difference is primarily the result of the valuation allowance applied to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized. For the three and six months ended June 30, 2021, the Company's effective income tax rate was 0.3% and 48.7%, respectively. The tax returns for years 2018-2022 may be selected for examination by taxing authorities.

10. Stockholders' Equity

Common Stock

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. At June 30, 2022 and December 31, 2021, there were 22,253,232 shares and 21,303,500 shares of common stock outstanding, respectively.

Preferred Stock

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. As of June 30, 2022 and December 31, 2021, there were 2,120,000 shares of preferred stock outstanding.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Warrants and Options

As of June 30, 2022, the Company had the following warrants and options outstanding: 15,063,800 warrants outstanding, each exercisable for one share of common stock at an exercise price of $11.50 including 11,468,800 in public warrants, 3,595,000 in private placement warrants, 75,000 unit purchase option 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 public warrants expire in December 2025.

Warrant Liability

The Company has certain warrants which 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, Derivatives and Hedging, with changes in fair value included in the condensed consolidated statements of operations.

The warrant liability was $1.4 million and $2.7 million at June 30, 2022 and December 31, 2021, respectively. The gain on change in value of warrant liability for the three and six months ended June 30, 2022 was $1.9 million and $1.3 million, and is recognized in the accompanying condensed consolidated statement of operations. The gain on change in value of warrant liability for the three and six months ended June 30, 2021 was $12.6 million, and $7.7 million, and is recognized in the accompanying condensed consolidated statement of operations.

The following is an analysis of changes in the warrant liability for the six months ended June 30, 2022:


(in thousands)	Level 3 (Black Scholes)
Liability at December 31, 2021	$	2,706
Gain during the six months ended June 30, 2022	1,324
Liability at June 30, 2022	$	1,382

The fair value of the warrants are determined using the publicly-traded price of our common stock on the valuation dates of $3.23 on June 30, 2022 and $5.67 on December 31, 2021. See Note 11. Fair Value Measurements.

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 under the Company’s 2020 Omnibus Equity Incentive Plan (the “Plan”).

On January 3, 2022, the Company filed a Registration Statement with the SEC to register 1,065,175 additional shares of common stock, $0.0001 par value per share, of the Company under the Plan, pursuant to the “evergreen” provision of the Plan providing for an automatic increase in the number of shares reserved for issuance under the Plan.

As of June 30, 2022 and December 31, 2021, there were approximately 406,000 and 126,000 shares of common stock available for future grants under the Plan, respectively.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Restricted Stock Unit Awards

The following table summarizes activity of restricted stock units during the six months ended June 30, 2022:


	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2021	1,783,698	$	14.18
Granted	437,847	3.32
Vested	(324,289)	14.80
Forfeited	(276,387)	9.69
Non-vested at June 30, 2022	1,620,869	$	11.89

Share-based compensation recognized during three and six months ended June 30, 2022 was approximately $0.9 million and $8.3 million, inclusive of stock grants of $3.9 million. Share-based compensation recognized during the three and six months ended June 30, 2021 was $2.6 million and $3.1 million. As of June 30, 2022, there was approximately $13.9 million of total unrecognized compensation cost related to unvested restricted stock units or performance-based restricted stock unit awards to be recognized over a weighted average period of 2.9 years.

11. Fair Value Measurements

Fair values of financial instruments are estimated using public market prices, quotes from financial institutions, and other available information. The fair values of cash equivalents, receivables, net, accounts payable and short-term debt approximate their carrying amounts due to their short duration.

The following tables summarize the fair values of financial instruments measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021.


	Items Measured at Fair Value at June 30, 2022
(in thousands)	Quoted prices in active market for identical assets (liabilities) (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Redeemable preferred stock	$	—	$	49,433	$	—
Related party note	—		8,979		—
Warrant liability	—		—		1,382
Total	$	—	$	58,412	$	1,382


	Items Measured at Fair Value at December 31, 2021
(in thousands)	Quoted prices in active market for identical assets (liabilities) (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Redeemable preferred stock	$	—	$	47,525	$	—
Related party note	—		8,724		—
Warrant liability	—		—		2,706
Total	$	—	$	56,249	$	2,706

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

The fair value of the preferred stock was determined using a discounted cash flow methodology. The expected future redemption payment was forecasted based on the contractual PIK (payment in kind) interest and estimated redemption date of December 31, 2024.

The fair value of the related party note is determined based on the present value of the underlying cash flows discounted at our incremental borrowing rates.

The fair value of non-financial assets measured at fair value on a non-recurring basis, classified as Level 2 in the fair value hierarchy, is determined based on third-party market appraisals. The fair value of our warrant liability is measured at fair value on a non-recurring basis, classified as Level 3 in the fair value hierarchy. The fair value of the private placement warrants, private warrants, and working capital warrants was determined using the publicly-traded price of our common stock on the valuation dates of $3.23 on June 30, 2022 and $5.67 on December 31, 2021 and was estimated 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 calculated warrant price for private warrants was $0.38 and $0.75 on June 30, 2022 and December 31, 2021.

The input variables for the Black-Scholes are noted in the table below:


	June 30, 2022		December 31, 2021
Risk-free interest rate	2.95	%	1.11	%
Expected life in years	3.47		3.96
Expected volatility	57.0	%	41.8	%
Expected dividend yield	—	%	—	%

Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets and definite-lived intangible assets that we performed impairment testing for. In determining fair value, we used an income-based approach. As a number of assumptions and estimates were involved that are largely unobservable, they are classified as Level 3 inputs within the fair value hierarchy. Assumptions used in these forecasts are consistent with internal planning, and include revenue growth rates, royalties, gross margins, and operating expense in relation to the current economic environment and the Company’s future expectations.

12. Segment Information

Prior to the Anthony's acquisition in November 2021, the Company had one operating and reportable segment. As such, segment information is presented for the six months ended June 30, 2022, but not prior periods as all information in prior periods relates to the BurgerFi brand. Following the Anthony's acquisition, the Company has two operating and reportable segments: BurgerFi and Anthony's.

The following tables present revenue and net loss by segment:

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)


(in thousands)	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Revenue:
BurgerFi	$	13,458	$	25,853
Anthony's	31,840		64,375
Total	$	45,298	$	90,228

Net loss:
BurgerFi	$	(21,726)	$	(34,686)
Anthony's	(38,651)		(39,251)
Total	$	(60,377)	$	(73,937)

13. Leases

On January 1, 2022, we adopted ASU 2016-02. Results for reporting periods beginning on or after January 1, 2022 are presented under Accounting Standards Codification Topic 842 (“ASC 842”). Prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840, the accounting standard then in effect.

Upon transition, on January 1, 2022, we recorded the following increases (decreases) to the respective line items on the Condensed Consolidated Balance Sheet:


(in thousands)	Adjustment as of January 1, 2022
Prepaid expenses	$	(773)
Operating right-of-use asset, net	57,385
Finance right-of-use asset, net	855
Deferred rent	(900)
Short-term operating lease liability	9,457
Short-term finance lease liability	143
Long-term operating lease liability	49,149
Long-term finance lease liability	712

The Company currently leases all of its corporate-owned restaurants, corporate offices, and certain equipment. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment and evaluates whether it controls the use of the asset, which is determined by assessing whether all economic benefits from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. Once the Company has identified a lease, the lease is accounted for under the requirements of ASC 842.

Upon the possession of a leased asset, the Company determines its classification as an operating or finance lease. The Company's real estate leases are classified as operating leases, and the Company's equipment leases are classified as finance leases. Generally, the real estate leases have initial terms ranging from 10 years to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the options to extend the lease. The real estate leases typically provide for fixed minimum rent payments or variable rent payments based on a percentage of monthly sales or annual changes to the Consumer Price Index. Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date the Company takes possession of the leased property. Lease expense incurred before a corporate-owned store opens is recorded in pre-opening costs in the condensed consolidated statements of operations. Once a corporate-owned store opens, the straight-line lease expense is recorded in occupancy and related expenses in the condensed consolidated statements of operations. Many of the leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy and related expenses in the condensed consolidated statements of operations.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

A summary of finance and operating lease right-of-use assets and liabilities as of June 30, 2022 is as follows:


(in thousands)	Classification	June 30, 2022
Operating leases	Operating right-of-use asset, net	$	52,216
Finance leases	Property & equipment, net	976
Total right-of-use assets		$	53,192

Operating leases:
	Short-term operating lease liability	$	9,486
	Long-term operating lease liability	43,742