bfi-20221003

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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 October 3, 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)

(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 dqq uring 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 November 10, 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	36
Item 4.	Controls and Procedures	35
Part II Other Information		36
Item 1.	Legal Proceedings	36
Item 1a.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
Signatures		39

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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)	October 3, 2022		December 31, 2021
ASSETS
CURRENT ASSETS
Cash	$	14,141	$	14,889
Accounts receivable, net	1,361		1,689
Inventory	1,317		1,387

Other current assets	5,288		3,258
TOTAL CURRENT ASSETS	22,107		21,223
PROPERTY & EQUIPMENT, net	23,061		29,035
OPERATING RIGHT-OF-USE ASSET, net	49,804		—
GOODWILL	43,021		98,000
INTANGIBLE ASSETS, net	162,356		168,723
OTHER ASSETS	1,358		738
TOTAL ASSETS	$	301,707	$	317,719
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade and other	$	9,254	$	7,841
Accrued expenses	8,606		5,302
Short-term operating lease liability	9,505		—
Short-term borrowings, including finance leases	3,491		3,331
Other current liabilities	7,055		7,856
TOTAL CURRENT LIABILITIES	37,911		24,330
NON-CURRENT LIABILITIES
Long-term borrowings, including finance leases	56,181		56,797
Redeemable preferred stock, $0.0001 par value, 10,000,000 shares authorized, 2,120,000 shares issued and outstanding as of October 3, 2022 and December 31, 2021, $53 million principal redemption value	50,416		47,525
Long-term operating lease liability	41,372		—
Related party note	9,107		8,724
Deferred income taxes	903		1,353
Other non-current liabilities	1,602		5,715
TOTAL LIABILITIES	197,492		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 October 3, 2022 and December 31, 2021, respectively	2		2
Additional paid-in capital	305,201		296,992
Accumulated deficit	(200,988)		(123,719)
TOTAL STOCKHOLDERS' EQUITY	104,215		173,275
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	301,707	$	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				Nine Months Ended
(in thousands, except for per share data)	October 3, 2022		September 30, 2021		October 3, 2022		September 30, 2021
REVENUE
Restaurant sales	$	40,361	$	8,688	$	124,954	26,067
Royalty and other fees	2,465		1,956		7,179		6,233
Royalty - brand development and co-op	429		471		1,351		1,527

TOTAL REVENUE	43,255		11,115		133,484		33,827
Restaurant level operating expenses:
Food, beverage and paper costs	11,665		2,671		37,017		7,786
Labor and related expenses	12,217		2,524		37,126		7,131
Other operating expenses	7,464		1,871		22,077		5,718
Occupancy and related expenses	3,848		719		11,575		2,280
General and administrative expenses	5,511		4,062		18,943		10,599
Depreciation and amortization expense	4,253		2,194		13,427		6,473
Share-based compensation expense	1,010		3,668		9,295		6,785
Brand development, co-op and advertising expense	1,159		411		2,998		1,785
Goodwill impairment	—		—		55,168		—
Store closure costs	568		132		1,134		132
Pre-opening costs	—		615		474		1,243
TOTAL OPERATING EXPENSES	47,695		18,867		209,234		49,932
OPERATING LOSS	(4,440)		(7,752)		(75,750)		(16,105)
Other income (loss)	2,627		(2)		2,546		2,240
Gain on change in value of warrant liability	726		2,732		2,050		10,405
Interest expense	(2,245)		(5)		(6,562)		(46)
Loss before income taxes	(3,332)		(5,027)		(77,716)		(3,506)
Income tax benefit (expense)	—		9		447		(731)
Net loss	(3,332)		(5,018)		(77,269)		(4,237)
Weighted average common shares outstanding:
Basic	22,253,232		17,892,769		22,146,258		17,866,168
Diluted	22,253,232		17,895,932		22,146,258		18,154,434

Net loss per common share:
Basic	$	(0.15)	$	(0.28)	(3.49)		(0.24)
Diluted	$	(0.15)	$	(0.28)	(3.49)		(0.93)

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 June 30, 2021	17,838,476	$	2	$	264,415	$	(1,444)	$	262,973
Share-based compensation	—	—		3,615		—		3,615
Shares issued for warrant exercises	55,000	—		53		—		53
Net income	—	—		—		(5,018)		(5,018)
Balance as of September 30, 2021	17,893,476	$	2	$	268,083	$	(6,462)	$	261,623


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
(in thousands, except for share data)	Shares	Amount
Balance as of June 30, 2022	22,253,232	$	2	$	304,191	$	(197,656)	$	106,537
Share-based compensation	—	—		1,010		—		1,010
Shares issued for share-based compensation*	—	—				—		—
Shares withheld for taxes	—	—				—		—
Net loss	—	—		—		(3,332)		(3,332)
Balance as of October 3, 2022	22,253,232	$	2	$	305,201	$	(200,988)	$	104,215

	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	—	—		6,657		—		6,657
Shares issued for shares-based compensation	60,000	—		128		—		128
Shares issued for warrant exercises	7,969	—		—		—		—
Exchange of UPO units	283,669	—		—		—		—
Net income	—	—		—		(4,237)		(4,237)
Balance as of September 30, 2021	17,893,476	$	2	$	268,083	$	(6,462)	$	261,623

	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	—	—		5,485		—		5,485
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	—	—		—		(77,269)		(77,269)
Balance as of October 3, 2022	22,253,232	$	2	$	305,201	$	(200,988)	$	104,215

*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)


	Nine Months Ended
(in thousands)	October 3, 2022		September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(77,269)	$	(4,237)
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Goodwill impairment	55,168		—
Recovery of doubtful accounts, net	(150)		44
Depreciation and amortization	13,427		6,473
Gain on extinguishment of debt	—		(2,237)
Deferred income taxes	(447)		731
Share-based compensation	9,295		6,785
Forfeited franchise deposits	(884)		(128)
Gain on change in value of warrant liability	(2,050)		(10,405)
Loss on disposal of property and equipment	720		22
Non-cash lease cost	173		—
Other non-cash interest	3,512		—
Changes in operating assets and liabilities
Accounts receivable	295		99
Inventory	70		(130)
Other assets	(2,350)		74
Accounts payable - trade	1,156		669
Accrued expenses and other current liabilities	2,160		868
Other long-term liabilities	(263)		559
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	2,563		(813)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(1,330)		(8,182)
Proceeds from the sale of property and equipment	1,025		—

Other investing activities	(117)		(35)
NET CASH USED IN INVESTING ACTIVITIES	(422)		(8,217)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on borrowings	(2,507)		(3,058)
Proceeds from line of credit	1,000		—
Tax payments for restricted stock upon vesting	(1,086)		—
Debt issuance costs	(164)		—
Repayments of finance leases	(132)		—
NET CASH USED IN FINANCING ACTIVITIES	(2,889)		(3,058)
NET DECREASE IN CASH	(748)		(12,088)
CASH, beginning of period	14,889		40,383
CASH, end of period	$	14,141	28,295


Supplemental cash flow disclosures:
Cash paid for interest	$	2,180	$	—

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 October 3, 2022, the Company had 178 franchised and corporate-owned restaurants of the two following brands:

BurgerFi. BurgerFi is a fast-casual “better burger” concept with 117 franchised and corporate-owned restaurants as of October 3, 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 October 3, 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

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as discussed below and elsewhere through the Quarterly Report on Form 10-Q, substantial doubt about the Company’s ability to continue as a going concern exists. Please see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A Risk Factors for further information.

The Company’s credit agreement (“Credit Agreement”) with a syndicate of banks has approximately $68.8 million in financing outstanding as of October 3, 2022 and expires on June 15, 2024. The credit agreement contains numerous covenants, including those whereby the Company is required to meet certain trailing twelve month quarterly financial ratios and a minimum liquidity requirement. The Company was in compliance with all of the covenants under the Credit Agreement as of October 3, 2022.

While the Company’s overall business results have improved sequentially and comparatively to the prior period, some of the financial covenants contained within the Credit Agreement require financial performance to improve at a rate faster than we have experienced and at a faster rate than we expect to experience over the next twelve months. As a result, management believes it is probable that the Company will not be in compliance with each of the financial covenants in the Credit Agreement over the next 12 months, which would constitute a breach of the credit agreement and an event of default if not cured in accordance with its terms. Any such default would allow the lenders to call the debt sooner than its maturity date of June 15, 2024. In the event that the lenders do call the debt during the next 12 months as the result of a covenant breach, the Company is not forecasted to have the readily available funds to repay the debt, which raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.

The Company has been and continues to be in communication with its lenders about potential options to address concerns related to meeting the covenant requirements over the next 12 months. Management cannot, however, predict the results of any such negotiations.

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that results from the uncertainty described above.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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”).

We are required to evaluate events occurring after October 3, 2022 for recognition and disclosure in the unaudited consolidated financial statements for the three and nine month periods ended October 3, 2022. Events are evaluated based on whether they represent information existing as of October 3, 2022, which require recognition, or new events occurring after October 3, 2022 which do not require recognition but require disclosure if the event is significant. We evaluated events occurring subsequent to October 3, 2022 through the date of issuance of these unaudited consolidated financial statements.

On July 28, 2022, our Board of Directors approved the change to a 52-53-week fiscal year ending on the Monday nearest to December 31 of each year in order to improve the alignment of financial and business processes following the acquisition of Anthony’s. Our current fiscal year will end on January 2, 2023. As of October 3, 2022, the BurgerFi brand operated on a calendar year-end. Differences arising from the different fiscal period-ends were not deemed material for the period ended October 3, 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.

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 nine months ended October 3, 2022 and the year ended December 31, 2021 are as follows:

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)


	October 3, 2022			December 31, 2021
	Corporate-owned	Franchised	Total	Corporate-owned	Franchised	Total
Total BurgerFi and Anthony's	86	92	178	86	93	179

BurgerFi stores, beginning of the period	25	93	118	17	102	119
BurgerFi stores opened	3	6	9	10	6	16
BurgerFi stores transferred	(3)	3	—	(1)	1	—
BurgerFi stores closed	—	(10)	(10)	(1)	(16)	(17)
BurgerFi total stores, end of the period	25	92	117	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 one international store at October 3, 2022 and December 31, 2021.

Net Loss per Common share

Net Loss per common share is computed by dividing Net Loss 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) 1,703,659 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.

Reconciliation of Net Loss 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				Nine Months Ended
Numerator:	October 3, 2022		September 30, 2021		October 3, 2022		September 30, 2021
Net loss attributable to common stockholders	$	(3,332)	$	(5,018)	$	(77,269)	$	(4,237)
Reversal of gain on change in value of warrant liability	—		—		—		(12,619)
Net loss available to common stockholders - diluted	$	(3,332)	$	(5,018)	$	(77,269)	$	(16,856)

Denominator:
Weighted-average shares outstanding, basic	22,253,232		17,892,769		22,146,258		17,866,168
Effect of dilutive securities:
Restricted stock grants and warrants	—				—		282,472
UPOs	—		3,163		—		5,794
Diluted weighted-average shares outstanding	22,253,232		17,895,932		22,146,258		18,154,434

Basic net loss per common share	$	(0.15)	$	(0.28)	$	(3.49)	$	(0.24)
Diluted net loss per common share	$	(0.15)	$	(0.28)	$	(3.49)	$	(0.93)

For the three and nine months ended October 3, 2022, there were no dilutive warrants.

Employer Retention Tax Credits

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, made a number of changes to employer retention tax credits previously made available under The Coronavirus Aid, Relief, and Economic Security Act,

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

including modifying and extending the Employee Retention Credit (“ERC”) for the six calendar months ending June 30, 2021. As a result of such legislation, the Company qualified for ERC for the first and second calendar quarters of 2021 and has applied for ERC through amended payroll tax filings for the applicable quarters. We recognized $2.6 million, net of third party preparation fees, in other income (loss) related to ERC in our condensed consolidated statements of operations for the three and nine months ended October 3, 2022.

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)	October 3, 2022		December 31, 2021
Leasehold improvements	$	17,868	$	19,900
Kitchen equipment and other equipment	9,435		7,810
Computers and office equipment	1,525		1,425
Furniture and fixtures	2,657		2,340
Vehicles	66		88
	31,551		31,563
Less: Accumulated depreciation and amortization	(8,490)		(2,528)
Property and equipment – net	$	23,061	$	29,035

Depreciation and amortization expense totaled $2.2 million and $7.1 million for the three and nine months ended October 3, 2022. Depreciation and amortization expense totaled $0.1 million and $1.0 million for the three and nine months ended September 30, 2021.

3. Intangible Assets

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


	October 3, 2022						December 31, 2021
(in thousands)	Amount		Accumulated Amortization		Net Carrying Value		Amount		Accumulated Amortization		Net Carrying Value
Franchise agreements	$	24,839	$	6,358	$	18,481	$	24,839	$	3,696	$	21,143
Trade names / trademarks	143,749		6,813		136,936		143,750		3,220		140,530
Liquor licenses	6,679		—		6,679		6,678		—		6,678
Other intangible assets	1,312		1,052		260		1,311		939		372
	$	176,579	$	14,223	$	162,356	$	176,578	$	7,855	$	168,723

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 nine months ended October 3, 2022 was $2.1 million and $6.4 million. Intangible asset amortization expense totaled $1.8 million and $5.4 million for the three and nine months ended September 30, 2021.

4. Goodwill

The following table presents goodwill by reporting unit as of October 3, 2022:


(in thousands)	Goodwill, gross		Accumulated Impairment Loss		Goodwill, net
BurgerFi	$	123,988	$	(123,988)	$	—
Anthony's	80,684		(37,663)		43,021
Total	$	204,672	$	(161,651)	$	43,021

The Company conducts its goodwill impairment test annually in December, and evaluates on a quarterly basis if indicators of impairment exist. The Company evaluates its 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.

ASC 350, Intangibles – Goodwill and Other (“ASC 350”) requires goodwill 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 their 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 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 conducted as of June 30, 2022, the Company recognized a non-cash pre-tax impairment loss of $55.2 million during the nine months ended October 3, 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 nine months ended October 3, 2022.

5. Acquisitions

On November 3, 2021, the Company acquired 100% of the outstanding common shares and voting interests of Hot Air (the “Anthony’s Acquisition”). The acquisition was accounted for as a business combination using the acquisition method of accounting.

The allocation of the 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.

During the nine months ended October 3, 2022, we adjusted our preliminary estimate of the fair value of net assets acquired by $0.2 million. The adjustments to the preliminary estimate of net assets acquired resulted in a corresponding increase in estimated goodwill and includes updates to estimates of provisional amounts recorded for certain accruals and receivables as of the Anthony's Closing Date.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

The accounting for the Anthony's acquisition is considered provisional because certain aspects of the purchase price allocation including the valuation of accruals have not been finalized.

For the nine months ended September 30, 2021, unaudited proforma revenue and net loss were $124.1 million and $16.1 million.

6. Related Party Transactions

The Company is also affiliated with various entities through common control and ownership. The accompanying condensed 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 condensed consolidated balance sheets. These advances are unsecured and non-interest bearing.

There were approximately $0.3 million and no amounts included as due from related companies in the condensed consolidated balance sheets as of October 3, 2022 and December 31, 2021, respectively.

The Company received royalty revenue from franchisees related to a significant stockholder of a nominal amount for the three months and approximately $0.1 million for the nine months ended October 3, 2022 and $0.1 million and $0.3 million for each of the three and nine months ended September 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. In January 2022, the Company exercised its right to terminate this lease effective as of July 2022. For the nine months ended October 3, 2022 rent expense was approximately $0.1 million. For the three and nine months ended September 30, 2021, rent expense was approximately $0.1 million and $0.2 million.

Pursuant to a lease amendment entered into in February 2022, the Company leases building space for its 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 nine months ended October 3, 2022, rent expense was approximately $0.2 million and $0.4 million.

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 Company granted the Consultant Principal 37,959 unrestricted shares of common stock of the Company. The Company recorded share-based compensation associated with this grant of approximately $0.2 million during the nine months ended October 3, 2022.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

7. Commitments and Contingencies

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 October 3, 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 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, the Company cannot reasonably estimate the likelihood of an unfavorable outcome nor can we reasonably 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.

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, 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 and payment of certain rent amounts. 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, L.P. v. BurgerFi International, Inc. (Supreme Court of the State of New York County of New York, Index No. 653099/2022, filed August 26, 2022. A lawsuit filed by Lion Point against the Company, 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. 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 October 3, 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 entered in to negotiations that would resolve this matter as well as all other litigation and disputes between the parties, including the disputes surrounding certain stores owned directly or indirectly by the JR Trust that are operated on its behalf by the Company however, a settlement is still being negotiated between the parties. No assurance can be made that the parties will enter into any such final settlement agreement on the proposed terms or at all.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 October 2022, the Company filed an additional 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 October 3, 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 attended mediation to attempt to resolve the dispute, however, no resolution was reached. 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 October 3, 2022; any losses, however, may be material to the Company's financial position and results of operations.

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.

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.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Purchase Commitments

From time to time, we enter into purchase commitments for food commodities in the normal course of business. As of October 3, 2022, we entered into $0.5 million in unconditional purchase obligations over the next quarter.

8. Debt


(in thousands)	October 3, 2022		December 31, 2021
Term loan	$	55,321	$	57,761
Related party note	10,000		10,000
Revolving line of credit	3,500		2,500
Other notes payable	809		874
Finance lease liability	976		—
Total Debt	$	70,606	$	71,135
Less: Unamortized debt discount to related party note	(893)		(1,276)
Less: Unamortized debt issuance costs	(934)		(1,007)
Total Debt, net	68,779		68,852
Less: Short-term borrowings, including finance leases	(3,491)		(3,331)
Total Long-term borrowings, including finance leases and related party note	$	65,288	$	65,521

Credit Agreement

The Company’s Credit Agreement with a syndicate of commercial banks provides up to $71.8 million in financing. 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 that 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.

Please see Note 1, Organization and Summary of Significant Accounting Policies, for further discussion on the Credit Agreement, including regarding our potential default thereof.

Interest expense for the three and nine months ended October 3, 2022 was $2.2 million and $6.6 million. Included within interest expense for the three and nine months ended October 3, 2022 is amortization of debt issuance costs in the amount of $0.1 million and $0.4 million and the amortization of related party note debt discount in the amount of $0.1 million and $0.4 million. Additionally, included within interest expense for the three and nine months ended October 3, 2022 is non-cash interest expense on the redeemable preferred stock in the amount of $1.0 million and $2.8 million. Interest expense for the three and nine months ended September 30, 2021 was de minimis.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 nine months ended October 3, 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 nine months ended October 3, 2022, the Company's effective income tax rate was 0.0% and 0.6%, respectively. The difference from the U.S. corporate statutory federal income tax rate of 21%, 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 nine months ended September 30, 2021, the Company's effective income tax rate was (0.1)% and 20.8%, 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. As of October 3, 2022, the Company had unrecognized tax benefits of $0.2 million. The Company files income tax returns in the U.S. with Federal, State and local agencies. The Company, and its subsidiaries are subject to U.S. Federal, state and local tax examinations for tax years starting in 2018. The Company does not currently have any ongoing income tax examinations in any of its jurisdictions.

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 October 3, 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 October 3, 2022 and December 31, 2021, there were 2,120,000 shares of preferred stock outstanding.

Warrants and Options

As of October 3, 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 (“private 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 private 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 $0.7 million and $2.7 million at October 3, 2022 and December 31, 2021, respectively. The gain on change in value of warrant liability for the three and nine months ended October 3, 2022 was $0.7 million and $2.1 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 nine months ended September 30, 2021 was $2.7 million, and $10.4 million, and is recognized in the accompanying condensed consolidated statement of operations.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

The following is an analysis of changes in the warrant liability:


	October 3, 2022
(in thousands)	Three Months Ended		Nine Months Ended
Warrant liability, beginning	$	1,382	$	2,706
Gain during the period	726		2,050
Warrant liability at October 3, 2022	$	656	$	656

The fair value of the warrants are determined using the publicly-traded price of our common stock on the valuation dates of $2.48 on October 3, 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 share-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 October 3, 2022 and December 31, 2021, there were approximately 430,000 and 126,000 shares of common stock available for future grants under the Plan, respectively.

Restricted Stock Unit Awards

The following table summarizes activity of restricted stock units during the nine months ended October 3, 2022:


	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2021	1,783,698	$	14.18
Granted	552,847	4.69
Vested	(324,289)	14.80
Forfeited	(308,597)	12.32
Non-vested at October 3, 2022	1,703,659	$	11.29

Share-based compensation recognized during three and nine months ended October 3, 2022 was approximately $1.0 million and $9.3 million. Share-based compensation recognized during the three and nine months ended September 30, 2021 was $3.7 million and $6.8 million. As of October 3, 2022, there was approximately $12.9 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 2.8 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.

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize the fair values of financial instruments measured at fair value on a recurring basis as of October 3, 2022 and December 31, 2021.


	Items Measured at Fair Value at October 3, 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	$	—	$	50,416	$	—
Related party note	—		9,107		—
Warrant liability	—		—		656
Total	$	—	$	59,523	$	656


	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

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 $2.48 on October 3, 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 $0.18 and $0.75 on October 3, 2022 and December 31, 2021.

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


	October 3, 2022		December 31, 2021
Risk-free interest rate	4.02	%	1.11	%
Expected life in years	3.21		3.96
Expected volatility	57.2	%	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 which are adjusted to fair value upon impairment. 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,

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 nine months ended October 3, 2022, but not prior periods as all information in comparable 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:


(in thousands)	Three Months Ended October 3, 2022		Nine Months Ended October 3, 2022
Revenue:
BurgerFi	$	11,775	$	37,628
Anthony's	31,480		95,856
Total	$	43,255	$	133,484

Net loss:
BurgerFi	$	(1,752)	$	(36,439)
Anthony's	(1,580)		(40,830)
Total	$	(3,332)	$	(77,269)

13. Leases

The Company has entered into various lease agreements. For the three and nine months ended October 3, 2022 rent expense was approximately $4.0 million, and $11.8 million. For the three and nine months ended September 30, 2021 rent expense was approximately $1.0 million, and $2.8 million. These lease agreements expire on various dates through 2033 and have renewal options.

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 2, 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

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BurgerFi International Inc., and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 reasona