Organization and Summary of Significant Accounting Policies
|9 Months Ended|
Oct. 03, 2022
|Accounting Policies [Abstract]|
|Organization and Summary of Significant Accounting Policies||Organization and Summary of Significant Accounting Policies
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.
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.
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:
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:
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,
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.
The entire disclosure for the business description and accounting policies concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Accounting policies describe all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef