Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

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Stockholders' Equity
 12 Months Ended
Jan. 01, 2024
Stockholders' Equity Note [Abstract]  
Stockholders' Equity 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 January 1, 2024 and January 2, 2023, there were 26,832,691 shares and 22,257,772 shares of common stock outstanding, respectively.

In addition to the CEO Awards, as defined below, as an inducement to employment, effective as of July 10, 2023, the Company issued the CEO 63,500 shares of the Company’s common stock, which such shares are subject to Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”).
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 January 1, 2024 and January 2, 2023, there were 2,120,000 shares of preferred stock outstanding. See Note 8, “Redeemable Preferred Stock,” for further information.

Warrants

As of January 1, 2024 and January 2, 2023, 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, 3,000,000 in private placement warrants (“Private Placement Warrants”), 445,000 in Private Warrants and 150,000 in Working Capital Warrants. The public warrants expire in December 2025. There were no warrants exercised during the years ended January 1, 2024 and January 2, 2023.

The public warrants became exercisable 30 days after the completion of the BurgerFi acquisition, provided that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the public warrants and a current prospectus relating to them is available. Warrant holders may, during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.

The Company may redeem the public warrants:

•in whole and not in part;
•at a price of $0.01 per warrant;
•at any time during the exercise period;
•upon a minimum of 30 days' prior written notice of redemption;
•if, and only if, the last sale price of the Company's common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which the Company sends the notice of redemption to the warrant holders; and
•if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.

If the Company calls the public warrants for redemption, management will have the option to require all holders that wish to exercise the public warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.

The Private Placement Warrants, Private Warrants and Working Capital Warrants (collectively, the“Other Warrants”) are identical to the public warrants, except that the Other Warrants and the common stock issuable upon the exercise of the Other Warrants became transferable, assignable or salable after the completion of the BurgerFi acquisition, subject to certain limited exceptions. Additionally, the Other Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Other Warrants are held by someone other than the initial purchasers or their permitted transferees, the Other Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants. Due to this provision, the Other Warrants are accounted for as liabilities.
Unit Purchase Options

The Company had an outstanding Unit Purchase Option Agreement with an investor, to purchase up to 750,000 Units (Units include one common share and one warrant per Unit) exercisable at $10.00 per Unit. The unit purchase option (“UPO”) could have been exercised for cash or on a cashless basis, at the holder’s option; however, it expired on on March 17, 2023 without being exercised, and there were no UPO exchanges between January 2, 2023 and March 17, 2023.

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 Plan. The Plan was established to benefit the Company and its stockholders, by assisting the Company to attract, retain and provide incentives to key management employees, directors, and consultants of the Company, and to align the interests of such service providers with those of the Company’s stockholders. Accordingly, the Plan provides for the granting of Non-qualified Stock Options, Incentive Stock Options, RSU Awards, Restricted Stock Awards, Stock Appreciation Rights, Performance Stock Awards, Performance Unit Awards, Unrestricted Stock Awards, Distribution Equivalent Rights or any combination of the foregoing.

The initial aggregate number of Shares that were issuable under the Plan was 2,000,000 Shares. Provisions under the Plan allow for the aggregate number of Shares reserved for Awards under the Plan (other than Incentive Stock Options) to automatically increase on January 1 of each year, for a period of not more than 10 years, commencing on January 1 of the year following the year after the date the Plan became effective in an amount equal to 5% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year, provided that the Compensation Committee of the board of directors (the “Compensation Committee”) may determine prior to the first day of the applicable fiscal year to lower the amount of such annual increase.
The Company grants RSUs with service conditions, PSUs with performance and market conditions and unrestricted stock awards. RSUs granted with service conditions generally vest over 4 years. Performance conditions are based on key performance indicators, and market conditions include an index to the market value of the stock price of the Company. The fair value of the RSUs and PSUs granted is determined using the fair market value of the Company’s common stock on the date of grant, as set forth in the applicable Plan document.

The following table summarizes activity of RSUs and PSUs issued under the Plan during the year ended January 1, 2024:

Service Condition Performance Condition Market Condition
Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
 Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
 Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
Non-vested at January 2, 2023 162,000  $ 14.65  1,051,100  $ 12.62  232,500  $ 5.34 
Granted 330,960  1.30  496,000  1.19  —  — 
Vested (358,595) 5.25  (283,487) 13.66  (52,500) $ 6.40 
Forfeited (84,365) 1.59  (191,063) 5.85  (140,000) 5.38 
Non-vested at January 1, 2024
 50,000  $ 15.70  1,072,550  $ 8.27  40,000  3.37 


Service Condition RSUs

The Company grants RSUs with service conditions to certain officers and key employees. The vesting of these awards is contingent upon meeting the requisite service period. The fair value of these RSU awards granted is determined using the fair market value of the Company’s common stock on the date of grant. During the years ended January 1, 2024 and January 2, 2023, the Company recognized share-based compensation expense of approximately $1.1 million and $2.1 million, respectively, in relation to these awards.

Performance Condition PSUs

The Company grants performance-condition PSUs to certain officers and employees of the Company. The vesting of these PSU awards is contingent upon meeting one or more defined operational or financial goals.

The fair values of the PSU awards granted was determined using the fair market value of the Company’s common stock on the date of grant. Share-based compensation expense recorded for these PSU awards is reevaluated at each reporting period based on the probability of the achievement of the goal. Certain goals were achieved as of January 1, 2024 and January 2, 2023; accordingly, the Company recognized share-based compensation expense of approximately $2.9 million and $3.7 million, respectively, in relation to these awards.

Market Condition PSUs

The Company grants market-condition PSUs to certain members of senior management of the Company. The vesting of these awards is contingent upon meeting one or more defined market conditions tied to the share price of BurgerFi common stock outstanding.

The fair value of market condition awards granted was estimated using the Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the market conditions will be achieved and is applied to the trading price of the Company’s common stock on the date of grant. In January 2022 and July 2021, the Company modified the terms related to certain market condition awards that the Compensation Committee previously approved. As a result of these modifications, the Company recorded additional share-based compensation of $0.2 million during the year ended January 2, 2023.
The input variables are noted in the table below:

Year Ended
 January 2, 2023
Risk-free interest rate
0.4% - 4.1%
Expected life in years
2
Expected volatility
57.3% - 65.9%
Expected dividend yield *
—%
* The Monte Carlo method assumes a reinvestment of dividends.

Share-based compensation expense is recorded ratably for market condition PSUs during the requisite derived service period and is not reversed, except for forfeitures, at the vesting date regardless of whether the market condition is met. The Company recognized a reversal of share-based compensation expense due to forfeitures of approximately $0.1 million for the year ended January 1, 2024; for the year ended January 2, 2023, the Company recognized $0.6 million in share-based compensation expense in relation to these awards.

Unrestricted Stock Awards

On January 3, 2023, the Company issued 1,141,750 unrestricted shares to the Executive Chairman and two senior executives of the Company, as well as 38,000 unrestricted shares to the Consultant Principal (see Note 6,”Related Parties”). The Company recognized approximately $1.5 million of share based-compensation for the year ended January 1, 2024.


Restricted Stock Unit Awards - Inducement Awards

On July 10, 2023, the Company issued awards of RSUs and PSUs to the Chief Executive Officer (“CEO Awards”) and the Chief Financial Officer (“CFO Awards”) as part of an inducement to enter into employment agreements with the Company (“Inducement Awards”). The Inducement Awards are not part of the Plan.

Terms of the Inducement Awards are as follows:

•The CEO Awards are comprised of 500,000 time-based RSUs which, subject to continuous employment, vest in equal tranches of 100,000 units per year, and 500,000 PSUs, which, subject to continuous employment and the achievement of certain performance criteria, vest in equal tranches of 100,000 units per year.

•The CFO Awards are comprised of 200,000 time-based RSUs which, subject to continuous employment, vest in equal tranches of 40,000 units per year, and 200,000 PSUs, which, subject to continuous employment and the achievement of certain performance criteria, vest in equal tranches of 40,000 units per year.

Performance Condition Service Condition
Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
 Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
Non-vested at January 2, 2023 —  $ —  —  $ — 
Granted 700,000  $ 1.57  700,000  $ 1.57 
Vested —  —  —  — 
Forfeited —  —  —  — 
Non-vested at January 1, 2024
 700,000  $ 1.57  700,000  $ 1.57 
Vesting for the Inducement Awards is over a 5-year period. Share based compensation expense related to the Inducement Awards recognized during the year ended January 1, 2024 was $0.2 million; there was no share-based compensation expense recognized during the year ended January 2, 2023. As of January 1, 2024, there was approximately $1.9 million of total unrecognized compensation cost related to unvested Inducement Awards to be recognized over a weighted average period of 3.2 years.
Share-based compensation expense recognized for awards under the Plan (RSUs,PSUs and unrestricted stock awards) and the Inducement Awards during the years ended January 1, 2024 and January 2, 2023 was $5.6 million and $10.2 million, respectively. As of January 1, 2024, there was approximately $8.5 million of total unrecognized compensation cost related to unvested RSUs and PSUs under the Plan and Inducement Awards to be recognized over a weighted average period of 2.3 years.