BurgerFi International, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

Fair Value Measurements

12 Months Ended

Jan. 01, 2024

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 January 1, 2024 and January 2, 2023.


	Items Measured at Fair Value at January 1, 2024 - Debt Instruments
(in thousands)	Quoted prices in active market for identical assets (liabilities) (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Warrant liability	—		182		—
Total	$	—	$	182	$	—

	Items Measured at Fair Value at January 2, 2023
(in thousands)	Quoted prices in active market for identical assets (liabilities) (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Warrant liability			$	195
Total	$	—	$	195	$	—

In estimating its fair value disclosures for financial instruments, the Company uses the following methods and assumptions:

Cash and cash equivalents: The carrying amount reported in the consolidated balance sheets for these items approximates fair value due to their liquid nature.

Accounts receivable, inventory, other current assets, accounts payable, accrued expenses and other current liabilities: The carrying value reported on the consolidated balance sheets for these items approximates their fair value, which is the likely amount for which the receivable or liability with short settlement periods would be transferred from/to a market participant with a similar credit standing as the Company’s.

Short-term borrowings: The fair value of the Company’s short-term borrowings under the Credit Agreement approximates between $20 million to $40 million and its carrying value was $53.3 million as of January 1, 2024. The fair value is estimated using Level 3 inputs based on quoted prices for those or similar instruments. The Company has been actively engaged in discussions with its lenders to explore potential solutions regarding the default event and its resolution. The fair value of the short-term borrowings are highly sensitive to the results of any such negotiations and may differ significantly from the fair value amount disclosed. Refer to Note 9, “Debt,” for further discussion.

Warrant liability: The fair value of the Company warrant liability is measured at fair value on a recurring basis, classified as Level 2 in the fair value hierarchy. The fair values of the Other Warrants are determined using the publicly-traded price of the Company’s common stock on the valuation dates of $0.86 on December 29, 2023, the last trading day before January 1, 2024 and $1.26 on December 30, 2022, the last trading day before January 2, 2023. The fair value is calculated using the Black-Scholes option-pricing model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term, expected volatility, risk-free interest rate, dividend rate and service period. The calculated warrant price for private warrants was $0.05 and $0.05 on January 1, 2024 and January 2, 2023, respectively. The input variables for the Black-Scholes are noted in the table below:


	January 1, 2024		January 2, 2023
Risk-free interest rate	4.25	%	4.14	%
Expected life in years	2.0		3.0
Expected volatility	98.0	%	68.0	%
Expected dividend yield	0	%	0	%

Assets and liabilities that are measured at fair value on a non-recurring basis include the Company’s long-lived assets and definite-lived intangible assets. In determining fair value, the Company uses 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details