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

Annual report pursuant to Section 13 and 15(d)

Acquisitions

Acquisitions

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Acquisition of BurgerFi International, LLC

On December 16, 2020, the Company consummated its merger with OPES. This acquisition qualified as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with any excess recognized as goodwill.

The aggregate value of the consideration paid by OPES in the BurgerFi acquisition was approximately $236.9 million.


Consideration Paid

(in thousands)
Cash	$	30,000
Common Stock	103,680
Contingent consideration	103,207
Total Consideration	$	236,887

The total consideration includes a) a cash payment of $30.0 million, b) the issuance of 6,603,773 common stock shares valued at approximately $103.7 million, and c) contingent earnout consideration (Contingent Consideration) valued at approximately $103.2 million.

The former members of BurgerFi International, LLC may be entitled to an additional 9,356,459 shares of Successor common stock (“Earnout Share Consideration”) if prior to December 16, 2022, 2023, and 2023, the last reported closing prices of the Company's common stock in any 20 trading days within any consecutive 30 trading day period is greater than or equal to $19.00, $22.00, and $25.00 per share, respectively, in which case the Company shall issue 3,947,368, 3,409,091, and 2,000,000 shares of common stock, respectively.

The fair values of the contingent consideration were determined using the trading price of the Company’s common stock at the Closing Date and using a Monte Carlo simulation model. The contingent consideration is assessed to be non-compensatory and recorded in additional paid-in capital as reflected in the consolidated statement of changes in stockholders’ / members’ equity.

The input variables are noted in the table below:


	2020
Risk-free interest rate	0.37	%
Expected life in years	3
Expected volatility	60	%
Expected dividend yield *	0	%
* The Monte Carlo method assumes a reinvestment of dividends.

The Monte Carlo simulation model utilized multiple input variables to estimate the probability that the stock price targets will be achieved. Based on the features of the earnout, a Monte-Carlo Simulation was used to value the Contingent Consideration. The traded price of the common stock was simulated in each trial using Geometric Brownian Motion, and the simulated path was then analyzed to determine which, if any, earnout tranches would be payable within the given trial. The estimated payments were calculated by multiplying the shares earned for a given tranche by the simulated price as of the date that the earnout tranche was earned. The result was present valued using the risk-free rate. The average of all trials resulted in the valuation conclusion, which was determined to be approximately $103.2 million.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date, which have been finalized during the measurement period:


(in thousands)	Fair Value December 16, 2020
Cash	$	2,179
Cash - restricted	611
Accounts receivable	378
Inventory	260
Other current assets	1,235
Property and equipment	8,520
Intangible assets	117,124
Other assets	199
Accounts payable, accrued expenses, and other current liabilities	(7,740)
Revolving line of credit	(3,012)
Current portion of deferred franchise fees	(521)
Other deposit	(907)
Deferred initial franchise fees, net of current portion	(2,531)
Notes payable	(2,889)
Fair Value of Tangible and Identifiable Intangible assets and liabilities assumed	$	112,906
Consideration paid	236,887
Goodwill	$	123,981

Goodwill is recognized as the excess of consideration over the net assets acquired of BurgerFi and represents the value derived by BurgerFi’s market share and expected growth in the market.

Acquired personal property assets consist of leasehold improvements, kitchen equipment, and restaurant furniture and fixtures, computer and point of sale systems, and audio and video equipment (“Personal Property”), which were valued on in-use basis. The Company enlisted a third-party consultant to assist in the valuation of the Personal Property (the “Valuation”).

Identifiable intangible assets acquired consist of customer relationships of franchise agreements, trade names and trademarks, liquor licenses, license agreements, and the VegeFi product. The above were valued using the multi-period excess earnings method.

Identifiable intangible assets acquired consisted of customer relationships of $24.8 million, trade names of $83.0 million and license agreements of $8.9 million. The customer relationships were valued using the multi-period excess earnings method. The Company determined the useful life of the customer relationships to be 7 years. This is based on the average remaining terms of our franchise agreements with our franchisees. The trade names were valued using the relief-from-royalty method. The Company determined the useful life of the trade names to be 30 years. The license agreements and the customer relationships were valued using the multi-period excess earnings method. The Company determined the useful life of the license agreements to be 10 years. The identifiable intangible assets are amortized using the straight-line method over their respective useful lives.

The allocation of the excess purchase price was based upon preliminary estimates and assumptions and was subject to revision when the Company received final information. Accordingly, the measurement period for such purchase price allocations ended on December 15, 2021 or twelve months from the date of acquisition. Adjustments to goodwill during the measurement period were made to reflect the facts and circumstances in existence as of the Closing Date and include updates to estimates of provisional amounts recorded as of the Closing Date. The adjustments primarily related to updating the fair value recorded for a provisional estimate of lease guarantees provided by the Company. The adjustment resulted in an increase to goodwill and other liabilities on the accompanying consolidated balance sheet. The following table represents changes to goodwill from the initial purchase price allocation:


(in thousands)
Goodwill as of December 31, 2020	$	119,542
Adjustments to other current liabilities (measurement period adjustments)	$	4,439
Goodwill as of December 31, 2021 (prior to impairment charges recorded)	$	123,981

Acquisition of Hot Air, Inc.

On November 3, 2021, the Company acquired 100% of the outstanding common shares and voting interest of Anthony's. The results of Anthony's operations have been included in the consolidated financial statements since that date. Anthony's, through its subsidiaries, owns and operates casual dining pizza restaurants under the trade name Anthony's Coal Fired Pizza & Wings. As of the acquisition date, Anthony's had 61 restaurants open and operational in Florida, Delaware, Pennsylvania, New Jersey, New York, Massachusetts, Maryland, and Rhode Island.

The acquisition-date fair value of the consideration transferred totaled $75.9 million, which consisted of the following:


Consideration Paid

(in thousands)
Common Stock	$	25,562
Preferred Stock	46,906
Option Consideration Shares	3,403
Total Consideration	$	75,871

The fair value of the common shares issued and option consideration shares was determined based on the closing market price of the Company’s common shares on the day preceding the acquisition date. 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 following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company determined the fair value of certain intangible assets. The Company is in the process of finalizing its assessment of the fair value of the assets acquired and liabilities assumed; thus, the provisional measurements of intangible assets, goodwill and deferred income taxes are subject to change. The allocation of the excess purchase price was based upon preliminary estimates and assumptions and is subject to revision. The measurement period for such purchase price allocations end on November 3, 2022 or twelve months from the date of acquisition.


(in thousands)	Fair Value November 3, 2021
Cash	$	5,522
Accounts receivable	597
Inventory	986
Other current assets	1,662
Property and equipment	13,534
Intangible assets	67,344
Accounts payable, accrued expenses, and other current liabilities	(15,451)
Long-term borrowings	(77,063)
Deferred tax liability	$	(1,755)
Fair Value of Tangible and Identifiable Intangible assets and liabilities assumed	$	(4,624)
Consideration paid	75,871
Goodwill	$	80,495

Of the $67.3 million of acquired intangible assets, $60.7 million was assigned to registered trademarks with a 30-year useful life and $6.6 million was assigned to acquired liquor licenses with an indefinite life. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Anthony's. None of the goodwill is expected to be deductible for income tax purposes.

The Company recognized $3.1 million of acquisition-related costs that were expensed in the current period. These costs are included in the consolidated statement of operations within General and administrative expenses. The Company also recognized $0.8 million in costs associated with issuing and registering the shares issued as consideration in the Anthony's acquisition. Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity.

The accounting for the Anthony's acquisition is considered provisional because we have not finalized certain aspects of the purchase price allocation including the utilization of the U.S. federal and state net operating loss carryforwards which may be subject to a substantial annual limitation under Sections 382 and 383 of the IRC and corresponding provisions of state law, due to ownership changes that have occurred previously as well as the valuation of certain assets and contingencies.

The amounts of revenue and net loss for Anthony's included in the Company’s consolidated statement of operations for the period from November 3, 2021, the acquisition date, through December 31, 2021 are as follows:


(in thousands)	2021
Revenue	$	22,419
Net Loss	(142)

Proforma Information (Unaudited)

The following represents the unaudited proforma consolidated statement of operations as if the BurgerFi acquisition and Anthony's acquisition had been included in the consolidated results of the Company for the entire years ending December 31, 2021 and 2020:


(in thousands)	2021		2020
Revenue	$	168,906	$	107,160
Net Loss	(138,490)		(19,890)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Anthony's to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied on January 1, 2020, together with the consequential tax effects.