Summary of Significant Accounting Policies
|6 Months Ended|
Jul. 03, 2023
|Accounting Policies [Abstract]|
|Summary of Significant Accounting Policies||Summary of Significant Accounting Policies
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, as well as Risk Factors in the Company’s Annual Report on Form 10-K for the year ended January 2, 2023 (the “2022 Form 10-K”), for further information.
The Company’s credit agreement (“Credit Agreement”) with a syndicate of banks has approximately $52.8 million in financing outstanding as of July 3, 2023, and expires on September 30, 2025. 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 July 3, 2023.
As discussed in Note 8 “Commitments and Contingencies” to the consolidated financial statements included within this report, in the case of Second 82nd SM, LLC v. BF NY 82, LLC et al., the Court entered an order granting the Landlord’s Motion for Summary Judgment and ordered a damages hearing on the motion. As a result, unless the parties otherwise agree to a settlement prior to the damages hearing, the Company expects a judgment to be entered against it of at least approximately $1.2 million. The parties, however, continue to discuss possible settlement prior to the damages hearing, including re-opening the BurgerFi restaurant, as well as the payment, including timing, of past due rent amounts to the Landlord. In addition, the Company is considering other alternatives, including the need to refinance or restructure its debt, sell assets, or seek to raise additional capital, including debt or equity. If the Company is unable to implement one or more of these options or is otherwise unsuccessful in negotiating a settlement, which the Company believes is unlikely, and the court entered a final judgment against the Company, management believes it is possible that the Company will not be in compliance with certain of the financial covenants in its Credit Agreement, 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 September 30, 2025. 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 the Landlord to negotiate a settlement prior to the damages hearing and is also considering other capital raising options to address any potential judgment, as well as any issues related to meeting the covenant requirements over the next 12 months. Management cannot, however, predict the results of any such negotiations or actions.
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 January 3, 2023 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 January 2, 2023 contained in the 2022 Form 10-K.
We are required to evaluate events occurring after July 3, 2023 for recognition and disclosure in the unaudited consolidated financial statements for the quarter and six month periods ended July 3, 2023. Events are evaluated based on whether they represent information existing as of July 3, 2023, which require recognition, or new events occurring after July 3, 2023 which do not require recognition but require disclosure if the event is significant. We evaluated events occurring subsequent to July 3, 2023 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 second fiscal quarter of 2023 ended on July 3, 2023. Our current fiscal year will end on January 1, 2024. As of June 30, 2022, the BurgerFi brand operated on a calendar year-end and the Anthony’s brand operated on a 52-53-week fiscal year. Differences arising from the different fiscal period-ends were not deemed material for the quarter ended June 30, 2022.
Principles of Consolidation
The 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.
Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.
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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
The Company reviewed all recently issued accounting pronouncements and concluded that they were not applicable or not expected to have a significant impact on the accompanying consolidated financial statements.
Employer Retention Tax Credits
As of July 3, 2023 and January 2, 2023, the Company had $0.1 million and $1.5 million, respectively, of receivables related to the Taxpayer Certainty and Disaster Relief Act of 2020 included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
The Company routinely issues prepayments to landlords, insurers and vendors in the ordinary course of business. As of July 3, 2023 and January 2, 2023, the Company had $1.3 million and $0.9 million, respectively of prepayments included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
Assets Held for Sale
The Company has classified assets held for sale in the accompanying consolidated balance sheets $1.5 million as of July 3, 2023 and $0.7 million as of January 2, 2023 of certain store property and equipment, and intangible assets that the Company expects to be sold within one year. Assets held for sale are reviewed each reporting period to ensure that the fair value less cost to sell exceeds the carrying value.
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 this BurgerFi restaurant, and return the deposit of $0.9 million included in other current assets 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 accompanying consolidated balance sheets as of July 3, 2023 and January 2, 2023. In March 2023, the Company approved a plan for sale of an intangible asset of an Anthony’s location with a carrying value of $0.8 million, which is classified as held for sale in the accompanying consolidated balance sheets as of July 3, 2023.
Other Current Liabilities
The Company incurs liabilities associated with the sale of gift cards and gift certificates. As of July 3, 2023 and January 2, 2023, the Company had $1.0 million and $1.8 million, respectively of gift card and gift certificate liabilities included in other current liabilities on the accompanying consolidated balance sheets.
The Company incurs liabilities resulting from its customer loyalty program. As of July 3, 2023 and January 2, 2023, the Company had $0.9 million and $0.8 million, respectively of liabilities for loyalty program in the accompanying consolidated balance sheets.
Restructuring costs include management and employee separation, severance, and relocation costs, as well as store closure related charges. All costs are expensed as incurred, and are reflected as “Restructuring costs and other charges, net” in the accompanying consolidated statements of operations. Restructuring costs and other charges, net for the quarter and six months ended July 3, 2023 was $1.1 million and $2.2 million, respectively. For the quarter and six months ended July 3, 2023, $1.1 million, respectively, related to severance for the departure of Chief Executive Officer and Chief Financial Officer. During the six months ended July 3, 2023, $1.1 million was recorded primarily in connection with the Company’s Credit Facility requirements to raise additional capital or debt. Restructuring costs and other charges, net for the quarter and six months ended June 30, 2022 of $0.1 million and $1.0 million, respectively, related to store pre-opening costs and store closure costs.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef