Summary of Significant Accounting Policies |
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Apr. 01, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) 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 this Quarterly Report on Form 10-Q, substantial doubt about the Company’s ability to continue as a going concern existed as of April 1, 2024 as a result of non-compliance of the Company’s liquidity covenant within the Company’s Credit Agreement. 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 1, 2024 (the “2023 Form 10-K”) and this Quarterly Report on Form 10-Q, for further information.
The Company’s credit agreement (“Credit Agreement”) with a syndicate of banks has Term Loan and Revolving line of credit financing of approximately $51.3 million and $2.0 million, respectively, outstanding as of April 1, 2024, and expires on September 30, 2025. The Credit Agreement contains various covenants, including requirements for the Company to meet certain trailing twelve-month quarterly financial ratios and a minimum liquidity threshold. As of April 1, 2024, the Company was not in compliance with the minimum liquidity requirement of the Credit Agreement, which constitutes a breach of the Credit Agreement and an event of default. Accordingly, the outstanding balance of the Credit Agreement is included in short-term borrowings together with the short term portion of other notes payable and outstanding balances under its finance leases on the accompanying consolidated balance sheets.
This event of default entitles the lenders to call the debt sooner than its maturity date of September 30, 2025. The Company does not have and is not forecasted to have the readily available funds to repay the debt if called by the lenders.
The Company has been actively engaged in discussions with its lenders to explore potential solutions regarding the default event and its resolution. We cannot, however, predict the results of any such negotiations. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.
From April 15, 2024 to April 17, 2024, the Company received notices from the syndicate of commercial bank lenders under the Credit Agreement that each lender’s respective (i) rights and obligations as a lender under the Credit Agreement and any other document or instruments delivered pursuant thereto to the extent related to the amount and percentage interest of the loans and commitments under the Credit Agreement held by such lender and (ii) to the extent permitted by applicable law, all claims, suits, causes of action and any other right of such lender against any person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing rights and obligations under the Credit Agreement were assigned to TREW Capital Management Private Credit 2 LLC (“TREW”). The foregoing assignments represented 100% of the amount of revolving loan commitments under the Credit Agreement and 100% of the amount of term loan under the Credit Agreement. The Company has initiated discussions with TREW with respect to potential solutions regarding the event of default described above. See Note 10, “Debt,” for additional disclosure surrounding the amended Credit Agreement.
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with 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 GAAP have been condensed or omitted. The accompanying condensed consolidated balance sheet as of January 1, 2024 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 1, 2024 contained in the 2023 Form 10-K. In the opinion of management, all normal recurring adjustments necessary for a fair presentation have been included in the condensed consolidated financial statements.
We are required to evaluate events occurring after April 1, 2024 for recognition and disclosure in the unaudited consolidated financial statements for the quarter ended April 1, 2024. Events are evaluated based on whether they represent information existing as of April 1, 2024, which require recognition, or new events occurring after April 1, 2024 which do not require recognition but require disclosure if the event is significant. We evaluated events occurring subsequent to April 1, 2024 through the date of issuance of these unaudited consolidated financial statements.
The Company reports on a 52-53-week fiscal year ending on the Monday nearest to December 31 of each year. Our first fiscal quarter of 2024 ended on April 1, 2024. Our current fiscal year will end on December 30, 2024.
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.
Use of Estimates
The preparation of financial statements in conformity with 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.
Prepaid expenses
The Company routinely issues prepayments to landlords, insurers and vendors in the ordinary course of business. As of April 1, 2024 and January 1, 2024, the Company had $2.2 million and $1.3 million, respectively of prepayments included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
Assets Held for Sale
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 on-going negotiations. 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 liabilities 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 April 1, 2024 and January 1, 2024. On April 28, 2024, the parties executed a settlement term sheet to continue the trial related to this matter. The parties are drafting a formal settlement agreement for Court ratification. Refer to Note 8, “Commitments and Contingencies,” for further discussion.
Other Current Liabilities
The Company incurs liabilities associated with the sale of gift cards and gift certificates. As of April 1, 2024 and January 1, 2024, the Company had $1.2 million and $2.2 million, respectively of gift card and gift certificate liabilities included in other current liabilities on the accompanying consolidated balance sheets. The decrease in gift card liabilities at April 1, 2024 compared to January 1, 2024 relates to the expiration of the Company’s Holiday Gift Card Program.
The Company incurs liabilities resulting from its customer loyalty program. As of April 1, 2024 and January 1, 2024, the Company had $0.8 million and $1.0 million, respectively of liabilities for its loyalty program in the accompanying consolidated balance sheets.
Restructuring Costs
Restructuring costs for the periods shown consist of the following:
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