UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38417
BurgerFi International, Inc.
(Exact name of registrant as specified in its charter)
|
|
Delaware | 82-2418815 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
105 U.S. Highway 1 North Palm Beach, FL | 33408 |
(Address of principal executive offices) | (Zip Code) |
(561) 844-5528
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
| Trading Symbol(s)
| Name of each exchange on which registered
|
Common Stock, par value $0.0001 per share | BFI | The Nasdaq Stock Market LLC |
Redeemable warrants, each exercisable for one share of common stock at an exercise price of $11.50 per share | BFIIW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
|
|
|
|
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
|
|
|
|
|
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s Common Stock outstanding as of November 8th, 2021 was 21,263,400.
Table of Contents
|
| Page |
2 | ||
Item 1. | Financial Statements (Unaudited) |
|
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
Item 3. | 29 | |
Item 4. | 29 | |
|
| |
31 | ||
Item 1. | 31 | |
Item 1A. | 31 | |
Item 2. | 31 | |
Item 6. | 32 | |
|
| |
33 |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may appear throughout this Quarterly Report on Form 10-Q, including without limitation, Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 and this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A of such reports and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
1
PART I
FINANCIAL INFORMATION
BurgerFi International Inc., and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
|
| September 30, 2021 (unaudited) |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash |
| $ | 28,295 |
|
| $ | 37,150 |
|
Cash - restricted |
|
| — |
|
|
| 3,233 |
|
Accounts receivable, net |
|
| 551 |
|
|
| 718 |
|
Inventory |
|
| 398 |
|
|
| 268 |
|
Deferred income taxes |
|
| — |
|
|
| 713 |
|
Assets held for sale |
|
| 732 |
|
|
| 732 |
|
Other current assets |
|
| 1,507 |
|
|
| 1,607 |
|
TOTAL CURRENT ASSETS |
|
| 31,483 |
|
|
| 44,421 |
|
PROPERTY & EQUIPMENT, net |
|
| 15,122 |
|
|
| 8,004 |
|
DUE FROM RELATED COMPANIES |
|
| 83 |
|
|
| 74 |
|
GOODWILL |
|
| 123,560 |
|
|
| 119,542 |
|
INTANGIBLE ASSETS, net |
|
| 111,437 |
|
|
| 116,824 |
|
OTHER ASSETS |
|
| 246 |
|
|
| 251 |
|
TOTAL ASSETS |
| $ | 281,931 |
|
| $ | 289,116 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable - trade and other |
| $ | 2,391 |
|
| $ | 1,678 |
|
Accrued expenses |
|
| 2,272 |
|
|
| 1,203 |
|
Other liabilities |
|
| 4,128 |
|
|
| 430 |
|
Other deposit |
|
| 907 |
|
|
| 907 |
|
Deferred revenue, current |
|
| 587 |
|
|
| 490 |
|
Notes payable, current |
|
| 76 |
|
|
| 1,438 |
|
Revolving line of credit |
|
| — |
|
|
| 3,012 |
|
Deferred income taxes |
|
| 18 |
|
|
| — |
|
TOTAL CURRENT LIABILITIES |
|
| 10,379 |
|
|
| 9,158 |
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Warrant liability |
|
| 6,111 |
|
|
| 16,516 |
|
Deferred revenue, net of current portion |
|
| 2,745 |
|
|
| 2,816 |
|
Notes payable, net of current portion |
|
| 601 |
|
|
| 1,522 |
|
Deferred rent |
|
| 472 |
|
|
| 29 |
|
TOTAL LIABILITIES |
|
| 20,308 |
|
|
| 30,041 |
|
COMMITMENTS AND CONTINGENCIES - Note 9 |
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized, 17,893,476 and 17,541,838 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively |
|
| 2 |
|
|
| 2 |
|
Additional paid-in capital |
|
| 268,083 |
|
|
| 261,298 |
|
Accumulated deficit |
|
| (6,462 | ) |
|
| (2,225 | ) |
TOTAL STOCKHOLDERS’ EQUITY |
|
| 261,623 |
|
|
| 259,075 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 281,931 |
|
| $ | 289,116 |
|
See Notes to Condensed Consolidated Financial Statements.
2
BurgerFi International Inc., and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited – in thousands, except share data)
|
| Successor |
|
|
| Predecessor |
|
|
| Successor |
|
|
| Predecessor |
| ||||
|
| Three Months Ended September 30, 2021 |
|
|
| Three Months Ended September 30, 2020 |
|
|
| Nine Months Ended September 30, 2021 |
|
|
| Nine Months Ended September 30, 2020 |
| ||||
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales |
| $ | 8,688 |
|
|
| $ | 6,592 |
|
|
| $ | 26,067 |
|
|
| $ | 18,232 |
|
Royalty and other fees |
|
| 1,861 |
|
|
|
| 1,770 |
|
|
|
| 5,940 |
|
|
|
| 4,687 |
|
Royalty - brand development and co-op |
|
| 471 |
|
|
|
| 403 |
|
|
|
| 1,527 |
|
|
|
| 1,054 |
|
Franchise fees |
|
| 95 |
|
|
|
| 108 |
|
|
|
| 293 |
|
|
|
| 307 |
|
TOTAL REVENUE |
|
| 11,115 |
|
|
|
| 8,873 |
|
|
|
| 33,827 |
|
|
|
| 24,280 |
|
Restaurant level operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, beverage and paper costs |
|
| 2,671 |
|
|
|
| 1,966 |
|
|
|
| 7,786 |
|
|
|
| 5,554 |
|
Labor and related expenses |
|
| 2,504 |
|
|
|
| 1,848 |
|
|
|
| 6,988 |
|
|
|
| 4,834 |
|
Other operating expenses |
|
| 1,892 |
|
|
|
| 1,580 |
|
|
|
| 5,861 |
|
|
|
| 3,939 |
|
Occupancy and related expenses |
|
| 719 |
|
|
|
| 862 |
|
|
|
| 2,280 |
|
|
|
| 2,108 |
|
General and administrative expenses |
|
| 4,060 |
|
|
|
| 2,196 |
|
|
|
| 10,599 |
|
|
|
| 4,981 |
|
Pre-opening costs |
|
| 615 |
|
|
|
| 18 |
|
|
|
| 1,243 |
|
|
|
| 124 |
|
Store closure costs |
|
| 132 |
|
|
|
| — |
|
|
|
| 132 |
|
|
|
| — |
|
Share-based compensation expense |
|
| 3,668 |
|
|
|
| — |
|
|
|
| 6,785 |
|
|
|
| — |
|
Depreciation and amortization expense |
|
| 2,194 |
|
|
|
| 315 |
|
|
|
| 6,473 |
|
|
|
| 811 |
|
Brand development and co-op advertising expense |
|
| 412 |
|
|
|
| 915 |
|
|
|
| 1,785 |
|
|
|
| 1,822 |
|
TOTAL OPERATING EXPENSES |
|
| 18,867 |
|
|
|
| 9,700 |
|
|
|
| 49,932 |
|
|
|
| 24,173 |
|
OPERATING (LOSS) INCOME |
|
| (7,752 | ) |
|
|
| (827 | ) |
|
|
| (16,105 | ) |
|
|
| 107 |
|
Other (loss) income |
|
| (2 | ) |
|
|
| — |
|
|
|
| 2,240 |
|
|
|
| — |
|
Gain on change in value of warrant liability |
|
| 2,732 |
|
|
|
| — |
|
|
|
| 10,405 |
|
|
|
| — |
|
Interest expense |
|
| (5 | ) |
|
|
| (10 | ) |
|
|
| (46 | ) |
|
|
| (97 | ) |
(Loss) income before income taxes |
|
| (5,027 | ) |
|
|
| (837 | ) |
|
|
| (3,506 | ) |
|
|
| 10 |
|
Income tax (expense) benefit |
|
| 9 |
|
|
|
| — |
|
|
|
| (731 | ) |
|
|
| — |
|
Net (Loss) Income |
|
| (5,018 | ) |
|
|
| (837 | ) |
|
|
| (4,237 | ) |
|
|
| 10 |
|
Net Income Attributable to Non-Controlling Interests (predecessor) |
|
| — |
|
|
|
| 5 |
|
|
|
| — |
|
|
|
| 21 |
|
Net Loss Attributable to common shareholders (successor) and Controlling Interests (predecessor) |
| $ | (5,018 | ) |
|
| $ | (842 | ) |
|
| $ | (4,237 | ) |
|
| $ | (11 | ) |
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 17,892,769 |
|
|
|
|
|
|
|
|
| 17,866,168 |
|
|
|
|
|
|
Diluted |
|
| 17,895,932 |
|
|
|
|
|
|
|
|
| 18,154,434 |
|
|
|
|
|
|
Net Loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.28 | ) |
|
|
|
|
|
|
| $ | (0.24 | ) |
|
|
|
|
|
Diluted |
| $ | (0.28 | ) |
|
|
|
|
|
|
| $ | (0.93 | ) |
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
BurgerFi International Inc., and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’/Members’ Equity
(Unaudited– in thousands, except share data)
|
|
|
|
|
|
|
|
|
| Predecessor, Three Months Ended |
| |||||||||
For the three months ended September 30, 2020 |
|
|
|
|
|
|
|
|
| Controlling Interest |
|
| Noncontrolling Interest |
|
| Total Members’ Equity |
| |||
Balance, June 30, 2020 |
|
|
|
|
|
|
|
|
| $ | 3,258 |
|
| $ | 31 |
|
| $ | 3,289 |
|
Net (Loss) Income |
|
|
|
|
|
|
|
|
|
| (842 | ) |
|
| 5 |
|
|
| (837 | ) |
Distributions |
|
|
|
|
|
|
|
|
|
| (613 | ) |
|
| (36 | ) |
|
| (649 | ) |
Balance, September 30, 2020 |
|
|
|
|
|
|
|
|
| $ | 1,803 |
|
| $ | — |
|
| $ | 1,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor, Three Months Ended |
| |||||||||||||||||
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
|
|
|
| |||||||
For the three months ended September 30, 2021 |
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
Balance, June 30, 2021 |
|
| 17,838,476 |
|
| $ | 2 |
|
| $ | 264,415 |
|
| $ | (1,444 | ) |
| $ | 262,973 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 3,615 |
|
|
| — |
|
|
| 3,615 |
|
Shares issued for share-based compensation |
|
| 55,000 |
|
|
| — |
|
|
| 53 |
|
|
| — |
|
|
| 53 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,018 | ) |
|
| (5,018 | ) |
Balance, September 30, 2021 |
|
| 17,893,476 |
|
| $ | 2 |
|
| $ | 268,083 |
|
| $ | (6,462 | ) |
| $ | 261,623 |
|
|
|
|
|
|
|
|
|
|
| Predecessor, Nine Months Ended |
| |||||||||
For the nine months ended September 30, 2020 |
|
|
|
|
|
|
|
|
| Controlling Interest |
|
| Noncontrolling Interest |
|
| Total Members’ Equity |
| |||
Balance, December 31, 2019 |
|
|
|
|
|
|
|
|
| $ | 2,492 |
|
| $ | 15 |
|
| $ | 2,507 |
|
Net (Loss) Income |
|
|
|
|
|
|
|
|
|
| (11 | ) |
|
| 21 |
|
|
| 10 |
|
Distributions |
|
|
|
|
|
|
|
|
|
| (678 | ) |
|
| (36 | ) |
|
| (714 | ) |
Balance, September 30, 2020 |
|
|
|
|
|
|
|
|
| $ | 1,803 |
|
| $ | — |
|
| $ | 1,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Successor, Nine Months Ended |
| |||||||||||||||||
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
|
|
|
| |||||||
For the nine months ended September 30, 2021 |
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
Balance, December 31, 2020 |
|
| 17,541,838 |
|
| $ | 2 |
|
| $ | 261,298 |
|
| $ | (2,225 | ) |
| $ | 259,075 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 6,657 |
|
|
| — |
|
|
| 6,657 |
|
Shares issued for share-based compensation |
|
| 60,000 |
|
|
| — |
|
|
| 128 |
|
|
| — |
|
|
| 128 |
|
Shares issued for warrant exercises |
|
| 7,969 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exchange of UPO units |
|
| 283,669 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,237 | ) |
|
| (4,237 | ) |
Balance, September 30, 2021 |
|
| 17,893,476 |
|
| $ | 2 |
|
| $ | 268,083 |
|
| $ | (6,462 | ) |
| $ | 261,623 |
|
See Notes to Condensed Consolidated Financial Statements.
4
BurgerFi International Inc., and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited – in thousands)
|
| Successor |
|
|
| Predecessor |
| ||
|
| Nine Months Ended September 30, 2021 |
|
|
| Nine Months Ended September 30, 2020 |
| ||
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (4,237 | ) |
|
| $ | 10 |
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
|
Provision for bad debts |
|
| 44 |
|
|
|
| — |
|
Depreciation and amortization |
|
| 6,473 |
|
|
|
| 811 |
|
Gain on PPP loan forgiveness |
|
| (2,237 | ) |
|
|
| — |
|
Deferred income taxes |
|
| 731 |
|
|
|
| — |
|
Share-based compensation |
|
| 6,785 |
|
|
|
| — |
|
Forfeited franchise deposits |
|
| (128 | ) |
|
|
| — |
|
Change in fair value of warrant liability |
|
| (10,405 | ) |
|
|
| — |
|
Loss on disposal of property and equipment |
|
| 22 |
|
|
|
| — |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 99 |
|
|
|
| 21 |
|
Inventory |
|
| (130 | ) |
|
|
| (3 | ) |
Other assets |
|
| 74 |
|
|
|
| 237 |
|
Accounts payable - trade and other |
|
| 669 |
|
|
|
| 695 |
|
Other liabilities |
|
| (201 | ) |
|
|
| — |
|
Accrued expenses |
|
| 1,069 |
|
|
|
| 44 |
|
Deferred revenue |
|
| 116 |
|
|
|
| 96 |
|
Deferred rent |
|
| 443 |
|
|
|
| 371 |
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
| $ | (813 | ) |
|
| $ | 2,282 |
|
NET CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (8,182 | ) |
|
|
| (1,929 | ) |
Trademark cost |
|
| (26 | ) |
|
|
| — |
|
Advances to related companies |
|
| (9 | ) |
|
|
| (6,874 | ) |
Repayments from related companies |
|
| — |
|
|
|
| 5,073 |
|
Purchase of store |
|
| — |
|
|
|
| (650 | ) |
Deposit on sale |
|
| — |
|
|
|
| 907 |
|
NET CASH USED IN INVESTING ACTIVITIES |
| $ | (8,217 | ) |
|
| $ | (3,473 | ) |
NET CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds on revolving line of credit |
|
| — |
|
|
|
| 1,648 |
|
Payments on revolving line of credit |
|
| (3,012 | ) |
|
|
| (1,301 | ) |
Notes payable proceeds |
|
| — |
|
|
|
| 2,406 |
|
Payments on notes payable |
|
| (46 | ) |
|
|
| (22 | ) |
Members’ distributions |
|
| — |
|
|
|
| (714 | ) |
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
| $ | (3,058 | ) |
|
| $ | 2,017 |
|
NET (DECREASE) INCREASE IN CASH |
|
| (12,088 | ) |
|
|
| 826 |
|
CASH, INCLUDING RESTRICTED CASH, beginning of period |
|
| 40,383 |
|
|
|
| 2,417 |
|
CASH, INCLUDING RESTRICTED CASH, end of period |
| $ | 28,295 |
|
|
| $ | 3,243 |
|
See Notes to Condensed Consolidated Financial Statements.
5
BurgerFi International Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business and Organization
BurgerFi International, Inc. (“BurgerFi,” the “Company,” or “Successor,” also “we,” “us,” and “our”), is a fast-casual “better burger” concept with 116 franchised and corporate owned restaurants, renowned for delivering an exceptional, all-natural premium burger experience in a refined, contemporary environment. BurgerFi offers a classic American menu of premium burgers, hot dogs, crispy chicken, frozen custard, hand-cut fries and onion rings, shakes, beer, wine and more. BurgerFi has become the go-to better burger restaurant for good times and high-quality food across the United States and beyond. Known for delivering the all-natural burger experience in a fast-casual environment, BurgerFi is committed to an uncompromising and rewarding dining experience that promises fresh food of transparent quality.
On December 16, 2020 (the “Closing Date”), the Company, formerly known as Opes Acquisition Corp. (“Opes,” a special purpose acquisition company, or “SPAC”), consummated a business combination transaction (the “Business Combination”) pursuant to which it acquired the private operating company formerly called BurgerFi International, LLC (“Predecessor”). In connection with the closing of the Business Combination, the Company changed its name to BurgerFi International, Inc. The financial results described herein for the dates and periods prior to the Business Combination relate to the operations of the Predecessor prior to the consummation of the Business Combination. The Consolidated Financial Statements after the Closing Date include the accounts of the Company and its wholly owned subsidiaries including the Predecessor.
2. Basis of Presentation
The accompanying 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 consolidated balance sheet as of December 31, 2020 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020 contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. When necessary, certain prior year amounts have been reclassified to conform to the current period presentation. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Company believes that the disclosures made in these unaudited condensed consolidated financial statements are adequate to make the information not misleading.
The historical financial information of Opes has not been reflected in the Predecessor financial statements as these historical amounts have been determined to be not useful information to a user of the financial statements. SPACs deposit the proceeds from their initial public offerings into a segregated trust account until a business combination occurs, where such funds are then used to pay consideration for the acquiree and/or to pay stockholders who elect to redeem their shares of common stock in connection with the business combination. The operations of a SPAC, until the closing of a business combination, other than income from the trust account investments and transaction expenses, are nominal. Accordingly, no other activity in the Company was reported for periods prior to December 16, 2020 besides BurgerFi’s operations as Predecessor.
Reclassifications
Certain reclassifications have been made to the prior period presentation to conform to the current period 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
6
Corporate owned stores and Franchising
BurgerFi has prepared its Franchise Disclosure Document as required by the United States Federal Trade Commission and has registered or will register in those states where required in order to legally sell its franchises. It is currently BurgerFi’s plan to offer franchises for sale in those states where demographics of the population represent a demand for the services. BurgerFi grants franchises to independent operators who in turn pay an initial franchise fee, royalties and other fees as stated in the franchise agreement.
Store activity for the period ended September 30, 2021 and the year ended December 31, 2020 is as follows:
|
| Three Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2021 |
|
| Year Ended December 31, 2020 |
| |||
Franchised stores, beginning of the period |
|
| 97 |
|
|
| 102 |
|
|
| 117 |
|
Stores opened during the period |
|
| — |
|
|
| 3 |
|
|
| 9 |
|
Stores transferred/sold to the Company |
|
| — |
|
|
| — |
|
|
| (2 | ) |
Stores closed during the period |
|
| (4 | ) |
|
| (12 | ) |
|
| (22 | ) |
Franchised stores, end of the period |
|
| 93 |
|
|
| 93 |
|
|
| 102 |
|
| Three Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2021 |
|
| Year Ended December 31, 2020 |
| |||
Corporate owned stores, beginning of the period |
| 22 |
|
|
| 17 |
|
|
| 13 |
|
Stores opened during the period |
| 2 |
|
|
| 7 |
|
|
| 2 |
|
Stores transferred/sold to the Company |
| — |
|
|
| — |
|
|
| 2 |
|
Stores closed during the period |
| (1 | ) |
|
| (1 | ) |
|
| — |
|
Corporate owned stores, end of the period |
| 23 |
|
|
| 23 |
|
|
| 17 |
|
COVID-19
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The pandemic has significantly impacted economic conditions in the United States, where all of our corporate restaurants are located. The Company first began to experience impacts from COVID-19 around the middle of March 2020, as federal, state and local governments began to react to the public health crisis by encouraging or requiring social distancing, instituting stay-at-home orders, and requiring, in varying degrees, restaurant dine-in limitations, capacity limitations or other restrictions that largely limited restaurants to take-out, drive-thru and delivery sales. As a result of the required changes to consumer behavior to largely off-premises dining, as well as promotional activities associated with delivery, the Company experienced some recovery in sales at the end of the second quarter of 2020. The Company’s most significant declines in sales were in late March 2020 through the third week in April 2020. The Company continued to experience steady recovery in the business during the period ended September 30, 2021. However, it is possible that further outbreaks could limit our recovery. The Company continues to monitor the spread of new variants, including the pandemic’s recent emergence of the Delta variant, which appears to be the most transmissible variant to date and resulted in an increase in cases in the United States and globally. Despite a recent decline in cases, hospitalizations and deaths in large portions of the United States, mask mandates, social-distancing, travel restrictions and stay-at-home orders could be reinstated. The impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators. An extended period of economic disruption could have a material adverse impact on our business, results of operations, access to sources of liquidity and overall financial condition.
New Accounting Standards Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (“Topic 740”) as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this ASU did not have a material impact on the unaudited condensed consolidated financial statements.
7
New Accounting Pronouncements
In February 2016, the FASB issued guidance which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months and disclose certain information about the leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. As an emerging growth company, this guidance will be effective for our fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of the new standard on the unaudited condensed consolidated financial statements.
In June 2016, the FASB issued guidance which was subsequently amended by various standard updates. This guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when determining credit loss estimates and requires financial assets to be measured net of expected credit losses at the time of initial recognition. As an emerging growth company, this guidance will be effective for our fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the adoption of the new standard on the unaudited condensed consolidated financial statements.
In July 2021, the FASB issued guidance that requires lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if (a) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with lease classification criteria and (b) the lessor would have otherwise recognized a day-one loss. As a public company, this amendment is effective for our fiscal years beginning after December 15, 2022, with early adoption permitted. This guidance may be applied either retrospectively to leases that commenced or were modified on or after the adoption of lease guidance we adopted in 2019 or prospectively to leases that commence or are modified on or after the date that this new guidance is applied. The Company is currently evaluating the impact of adoption of the new standard on the unaudited condensed consolidated financial statements.
In October 2021, the FASB issued guidance which requires entities to recognize contract assets and contract liabilities in a business combination. As a public company, this standard will be effective for our fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and will be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the standard is permitted. The Company is currently evaluating the impact of the adoption of the new standard on the unaudited condensed consolidated financial statements.
Earnings per Share
Basic earnings per share is computed by dividing net income attributable to shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income attributable to shareholders by the weighted average number of fully diluted shares, as calculated under the treasury stock method, which includes the potential effect of dilutive common stock equivalents. If the Company reports a loss, rather than income, the computation of diluted loss per share excludes the effect of dilutive common stock equivalents, as their effect would be anti-dilutive.
The Company has considered the effect of (1) warrants outstanding to purchase 15,063,900 shares of common stock (2) 75,000 shares of common stock and warrants to purchase 75,000 shares of common stock in the unit purchase option, and (3) 2,297,300 shares underlying grants of restricted stock units in the calculation of income per share.
The historical partnership equity structure of BurgerFi did not include outstanding member units and as such, earnings per share information is omitted for the Predecessor periods.
8
Reconciliation of Net Loss per Common Share
Basic and diluted loss per common share is calculated as follows (in thousands, except share data):
|
| Three Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2021 |
| ||
Numerator: |
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
| $ | (5,018 | ) |
| $ | (4,237 | ) |
Reversal of Gain on change in value of warrant liability |
|
| - |
|
|
| (12,619 | ) |
Net loss attributable to common shareholders, diluted |
| $ | (5,018 | ) |
| $ | (16,856 | ) |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic |
|
| 17,892,769 |
|
|
| 17,866,168 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
Warrants |
|
| - |
|
|
| 282,472 |
|
UPOs |
|
| 3,163 |
|
|
| 5,794 |
|
Diluted weighted average shares outstanding |
|
| 17,895,932 |
|
|
| 18,154,434 |
|
|
|
|
|
|
|
|
|
|
Basic net loss per common share |
| $ | (0.28 | ) |
| $ | (0.24 | ) |
Diluted net loss per common share |
| $ | (0.28 | ) |
| $ | (0.93 | ) |
For the three months ended September 30, 2021, there were 0 dilutive warrants. Excluded from the diluted weighted average shares outstanding for the three months ended September 30, 2021 are share equivalents of 1,529,200 and 7,600 related to warrants and UPOs, respectively, as such amounts are anti-dilutive.
For the nine months ended September 30, 2021, there were dilutive warrants only for the quarter ended June 30, 2021, and as such the reversal of the change in value of warrant liability is included for that period. Included in the diluted weighted shares outstanding for the nine months ended September 30, 2021 is the respective average share equivalents of dilutive warrants and UPOs for that period.
3. Property & Equipment
Property and equipment, net consisted of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Leasehold improvements |
| $ | 12,181 |
|
| $ | 5,477 |
|
Kitchen equipment and other equipment |
|
| 2,346 |
|
|
| 1,548 |
|
Computers and office equipment |
|
| 553 |
|
|
| 208 |
|
Furniture & fixtures |
|
| 1,099 |
|
|
| 792 |
|
Vehicles |
|
| 33 |
|
|
| 27 |
|
|
|
| 16,212 |
|
|
| 8,052 |
|
Less: Accumulated depreciation |
|
| (1,090 | ) |
|
| (48 | ) |
Property and equipment – net |
| $ | 15,122 |
|
| $ | 8,004 |
|
Depreciation expense for the Successor period for the three and nine months ended September 30, 2021 was $387,000 and $1,042,000, respectively. Depreciation expense for the Predecessor period for the three and nine months ended September 30, 2020 was $299,000 and $785,000, respectively. In conjunction with the Business Combination, the basis of all property and equipment was recognized at fair value in purchase accounting.
Included within Leasehold improvements is approximately $3,972,000 and $103,000 as of September 30, 2021 and December 31, 2020 related to construction in progress. Such amounts are not depreciated until placed into service.
9
4. Intangible Assets
The following is a summary of the components of intangible assets and the related accumulated amortization.:
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
Intangible Assets (in thousands) |
| Amount |
|
| Accumulated Amortization |
|
| Net Carrying Value |
|
| Amount |
|
| Accumulated Amortization |
|
| Net Carrying Value |
| ||||||
Franchise agreements |
| $ | 24,839 |
|
| $ | 2,809 |
|
| $ | 22,030 |
|
| $ | 24,839 |
|
| $ | 147 |
|
| $ | 24,692 |
|
Trade names / trademarks |
|
| 83,060 |
|
|
| 2,191 |
|
|
| 80,869 |
|
|
| 83,033 |
|
|
| 115 |
|
|
| 82,918 |
|
Liquor license |
|
| 235 |
|
|
| — |
|
|
| 235 |
|
|
| 235 |
|
|
| — |
|
|
| 235 |
|
Reef Kitchens license agreement |
|
| 8,882 |
|
|
| 703 |
|
|
| 8,179 |
|
|
| 8,882 |
|
|
| 37 |
|
|
| 8,845 |
|
VegeFi product |
|
| 135 |
|
|
| 11 |
|
|
| 124 |
|
|
| 135 |
|
|
| 1 |
|
|
| 134 |
|
|
| $ | 117,151 |
|
| $ | 5,714 |
|
| $ | 111,437 |
|
| $ | 117,124 |
|
| $ | 300 |
|
| $ | 116,824 |
|
Liquor license is considered to have an indefinite life and is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. NaN impairments were recognized for the nine months ended September 30, 2021 and 2020.
Amortization expense for the Successor period for the three and nine months ended September 30, 2021 was $1,807,000 and $5,431,000, respectively. Included within amortization expense is $3,000 and $18,000 for the three and nine months ended September 30, 2021 related to the amortization of lease acquisition costs. The intangible assets for the Predecessor period from January 1, 2020 to September 30, 2020 were determined to be indefinite life intangibles. As such, 0 amortization expense was recognized for the three and nine months ended September 30, 2020. The estimated aggregate amortization expense for intangible assets over the next five years ending December 31 and thereafter is as follows:
(in thousands) |
|
|
|
|
Remainder of 2021 |
| $ | 1,804 |
|
2022 |
|
| 7,219 |
|
2023 |
|
| 7,219 |
|
2024 |
|
| 7,219 |
|
2025 |
|
| 7,219 |
|
2026 and thereafter |
|
| 80,522 |
|
Total |
| $ | 111,202 |
|
5. Business Combinations
On December 16, 2020, the Company consummated the Business Combination. 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 Business Combination was approximately $236.9 million which included a) a cash payment of $30,000,000, b) the issuance of 6,603,773 common stock shares valued at approximately $103,680,000, and c) contingent earnout consideration (Contingent Consideration) valued at approximately $103,207,000.
The former members of BurgerFi may be entitled to additional shares of Common Stock if certain stock price targets are met by the Company (“Earnout Share Consideration”) on a pro-rata basis based on their pre-closing ownership percentages subject to the Company achieving certain share price targets through December 15, 2023. No such price targets were achieved during the nine months ended September 30, 2021.
The allocation of the excess purchase price was based upon preliminary estimates and assumptions and is subject to revision when the Company receives final information. Accordingly, the measurement period for such purchase price allocations will end when the information, or the facts and circumstances, become available, but will not exceed twelve months from the date of acquisition.
10
The following table represents changes to goodwill from the initial purchase price allocation as of September 30, 2021:
(in thousands) |
|
|
|
|
Goodwill as of December 31, 2020 |
| $ | 119,542 |
|
Adjustments |
|
| 4,018 |
|
Goodwill as of September 30, 2021 |
| $ | 123,560 |
|
Adjustments to goodwill during the period ended September 30, 2021 were made to reflect the facts and circumstances in existence as of the Business Combination date and include updates to estimates of provisional amounts recorded as of the Business Combination date. The adjustments primarily related to updating the fair value recorded for a provisional estimate of lease guarantees provided by the Company. See Note 6. The adjustment resulted in an increase to goodwill and other liabilities on the accompanying condensed consolidated balance sheet.
6. Variable Interest Entities
The Company has evaluated its business relationships with franchisees to identify potential variable interest entities (“VIEs”). While the Company holds a variable interest in some of the franchised restaurants owned by an affiliated entity, the Company is not the primary beneficiary since it does not have the power to direct the activities of these franchised restaurants. As a result, the Company does not consolidate those VIEs.
The Company is a guarantor for six operating leases for those affiliated entities and an unrelated party. The Company may become responsible for the payments under its guarantee. The Company has determined that its maximum exposure to loss on the VIEs that it is not the primary beneficiary on that results from the lease guarantees amounts to approximately $5,431,000.
The Company recognized a liability of $3,214,000 for the estimated fair value of the lease guarantee as a provisional measurement period adjustment. The amount recorded represents the present value of estimated probable future payments for which the Company may be liable. Such amount has been included in other liabilities on the accompanying condensed consolidated balance sheet.
On April 23, 2018 (the “Takeover Date”), the Company entered into an asset purchase and management agreement (the “APM”) with a multiple unit franchisee. The Company had evaluated the franchisee which is a party to the APM for VIE accounting under ASC 810 “Consolidation” and had determined that the franchisee under the APM was a VIE and that the Company was the primary beneficiary, effective on the Takeover Date.
During 2020, the Company negotiated a release from the banks of the lien on the equipment in these restaurants and was able to have the leases on the restaurants assigned to BurgerFi. On December 31, 2020, BurgerFi discontinued the management of the two restaurants by termination of the APM and the franchise agreements. As a result of the discontinuation and termination of the APM, the franchisee was deconsolidated on December 31, 2020.
Net sales for the consolidated VIE for the Predecessor period for the three and nine months ended September 30, 2020 were $1,005,000 and $2,701,000, respectively. Net loss for the consolidated VIE for the Predecessor period for the three and nine months ended September 30, 2020 was $37,000 and $59,000, respectively.
7. Related Party Transactions
The Company is affiliated with various entities through a significant shareholder. The accompanying condensed consolidated balance sheets reflect amounts related to periodic advances between the Company and these entities for working capital and other needs as due from related companies or due to related companies, as appropriate. The amounts due from related companies are not expected to be repaid within one year and accordingly, are classified as non-current assets in the accompanying condensed consolidated balance sheets. These advances are unsecured and non-interest bearing.
There were approximately $83,000 and $74,000 included as due from related companies in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. There were 0 amounts due to related companies as of September 30, 2021 and December 31, 2020.
For the Successor period, for the three and nine months ended due September 30, 2021, the Company received royalty revenue from franchisees related to a significant shareholder totaling approximately $83,000 and $274,000, respectively. For the Predecessor period, for the three and nine months ended September 30, 2020, the Company received royalty revenue from franchisees related to a significant shareholder totaling approximately $90,000 and $272,000, respectively.
11
The Company leases building space for its corporate office from an entity related to a significant shareholder. This lease has a 36 month term, effective January 1, 2020. For the Successor period, for the three and nine months ended September 30, 2021, rent expense was approximately $54,000 and $166,000, respectively. For the Predecessor period, for the three and nine months ended September 30, 2020, rent expense was $40,000 and $120,000, respectively.
The Company leases building space for a restaurant located in Virginia from an entity (i) in which our Executive Chairman of the Board has a minority ownership interest, and (ii) which is managed by an entity in which our Executive Chairman has an indirect ownership interest. This lease, entered into on October 21, 2020, is for a 10-year term effective on the earlier to occur of the date the tenant opened for business and 180 days from the date the landlord delivered possession of the premises to the tenant.
In April 2021, the Company entered into an independent contractor agreement with a corporation (the “Consultant”) for which the Chief Operating Officer of Lionheart Capital, LLC, an entity controlled by the Company’s Executive Chairman of the Board, serves as President. Pursuant to the terms of the agreement, the Consultant shall provide certain strategic advisory services to the Company in exchange for total annual cash compensation and expense reimbursements of $100,000, payable in twelve (12) equal monthly payments beginning in April 2021. The Consultant has also received an additional $29,166 of cash compensation for services provided in April 2021. Also, the Consultant received an award of 50,000 restricted stock units, which shall vest in 5 equal annual installments, subject to the Company achieving certain annual revenue targets starting in 2021.
8. Other Assets
Other assets consisted of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Lease Acquisition Costs, net of accumulated amortization |
| $ | — |
|
| $ | 18 |
|
Deposits and other non-current assets |
|
| 246 |
|
|
| 233 |
|
Other assets |
| $ | 246 |
|
| $ | 251 |
|
9. Commitments and Contingencies
Leases
The Company has entered into operating leases for its corporate headquarters and company owned and operated restaurants. For the Successor period, for the three and nine months ended September 30, 2021, rent expense under these leases was approximately $1,020,000 and $2,752,000, respectively. For the Predecessor period, for the three and nine months ended September 30, 2020, rent expense for these leases was approximately $881,000 and $2,196,000, respectively. These lease agreements expire on various dates through 2032 and have renewal options. Approximate future minimum payments on these operating leases as of September 30, 2021 are as follows (in thousands):
Remainder of 2021 |
| $ | 807 |
|
2022 |
|
| 3,855 |
|
2023 |
|
| 3,851 |
|
2024 |
|
| 3,254 |
|
2025 |
|
| 3,004 |
|
2026 and thereafter |
|
| 15,508 |
|
Sale Commitment
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 of one of our corporate owned restaurants for an aggregate purchase price of $1,299,000. During January 2020 to April 2020, the Company received 3 cash deposits totaling $906,500 in connection with this transaction. The closing of this transaction has been delayed due to additional negotiation that has been on-going through the filing date of this report. In the event the transaction is terminated, the Company will begin operating the restaurant, and return the $906,500 to the unrelated third-party purchaser. Assets used in the operations of such restaurant totaling $732,000 have been classified as held for sale as of September 30, 2021 and December 31, 2020 condensed consolidated balance sheets, respectively.
12
Contingencies
BurgerFi International, LLC filed a lawsuit against a franchisee and its principals seeking declaratory judgments and damages in an amount to be proven at trial for various breaches of the applicable franchise agreements resulting from the defendants’ closure of a restaurant, their failure to open a second restaurant, and their operational defaults at the closed restaurant. In April 2016, the defendants filed a counterclaim, asserting that they had no responsibility for their losses, and instead, alleged that the Company engaged in breach of contract, fraud, misrepresentation, conversion in connection with the operation of the restaurant, and various other allegations, seeking damages of over $5 million. The case is pending before the court. On December 30, 2016, the court stayed the case pending the resolution of bankruptcy filings made by some of the defendants. No further action has occurred. The Company cannot predict the outcome of the action at this time. As a result, the Company cannot reasonably estimate a range of loss for this action and accordingly has not accrued any liability associated with this action. The Company does not believe this claim will result in a material unfavorable outcome.
On December 1, 2019, a complaint was filed by a former officer of the Company (“Plaintiff”) against BurgerFi International, LLC for certain alleged breaches of an employment agreement. BurgerFi International, LLC filed a motion to dismiss the complaint on February 13, 2020. On May 20, 2020, the motion to dismiss was heard being granted in part and denied in part. The portion of the complaint not dismissed was answered by BurgerFi International, LLC with affirmative defenses raised on July 7, 2020. Plaintiff served various discovery requests (including notices of non-party subpoenas) on July 9, 2020 as well as a motion to strike BurgerFi International, LLC’s affirmative defenses on July 16, 2020. BurgerFi International, LLC filed objections to the non-party subpoenas on July 20, 2020. On September 11, 2020, a motion to dismiss was heard by the court and certain claims were dismissed. The complaint now involves claims for alleged Breach of Contract (Count I) and alleged Action for Equitable Relief Including an Accounting and Constructive Lien (Count II). Mediation was held on June 15, 2021, but the parties were not able to come to an agreement. Plaintiff filed an Amended Complaint on August 31. BurgerFi International, LLC filed an Answer and Affirmative Defense to the Plaintiff’s Amended Complaint on September 30, 2021 and discovery is ongoing between the parties. The Company cannot predict the outcome of the action at this time. As a result, the Company cannot reasonably estimate a range of loss for this action and accordingly has not accrued any liability associated with this action. The Company does not believe this claim will result in a material unfavorable outcome.
On July 8, 2020, the Company received a letter from an attorney hired on behalf of a former employee of the Company. This former employee was terminated for cause on May 5, 2020. This letter claims that the former employee was terminated wrongfully by the Company. The Company has reported the claim to its insurance carrier and outside counsel has been retained. Our counsel sent a letter to this former employee’s attorney denying all claims and the parties met for mediation on September 4, 2020 but were unable to resolve this matter. On June 28, 2021, the Company was advised that this former employee filed suit, and on August 2, 2021, the Company accepted service of this lawsuit. On September 24, 2021, the Company moved to dismiss former employee’s complaint for failing to state a claim. The Company cannot predict the outcome of the action at this time. As a result, the Company cannot reasonably estimate a range of loss for this action and accordingly has not accrued any liability associated with this action. The Company does not believe this claim will result in a material unfavorable outcome.
On March 22, 2021, the Company received a letter from an attorney representing the franchisee that is in the process of purchasing a BurgerFi restaurant. The letter was sent in response to the Company’s demand letter to the franchisee requesting that he pays the balance of the purchase price and execute the franchise agreement that permits the operation of the restaurant. The franchisee has refused to do both and is now claiming that the purchase price was verbally lowered. In addition, the franchisee attorney’s letter claims that the Company owes his client monies resulting from the franchisees’ purchase of equipment in reliance on the Company’s supposed verbal representation to use the franchisees’ marketing services. The Company cannot predict the outcome of the action at this time. As a result, the Company cannot reasonably estimate a range of loss for this action and accordingly has not accrued any liability associated with this action. The Company does not believe this claim will result in a material unfavorable outcome.
In June 2021, the Company received a letter from a shareholder claiming a breach of a registration rights agreement. The shareholder claims that the Company violated the terms of the agreement and that this caused it to incur damages, including lost profits. The Company has denied any breach or liability. The Company intends to defend the case vigorously if a resolution cannot be reached and the shareholder initiates litigation. At this preliminary stage, it is difficult to provide an evaluation of the likelihood of an unfavorable outcome or a reasonable estimate of the amount or range of potential loss, and accordingly the Company has not accrued any liability associated with this action.
The Company is subject to other legal proceedings and claims that arise during the normal course of business. Management believes that any liability, in excess of applicable insurance coverages or accruals, which may result from these claims, would not be significant to the Company’s financial position or results of operations.
13
10. Line of Credit
The Company had a revolving line of credit agreement (“LOC”) of $5,000,000 with a maturity date of July 13, 2021. As of December 31, 2020, the outstanding balance on the revolving line credit was $3,012,000. In January 2021, the Company terminated the LOC and paid the total amount due of $3,012,000. The annual interest on advances under the LOC was equal to the LIBOR Daily Floating rate plus 0.75%.
11. Notes Payable
Notes payable consisted of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Installment note payable |
| $ | 509 |
|
| $ | 555 |
|
Other notes payable - No recourse to the general credit of the Company |
|
| 168 |
|
|
| 168 |
|
Paycheck Protection Program (“PPP”) |
|
| — |
|
|
| 2,237 |
|
Total notes payable |
|
| 677 |
|
|
| 2,960 |
|
Less: current portion |
|
| (76 | ) |
|
| (1,438 | ) |
Total notes payable - long term portion |
| $ | 601 |
|
| $ | 1,522 |
|
On May 11, 2020, the Company received loan proceeds in the amount of $2,237,000 under the Paycheck Protection Program (“PPP”). During the nine months ended September 30, 2021, all PPP loans amounting to $2,237,000 were forgiven by the Small Business Administration (“SBA”). The SBA may undertake a review of a loan of any size during the six‐year period following forgiveness of the loan, however loans in excess of $2 million are subject to a mandatory audit. The audit will include the loan forgiveness application, as well as whether the Company met the eligibility requirements of the program and received the proper loan amount. The timing and outcome of any SBA review is not known.
The installment note payable relates to a note payable to an individual, issued in connection with the Company’s April 2020 acquisition of a franchised restaurant, which requires monthly payments of $9,000 over a seven-year amortization including 7% interest, with a maturity date of May 1, 2027. The Other notes payable relates to an Economic Injury Disaster Loan (“EIDL”) from the Small Business Administration (“SBA”) and is primarily for one corporate owned restaurant.
12. Supplemental Disclosure of Noncash Activities
As noted in Note 5, during the nine months ended September 30, 2021, the Company recorded certain adjustments to goodwill in the amount of $4,018,000, to update the estimates of provisional amounts recorded as of the Business Combination date.
13. 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 September 30, 2021 and December 31, 2020, there were 17,893,476 shares and 17,541,838 shares of common stock outstanding, respectively.
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. At September 30, 2021 and December 31, 2020, there were 0 shares of preferred stock issued or outstanding.
Warrants and Options
As of September 30, 2021, the Company had the following warrants and options outstanding:
| • | 15,063,900 warrants outstanding, each exercisable for 1 share of common stock at an exercise price of $11.50 including 11,468,900 in Public Warrants, 3,000,000 in Private Placement Warrants, 445,000 in Private Warrants and 150,000 in Working Capital Warrants. The Public Warrants expire in December 2025. |
14
| • | 75,000 Unit Purchase Option “UPO” units that are exercisable for 1 share of common stock at an exercise price of $10.00 and warrants exercisable for one share of common stock at an exercise price of $11.50. |
During the nine months ended September 30, 2021, the Company exchanged 675,000 UPO units for 283,669 common shares in a cashless exercise and issued 7,969 shares in cashless warrant exercises.
Warrant Liability
The Company has certain warrants which include provisions that affect the settlement amount. Such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument, and as such, the warrants are accounted for as liabilities in accordance with ASC 815-40, Derivatives and Hedging, with changes in fair value included in the condensed consolidated statement of operations.
The liability classified warrants were priced using a Dynamic Black Scholes model. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price, risk free interest rate and volatility assumptions. The warrant liability was $6,111,000 and $16,516,000 at September 30, 2021 and December 31, 2020, respectively. The change in value of warrant liability for the three and nine months ended September 30, 2021 was $2,732,000, and $10,405,000, respectively and is recognized in the accompanying condensed consolidated statement of operations. There were 0 warrants outstanding in the Predecessor period.
The following is an analysis of changes in the warrant liability for the nine months ended September 30, 2021:
(in thousands) |
| Level 3 (Black Scholes) |
| |
Liability at December 31, 2020 |
| $ | 16,516 |
|
Gain during the nine months ended September 30, 2021 |
|
| (10,405 | ) |
Liability at September 30, 2021 |
| $ | 6,111 |
|
The fair value of the warrants are determined using the publicly-traded price of our common stock on the valuation dates of $8.66 on September 30, 2021 and $13.69 on December 31, 2020. 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 fair value of private share warrants for the Successor period were estimated using a Dynamic Black Sholes model. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price, risk free interest rate and volatility assumptions. The calculated warrant price for private warrants was $1.70 and $4.60 on September 30, 2021 and December 31, 2020, respectively.
The input variables for the Black Scholes are noted in the table below:
|
| 2021 |
|
| 2020 |
| ||
Risk-free interest rate |
|
| 0.80 | % |
|
| 0.36 | % |
Expected life in years |
|
| 4.21 |
|
|
| 5 |
|
Expected volatility |
|
| 35.0 | % |
|
| 30.0 | % |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
14. 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 Company’s 2020 Omnibus Equity Incentive Plan.
15
Restricted Stock Units
The following table summarizes activity of Restricted Stock Units during the nine months ended September 30, 2021:
|
| Number of Restricted Stock Units |
|
| Weighted Average Grant Date Fair Value |
| ||
Non-vested at December 31, 2020 |
|
| 1,250,000 |
|
| $ | 15.28 |
|
Granted |
|
| 1,320,700 |
|
| $ | 13.48 |
|
Vested |
|
| (5,000 | ) |
| $ | 10.66 |
|
Forfeited |
|
| (268,400 | ) |
| $ | 13.92 |
|
Non-vested at September 30, 2021 |
|
| 2,297,300 |
|
| $ | 14.37 |
|
Share-based compensation recognized during the three and nine months ended September 30, 2021 was $3,668,000 and $6,785,000, respectively. As of September 30, 2021, there was approximately $26,438,000 of total unrecognized compensation cost related to unvested restricted stock units or performance stock awards to be recognized over a weighted average period of 3.59 years.
The unrecognized portion of share-based compensation for unvested Market Condition restricted stock units (included in above) is approximately $2,372,000 over 1.51 years. As detailed below, the fair value of the Market Condition restricted stock units was determined using a Monte Carlo simulation model.
Performance Shares
The Company grants performance-based awards to certain officers and key employees and a consultant. The vesting of these awards is contingent upon meeting one or more defined operational or financial goals (a performance condition) or common stock share prices (a market condition).
The fair values of the performance condition awards granted were determined using the fair market value of the Company’s common stock on the date of grant. Share-based compensation expense recorded for performance condition awards is re-evaluated at each reporting period based on the probability of the achievement of the goal. The achievement of certain goals was deemed probable as of September 30, 2021. Accordingly, the Company recognized share-based compensation expense of approximately $2,896,000 and $4,090,000, respectively, in relation to these awards during the three and nine months ended September 30, 2021.
The fair value of market condition awards granted were 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 our common stock on the date of grant. In July 2021, the Company modified the terms related to certain of its market condition awards. As a result of this modification, the Company recorded additional share based compensation of $54,000 during the three and nine months ended September 30, 2021.
The input variables are noted in the table below:
|
| 2021 |
|
| 2020 |
| ||
Risk-free interest rate |
|
| 0.56 | % |
|
| 0.18 | % |
Expected life in years |
|
| 3.47 |
|
|
| 3 |
|
Expected volatility |
|
| 64.3 | % |
|
| 65.9 | % |
Expected dividend yield (a) |
|
| 0 | % |
|
| 0 | % |
(a) | The Monte Carlo method assumes a reinvestment of dividends. |
Share-based compensation expense is recorded ratably for market condition awards during the requisite service period and is not reversed, except for forfeitures, at the vesting date regardless of whether the market condition is met. During the three and nine months ended September 30, 2021, $374,000, and $1,772,000, respectively, was recognized as share-based compensation expense for the market condition awards.
Service Condition Shares
The Company grants service-based awards to certain officers and key employees and a consultant. The vesting of these awards is contingent upon meeting the requisite service period.
16
The fair value of restricted stock unit awards is determined using the publicly-traded price of our common stock on the grant date. The fair value of restricted unit awards 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 following table summarizes activity of the restricted stock units by vesting condition during the nine months ended September 30, 2021:
|
| Performance Condition |
|
| Service Condition |
|
| Market Condition |
| |||||||||||||||
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
| ||||||
Non-vested at December 31, 2020 |
|
| 950,000 |
|
| $ | 15.70 |
|
|
| 200,000 |
|
| $ | 15.70 |
|
|
| 100,000 |
|
| $ | 10.45 |
|
Granted |
|
| 783,700 |
|
| $ | 15.49 |
|
|
| 77,000 |
|
| $ | 14.37 |
|
|
| 460,000 |
|
| $ | 9.91 |
|
Vested |
|
| — |
|
|
|
|
|
|
| (5,000 | ) |
| $ | 10.66 |
|
|
| — |
|
|
|
|
|
Forfeited |
|
| (148,400 | ) |
| $ | 16.15 |
|
|
| — |
|
|
|
|
|
|
| (120,000 | ) |
| $ | 11.17 |
|
Non-vested at September 30, 2021 |
|
| 1,585,300 |
|
| $ | 15.54 |
|
|
| 272,000 |
|
| $ | 15.42 |
|
|
| 440,000 |
|
| $ | 9.50 |
|
15. Subsequent Events
On October 8, 2021, the Company entered into a Stock Purchase Agreement, as amended on November 3, 2021, to acquire 100% of the equity interests in Hot Air, Inc. (“Hot Air”). Hot Air through its subsidiaries, owns the business of operating upscale casual dining pizza restaurants in the specialty pizza and wings segment under the trade name Anthony’s Coal Fired Pizza (“AFCP”). As of September 30, 2021, Hot Air had 61 company owned restaurants in Florida, Delaware, Pennsylvania, New Jersey, New York, Massachusetts, Maryland and Rhode Island.
On November 3, 2021, the Company completed its acquisition of Hot Air for a total purchase price of approximately $156.6 million. The consideration was comprised of $53.0 million of non-convertible, redeemable preferred stock, $28.0 million of common stock, and the assumption of net indebtedness of $75.6 million.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Form 10-K”). Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled “Forward-Looking Statements” and “Item 1A. Risk Factors,” and in Part I. “Item 1A. Risk Factors” in the 2020 Form 10-K.
Overview
We are a fast-casual “better burger” concept with 116 franchised and corporate owned restaurants, renowned for delivering an exceptional, all-natural premium burger experience in a refined, contemporary environment. BurgerFi offers a classic American menu of premium burgers, hot dogs, crispy chicken, frozen custard, hand-cut fries and onion rings, shakes, beer, wine and more. Originally founded in February 2011 in sunny Lauderdale-by-the-Sea, Florida, the purpose was simple – redeFining the way the world eats burgers by providing an upscale burger offering, at a fast-casual price point. We have become the go-to burger restaurant for good times and high-quality food across the United States and beyond. Known for delivering the all-natural burger experience in a fast-casual environment, BurgerFi is committed to an uncompromising and rewarding dining experience that promises fresh food of transparent quality.
Today, we are among the nation’s fastest-growing better burger concepts and took the No. 1 spot on Fast Casual Restaurant’s Top 100 Movers & Shakers for 2021, ranked Top Better Burger chain in Fast Casual Restaurants in USA Today’s 10 Best Readers’ Choice for 2021, placed as the Top Better Burger Chain in Fast Casual’s Top 100 Movers & Shakers list in 2021, named QSR Magazine’s Breakout Brand of the Year for 2020, named “Best Burger Joint” by Consumer Reports and fellow public interest organizations in the 2019 Chain Reaction Study, and listed as a “Top Restaurant Brand to Watch” by Nation’s Restaurant News in 2019. BurgerFi was also featured in the fourth annual Chain Reaction antibiotic scorecard by National Resources Defense Council and Consumer Reports with an “A” rating – one of only two brands serving passing grade beef.
Since our inception, we have grown steadily—with 116 BurgerFi restaurants, as of September 30, 2021, in 2 countries and 22 states and Puerto Rico—and we continue to expand, bringing the BurgerFi experience to new guests around the world.
Significant Recent Developments Regarding COVID-19
During March 2020, a global pandemic was declared by the World Health Organization (“WHO”) related to the rapidly spreading outbreak of a novel strain of coronavirus (the “COVID-19 outbreak”). The pandemic has significantly impacted economic conditions in the United States, where all of our Company’s restaurants are located. We first began to experience impacts from the COVID-19 outbreak around the middle of March 2020, as federal, state and local governments began to react to the public health crisis by encouraging or requiring social distancing, instituting stay-at-home orders, and requiring, in varying degrees, restaurant dine-in limitations, capacity limitations or other restrictions that largely limited restaurants to take-out, drive-thru and delivery sales. As a result of the required changes to consumer behavior to largely off-premises dining, as well as promotional activities associated with delivery, we saw some recovery in sales at the end of the second quarter of 2020. Our most significant declines in sales were in late March through the third week in April. Beginning in May 2020 and through the end of 2020, sales began to recover. We continued to experience a steady recovery during the period ended September 30, 2021, as systemwide same store sales increased 17% compared to the nine months ended September 30, 2020.
We did not experience any material supply chain difficulties as a result of the COVID-19 outbreak during the nine months ended September 30, 2021; however, there can be no assurances that we will not experience supply chain challenges in the future. Although we have experienced some recovery since the initial impact of the COVID-19 outbreak and are able to meet our obligations as they become due with our cash flow from operations, the long-term impact of the COVID-19 outbreak on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted. In addition, we continue to monitor the spread of new variants, including the emergence of the Delta variant, which appears to be the most transmissible variant to date and resulted in an increase in cases in the United States and globally. Despite a recent decline in cases, hospitalizations and deaths in large portions of the United States, mask mandates, social-distancing, travel restrictions and stay-at-home orders could be reinstated. The impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators. An extended period of economic disruption could have a material adverse impact on our business, results of operations, access to sources of liquidity and overall financial condition.
18
Key Metrics
The following key metrics are important indicators of the overall direction of our business, including trends in sales and the effectiveness of our marketing, operating, and growth initiatives:
|
| Successor |
|
| Predecessor |
|
| Successor |
|
| Predecessor |
| ||||
(in thousands except for percentage data) |
| Three Months Ended September 30, 2021 |
|
| Three Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2020 |
| ||||
Systemwide Restaurant Sales |
| $ | 41,407 |
|
| $ | 33,165 |
|
| $ | 125,420 |
|
| $ | 93,644 |
|
Systemwide Restaurant Sales Growth |
|
| 25 | % |
|
| (1 | )% |
|
| 34 | % |
|
| (6 | )% |
Systemwide Restaurant Same Store Sales Growth |
|
| 8 | % |
|
| (8 | )% |
|
| 17 | % |
|
| (15 | )% |
Corporate-Owned Restaurant Sales |
| $ | 8,470 |
|
| $ | 6,317 |
|
| $ | 25,344 |
|
| $ | 17,385 |
|
Corporate-Owned Restaurant Sales Growth |
|
| 34 | % |
|
| 24 | % |
|
| 46 | % |
|
| 7 | % |
Corporate-Owned Restaurant Same Store Sales Growth |
|
| 7 | % |
|
| (10 | )% |
|
| 18 | % |
|
| (17 | )% |
Franchise Restaurant Sales |
| $ | 32,937 |
|
| $ | 26,848 |
|
| $ | 100,043 |
|
| $ | 76,123 |
|
Franchise Restaurant Sales Growth |
|
| 23 | % |
|
| (5 | )% |
|
| 31 | % |
|
| (8 | )% |
Franchise Restaurant Same Store Sales Growth |
|
| 9 | % |
|
| (7 | )% |
|
| 16 | % |
|
| (15 | )% |
Digital Channel Systemwide Sales |
| $ | 15,383 |
|
| $ | 15,946 |
|
| $ | 50,282 |
|
| $ | 39,673 |
|
Digital Channel Sales Growth |
|
| (4 | )% |
|
| 116 | % |
|
| 27 | % |
|
| 89 | % |
Digital Channel Orders |
|
| 586 |
|
|
| 644 |
|
|
| 1,932 |
|
|
| 1,597 |
|
Digital Channel Orders % of Systemwide Sales |
|
| 37 | % |
|
| 46 | % |
|
| 40 | % |
|
| 40 | % |
Systemwide Restaurant Sales
Systemwide restaurant sales is presented as informational data in order to understand the aggregation of franchised stores sales, ghost kitchen and corporate-owned store sales performance. Systemwide restaurant sales growth refers to the percentage change in sales at all franchise restaurants, ghost kitchens and corporate-owned restaurants in one period from the same period in the prior year. Systemwide restaurant same store sales growth refers to the percentage change in sales at all franchise restaurants, ghost kitchens, and corporate-owned restaurants once the restaurant has been in operation after 14 months. See definition below for same store sales.
Corporate-Owned Restaurant Sales
Corporate-owned restaurant sales represent the sales generated by corporate-owned restaurants. Corporate-owned restaurant sales growth refers to the percentage change in sales at all corporate-owned restaurants in one period from the same period in the prior year. Corporate-owned restaurant same stores sales growth refers to the percentage change in sales at all corporate-owned restaurants once the restaurant has been in operation after 14 months. These measures highlight the performance of existing corporate restaurants.
Franchise Restaurant Sales
Franchise restaurant sales represent the sales generated by franchisee-owned restaurants. Franchise restaurant sales growth refers to the percentage change in sales at all franchise restaurants in one period from the same period in the prior year. Franchise restaurant same stores sales growth refers to the percentage change in sales at all franchise restaurants once the restaurant has been in operation after 14 months. These measures highlight the performance of existing franchise restaurants.
Same Store Sales
We use the measure of same store sales to evaluate the performance of our store base, which excludes the impact of new stores and closed stores, in both periods under comparison. We include a restaurant in the calculation of same store sales once it has been in operation after 14 months. A restaurant which is temporarily closed (including as a result of the COVID-19 pandemic), is included in the same store sales computation. A restaurant which is closed permanently, such as upon termination of the lease, or other permanent closure, is immediately removed from the same store sales computation. Our calculation of same store sales may not be comparable to others in the industry.
Digital Channel Systemwide Sales
We use the measure of digital channel systemwide sales to measure performance of our investments made in our digital platform and partnerships with third party delivery partners. We believe our digital platform capabilities are a vital element to
19
continuing to serve our customers and will continue to be a differentiator for BurgerFi as compared to some of our competitors. Digital channel systemwide sales refer to sales generated through the use of digital platforms across all our franchise and corporate-owned restaurants. Digital channel sales growth refers to the percentage change in sales through our digital platforms in one period from the same period in the prior year for all franchise and corporate-owned restaurants. Digital channel orders and digital channel orders as percentages of systemwide sales are indicative of the number of orders placed through our digital platforms and the percentage of those digital orders when compared to total number of orders at all our franchise and corporate restaurants
By providing these key metrics, we believe we are enhancing investors’ understanding of our business as well as assisting investors in evaluating how well we are executing our strategic initiatives.
Results of Operations
To reflect the application of different bases of accounting as a result of the business combination transaction (the “Business Combination”) pursuant to which Opes Acquisition Corp. acquired the private operating company formerly called BurgerFi International, LLC and changed its name to BurgerFi International, Inc., the tables provided below separate the Company’s results via a black line into two distinct periods as follows: (1) three and nine months ended September 30, 2020 (labeled “Predecessor”) and (2) three and nine months ended September 30, 2021 (labeled “Successor”).
The historical financial information of Opes Acquisition Corp. prior to the Business Combination (a special purpose acquisition company, or “SPAC”) has not been reflected in the Predecessor financial statements as these historical amounts have been determined to be not useful information to a user of the financial statements. SPACs deposit the proceeds from their initial public offerings into a segregated trust account until a business combination occurs, where such funds are then used to pay consideration for the acquiree and/or to pay stockholders who elect to redeem their shares of common stock in connection with the business combination. The operations of a SPAC, until the closing of a business combination, other than income from the trust account investments and transaction expenses, are nominal. Accordingly, no other activity in the Company was reported for periods prior to December 16, 2020 besides BurgerFi’s operations as Predecessor.
20
As Opes Acquisition Corp.’s historical financial information is excluded from the Predecessor financial information, the business, and thus financial results, of the Successor and Predecessor entities, are expected to be largely consistent, excluding the impact on certain financial statement line items that were impacted by the Business Combination.
|
| Successor |
|
|
| Predecessor |
|
|
| Successor |
|
|
| Predecessor |
| ||||
(in thousands) |
| Three Months Ended September 30, 2021 |
|
|
| Three Months Ended September 30, 2020 |
|
|
| Nine Months Ended September 30, 2021 |
|
|
| Nine Months Ended September 30, 2020 |
| ||||
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales |
| $ | 8,688 |
|
|
| $ | 6,592 |
|
|
| $ | 26,067 |
|
|
| $ | 18,232 |
|
Royalty and other fees |
|
| 1,861 |
|
|
|
| 1,770 |
|
|
|
| 5,940 |
|
|
|
| 4,687 |
|
Royalty - brand development and co-op |
|
| 471 |
|
|
|
| 403 |
|
|
|
| 1,527 |
|
|
|
| 1,054 |
|
Franchise fees |
|
| 95 |
|
|
|
| 108 |
|
|
|
| 293 |
|
|
|
| 307 |
|
TOTAL REVENUE |
|
| 11,115 |
|
|
|
| 8,873 |
|
|
|
| 33,827 |
|
|
|
| 24,280 |
|
Restaurant level operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, beverage and paper costs |
|
| 2,671 |
|
|
|
| 1,966 |
|
|
|
| 7,786 |
|
|
|
| 5,554 |
|
Labor and related expenses |
|
| 2,504 |
|
|
|
| 1,848 |
|
|
|
| 6,988 |
|
|
|
| 4,834 |
|
Other operating expenses |
|
| 1,892 |
|
|
|
| 1,580 |
|
|
|
| 5,861 |
|
|
|
| 3,939 |
|
Occupancy and related expenses |
|
| 719 |
|
|
|
| 862 |
|
|
|
| 2,280 |
|
|
|
| 2,108 |
|
General and administrative expenses |
|
| 4,060 |
|
|
|
| 2,196 |
|
|
|
| 10,599 |
|
|
|
| 4,981 |
|
Pre-opening costs |
|
| 615 |
|
|
|
| 18 |
|
|
|
| 1,243 |
|
|
|
| 124 |
|
Store closure costs |
|
| 132 |
|
|
|
| — |
|
|
|
| 132 |
|
|
|
| — |
|
Share-based compensation expense |
|
| 3,668 |
|
|
|
| — |
|
|
|
| 6,785 |
|
|
|
| — |
|
Depreciation and amortization expense |
|
| 2,194 |
|
|
|
| 315 |
|
|
|
| 6,473 |
|
|
|
| 811 |
|
Brand development and co-op advertising expense |
|
| 412 |
|
|
|
| 915 |
|
|
|
| 1,785 |
|
|
|
| 1,822 |
|
TOTAL OPERATING EXPENSES |
|
| 18,867 |
|
|
|
| 9,700 |
|
|
|
| 49,932 |
|
|
|
| 24,173 |
|
OPERATING (LOSS) INCOME |
|
| (7,752 | ) |
|
|
| (827 | ) |
|
|
| (16,105 | ) |
|
|
| 107 |
|
Other (loss) income |
|
| (2 | ) |
|
|
| — |
|
|
|
| 2,240 |
|
|
|
| — |
|
Gain on change in value of warrant liability |
|
| 2,732 |
|
|
|
| — |
|
|
|
| 10,405 |
|
|
|
| — |
|
Interest expense |
|
| (5 | ) |
|
|
| (10 | ) |
|
|
| (46 | ) |
|
|
| (97 | ) |
(Loss) income before income taxes |
|
| (5,027 | ) |
|
|
| (837 | ) |
|
|
| (3,506 | ) |
|
|
| 10 |
|
Income tax (expense) benefit |
|
| 9 |
|
|
|
| — |
|
|
|
| (731 | ) |
|
|
| — |
|
Net (Loss) Income |
|
| (5,018 | ) |
|
|
| (837 | ) |
|
|
| (4,237 | ) |
|
|
| 10 |
|
Net Income Attributable to Non-Controlling Interests (predecessor) |
|
| — |
|
|
|
| 5 |
|
|
|
| — |
|
|
|
| 21 |
|
Net Loss Attributable to common shareholders (successor) and Controlling Interests (predecessor) |
| $ | (5,018 | ) |
|
| $ | (842 | ) |
|
| $ | (4,237 | ) |
|
| $ | (11 | ) |
Comparison of the three months ended September 30, 2021 and September 30, 2020
Restaurant Sales
For the three months ended September 30, 2021, the Company’s restaurant sales increased by approximately $2.1 million or 32% compared to the three months ended September 30, 2020. This increase was primarily related to restaurant sales of $2.1 million from the operation of eight new corporate owned restaurants during the three months ended September 30, 2021 and an increase in same store sales of 7% during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. Same store sales increases were driven by higher average transaction values resulting from price increases which took effect in June 2021 as well as the introduction of our SWAG burger in March 2021.
Royalty and Other Fees
Royalty and other fees increased by approximately $91 thousand, or 5% for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 which was primarily driven by an increase in royalty fees from a 23% increase in our franchises’ sales.
21
Royalties – Brand Development and Co-op
Royalties – brand development ad co-op advertising increased by approximately $68 thousand, or 17% for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. This increase was primarily due to 23% increase in our franchisees’ sales.
Franchise Fees
Franchise fees decreased by approximately $13 thousand, or 12% for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. This decrease primarily relates to higher franchise fees recognized for terminated franchises during the three months ended September 30, 2020.
Restaurant Level Operating Expenses
Restaurant level operating expenses are as follows:
|
| Successor |
|
|
| Predecessor |
| ||||||||
|
| Three Months Ended September 30, 2021 |
|
|
| Three Months Ended September 30, 2020 |
| ||||||||
|
| In dollars |
| As a percentage of restaurant sales |
|
|
| In dollars |
| As a percentage of restaurant sales |
| ||||
Restaurant Sales |
| $ | 8,688 |
| N/A |
|
|
| $ | 6,592 |
| N/A |
| ||
Restaurant level operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, beverage and paper costs |
| $ | 2,671 |
|
| 30.7 | % |
|
| $ | 1,966 |
|
| 29.8 | % |
Labor and related expenses |
| $ | 2,504 |
|
| 28.8 | % |
|
| $ | 1,848 |
|
| 28.0 | % |
Other operating expenses |
| $ | 1,892 |
|
| 21.8 | % |
|
| $ | 1,580 |
|
| 24.0 | % |
Occupancy and related expenses |
| $ | 719 |
|
| 8.3 | % |
|
| $ | 862 |
|
| 13.1 | % |
Total |
| $ | 7,786 |
|
| 89.6 | % |
|
| $ | 6,256 |
|
| 94.9 | % |
Food, Beverage and Paper Costs
Food, beverage, and paper costs increased by approximately $0.7 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. This is primarily due to the operation of eight new corporate owned restaurants during the three months ended September 30, 2021. As a percentage of corporate owned restaurant sales, food, beverage, and paper costs were 30.7% for the three months ended September 30, 2021 as compared to 29.8% for the three months ended September 30, 2020. The 90 basis points increase primarily resulted from an inflationary increase in the costs of food and paper products during the period.
Labor and Related Expenses
Labor and related expenses increased by approximately $0.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily due to the operation of eight new corporate owned restaurants during the three months ended September 30, 2021, along with less employees in our corporate owned restaurants in the month of March 2020 as a result of temporary closures. As a percentage of corporate restaurant sales, labor and related expenses were 28.8% for the three months ended September 30, 2021 versus 28.0% for the three months ended September 30, 2020. This increase of 80 basis points primarily related to increased labor costs experienced in our stores as compared to that of the prior period as a result of staffing challenges resulting from COVID-19.
Other Operating Expenses
Other operating expenses increased by approximately $0.3 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. This increase was primarily due to the operation of eight new corporate owned restaurants during the three months ended September 30, 2021.
22
As a percentage of total corporate restaurant sales, other operating expenses were 21.8% and 24.0% of total restaurant sales for the three months ended September 30, 2021 and 2020, respectively. The decrease of 220 basis points during the three months ended September 30, 2021 was primarily due to more efficiently managing our costs of delivery through third party suppliers and reduced other store operating expenses.
Occupancy and Related Expenses
Occupancy and related expenses decreased by approximately $0.1 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The decrease of 480 basis points as a percentage of sales is due to the sales increases during the period, creating leverage on occupancy costs which are primarily fixed in nature.
General and Administrative Expenses
General and administrative expenses increased by approximately $1.9 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase was primarily driven by merger and acquisition related expenses of $1.3 million and labor costs of $0.5 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. Many of these increases were a result of investments made related to operating a public company beginning in December 2020 as well as the investments to support the increased development and growth of our restaurants.
Store Closure Costs
The Company recorded store closure costs of $132 thousand for the three months ended September 30, 2021 in relation to an underperforming store that was closed during the three months ended September 30, 2021.
Share-Based Compensation Expense
Share-based compensation expense was $3.7 million for the three months ended September 30, 2021 primarily as a result of restricted stock unit awards under the Company’s 2020 Stock Incentive Plan. There were no such awards for the period ended September 30, 2020.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by approximately $1.9 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. $1.8 million of this increase was due to the amortization of intangible assets during the three months ended September 30, 2021. These intangible assets were acquired in connection with the Business Combination in December 2020. The remaining increase was primarily attributable to operating more stores than in the prior period.
Brand Development and Co-op Advertising Expense
Brand development and co-op advertising expense decreased by approximately $0.5 million, or 55% for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. This is primarily due to lower spending on media production for BurgerFi commercials during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.
Warrant liability
The Company recorded a non-cash gain of approximately $2.7 million during the three months ended September 30, 2021 related to change in the fair value of the warrant liability since June 30, 2021.
Comparison of the nine months ended September 30, 2021 and September 30, 2020
Restaurant Sales
For the nine months ended September 30, 2021, the Company’s restaurant sales increased by approximately $7.8 million or 43% compared to the nine months ended September 30, 2020. This increase was primarily related to restaurant sales of $4.3 million from the operation of eight new corporate owned restaurants during the nine months ended September 30, 2021 and an increase in same store sales of 18% during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
23
Same store sales increases were supported by higher transaction values and the Company’s digital channel sales growth during the nine months ended September 30, 2021.
Royalty and Other Fees
Royalty and other fees increased by approximately $1.3 million, or 27% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 which was primarily driven by an increase in royalty fees from an increase in our franchisees’ sales. Year-to-date total franchise sales increased by approximately 31% as compared to that of the prior period.
Royalties – Brand Development and Co-op
Royalties – brand development ad co-op advertising increased by approximately $0.5 million, or 45% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This increase was primarily due to the temporary suspension of our brand development program for our franchisees in March 2020 as a result of the COVID-19 outbreak and an increase in our franchisees’ sales for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Franchise Fees
Franchise fees decreased by approximately $14 thousand, or 5% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This decrease primarily relates to additional franchise fees recognized for terminated franchises during the nine months ended September 30, 2020.
Restaurant Level Operating Expenses
Restaurant level operating expenses are follows:
|
| Successor |
|
|
| Predecessor |
| ||||||||
|
| Nine Months Ended September 30, 2021 |
|
|
| Nine Months Ended September 30, 2020 |
| ||||||||
|
| In dollars |
| As a percentage of restaurant sales |
|
|
| In dollars |
| As a percentage of restaurant sales |
| ||||
Restaurant Sales |
| $ | 26,067 |
| N/A |
|
|
| $ | 18,232 |
| N/A |
| ||
Restaurant level operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, beverage and paper costs |
| $ | 7,786 |
|
| 29.9 | % |
|
| $ | 5,554 |
|
| 30.5 | % |
Labor and related expenses |
| $ | 6,988 |
|
| 26.8 | % |
|
| $ | 4,834 |
|
| 26.5 | % |
Other operating expenses |
| $ | 5,861 |
|
| 22.5 | % |
|
| $ | 3,939 |
|
| 21.6 | % |
Occupancy and related expenses |
| $ | 2,280 |
|
| 8.7 | % |
|
| $ | 2,108 |
|
| 11.6 | % |
Total |
| $ | 22,915 |
|
| 87.9 | % |
|
| $ | 16,435 |
|
| 90.1 | % |
Food, Beverage and Paper Costs
Food, beverage, and paper costs increased by approximately $2.2 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This was primarily due to the operation of eight new corporate owned restaurants during the nine months ended September 30, 2021. As a percentage of corporate restaurant sales, food, beverage, and paper costs were 29.9% for the nine months ended September 30, 2021 as compared to 30.5% for the nine months ended September 30, 2020. The 60 basis points decrease primarily resulted from a change in our sales mix during the nine months ended September 30, 2021, partially offset by higher costs of food and paper products as a result of inflationary pressures.
Labor and Related Expenses
Labor and related expenses increased by approximately $2.2 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily due to the operation of eight new corporate owned restaurants during the nine months ended September 30, 2021, along with less employees in our corporate owned restaurants in the month of March 2020. As a percentage of corporate restaurant sales, labor and related expenses were 26.8% for the nine months ended
24
September 30, 2021 versus 26.5% for the nine months ended September 30, 2020. The 30 basis points increase was primarily related to increased labor costs as compared to that of the prior period as a result of staffing challenges resulting from COVID-19.
Other Operating Expenses
Other operating expenses increased by approximately $1.9 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This increase was primarily due to the operating of eight new corporate owned restaurants during the nine months ended September 30, 2021, as well as an increase in delivery fees due to the significant increase in delivery business resulting from the COVID-19 outbreak in 2020.
As a percentage of total corporate restaurant sales, other operating expenses were 22.5% and 21.6% of total restaurant sales for the nine months ended September 30, 2021 and 2020, respectively. The increase of 90 basis points during the nine months ended September 30, 2021 was primarily due to the increase in delivery fees due to the significant increase in delivery business resulting from the COVID-19 outbreak in 2020, and software fees to support our growing digital channel program.
Occupancy and Related Expenses
Occupancy and related expenses increased by approximately $0.2 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decrease of 290 basis points as a percentage of sales is due to the sales increases during the period, creating leverage on occupancy costs which are primarily fixed in nature.
General and Administrative Expenses
General and administrative expenses increased by approximately $5.6 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase was primarily driven by merger and acquisition related expenses of $2.2 million, legal, professional, and insurance fees of $1.9 million, and labor costs of $1.1 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Many of these increases were a result of investments made related to operating a public company beginning in December 2020 as well as the investments to support the increased development and growth of our restaurants.
Store Closure Costs
The Company recorded store closure costs of $132 thousand for the nine months ended September 30, 2021 in relation to an underperforming store that was closed during the nine months ended September 30, 2021.
Share-Based Compensation Expense
Share-based compensation expense was $6.8 million for the nine months ended September 30, 2021 primarily as a result of restricted stock unit awards under the Company’s 2020 Stock Incentive Plan. There were no such awards for the period ended September 30, 2020.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by approximately $5.7 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. $5.4 million of this increase was due to the amortization of intangible assets during the nine months ended September 30, 2021. These intangible assets were acquired in connection with the Business Combination in December 2020. The remaining increase was primarily attributable to operating more stores than in the prior period.
Brand Development and Co-op Advertising Expense
Brand development and co-op advertising expense decreased by approximately $37 thousand, or 2% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This is primarily due to the Company’s decreased spending on media production for BurgerFi commercials during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
25
Warrant liability
The Company recorded a non-cash gain of approximately $10.4 million during the nine months ended September 30, 2021 related to change in the fair value of the warrant liability since December 31, 2020.
Other (Loss) Income
Other income increased by approximately $2.2 million for the nine months ended September 30, 2021 primarily as a result of a debt forgiveness on all of our PPP loans.
Interest Expense
Interest expense decreased by approximately $51 thousand during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This was primarily due to the termination of our line of credit in January 2021 and repayment of certain notes payable in December 2020.
Income Taxes
For the nine months ended September 30, 2021, the Company recorded income tax expense of $0.7 million, primarily as a result of a valuation allowance on the Company’s deferred tax assets. This resulted in an effective tax rate of approximately 20.8%.
Prior to the Business Combination, the Predecessor had elected to be taxed as a partnership under the provisions of the Internal Revenue Code and similar state provisions. Therefore, there was no income tax recorded by the Company for the comparable Predecessor period from January 1, 2020 to September 30, 2020.
Non-U.S. GAAP Financial Measures
As appropriate, we supplement our reported U.S. GAAP financial information with certain non-U.S. GAAP financial measures, including earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”). We define Adjusted EBITDA as net (loss) income before the change in value of warrant liability, interest expense, income tax expense, depreciation and amortization, share-based compensation expense, pre-opening costs, Payroll Protection Loan forgiveness, loss on disposal of property and equipment, legal settlements, merger and acquisition costs, and may include certain other non-recurring items, such as store closure costs and loss on disposal of property and equipment.
We use Adjusted EBITDA to evaluate our performance, both internally and as compared with our peers, because this measure excludes certain items that may not be indicative of our core operating results, as well as items that can vary widely across different industries or among companies within the same industry. We believe that this adjusted measure provides a baseline for analyzing trends in our underlying business. Share-based compensation expense can be subject to volatility from changes in the market price per share of our common stock or variations in the value and number of shares granted. We exclude depreciation and amortization from our adjusted measure due to its non-operational nature. We also believe this presentation is common practice in our industry and improves comparability of our results with those of our peers, although each company’s definitions of adjusted measures may vary as they are not standardized and should be used in light of the provided reconciliations.
We believe that this non-U.S. GAAP financial measure provides meaningful information and help investors understand our financial results and assess our prospects for future performance. Because non-U.S. GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-U.S. GAAP financial measures having the same or similar names. These financial measures should not be considered in isolation from, as substitutes for, or alternative measures of, reported net income or diluted earnings per share, and should be viewed in conjunction with the most comparable U.S. GAAP financial measures and the provided reconciliations thereto. We believe this non-U.S. GAAP financial measure, when viewed together with our U.S. GAAP results and the related reconciliations, provides a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.
26
Below is a reconciliation of Non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net loss:
| Successor |
|
|
| Predecessor |
|
|
| Successor |
|
|
| Predecessor |
| ||||
(in thousands) | Three Months Ended September 30, 2021 |
|
|
| Three Months Ended September 30, 2020 |
|
|
| Nine Months Ended September 30, 2021 |
|
|
| Nine Months Ended September 30, 2020 |
| ||||
Net Loss Attributable to Common Shareholders (successor) and Controlling Interests (predecessor) | $ | (5,018 | ) |
|
| $ | (842 | ) |
|
| $ | (4,237 | ) |
|
| $ | (11 | ) |
Gain on change in value of warrant liability |
| (2,732 | ) |
|
|
| - |
|
|
|
| (10,405 | ) |
|
|
| - |
|
Interest expense |
| 5 |
|
|
|
| 10 |
|
|
|
| 46 |
|
|
|
| 97 |
|
Income tax (benefit) expense |
| (9 | ) |
|
|
| - |
|
|
|
| 731 |
|
|
|
| - |
|
Depreciation and amortization expense |
| 2,194 |
|
|
|
| 315 |
|
|
|
| 6,473 |
|
|
|
| 811 |
|
Share-based compensation expense |
| 3,668 |
|
|
|
| - |
|
|
|
| 6,785 |
|
|
|
| - |
|
Pre-opening costs |
| 615 |
|
|
|
| 18 |
|
|
|
| 1,243 |
|
|
|
| 124 |
|
Store closure costs |
| 132 |
|
|
|
| - |
|
|
|
| 132 |
|
|
|
| - |
|
PPP loan gain |
| - |
|
|
|
| - |
|
|
|
| (2,237 | ) |
|
|
| - |
|
Loss on disposal of property and equipment |
| - |
|
|
|
| - |
|
|
|
| 9 |
|
|
|
| - |
|
Legal settlements |
| 66 |
|
|
|
| - |
|
|
|
| 477 |
|
|
|
| - |
|
M&A |
| 1,271 |
|
|
|
| 467 |
|
|
|
| 2,169 |
|
|
|
| 506 |
|
Adjusted EBITDA | $ | 192 |
|
|
| $ | (32 | ) |
|
| $ | 1,186 |
|
|
| $ | 1,527 |
|
Liquidity, Capital Resources, and COVID-19
Our primary sources of liquidity are cash from operations and cash on hand. At September 30, 2021, we maintained a cash balance of approximately $28.3 million.
Our primary requirements for liquidity are to fund our working capital needs, operating and finance lease obligations, capital expenditures and general corporate needs. Our requirements for working capital are generally not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our capital expenditures are principally related to opening new BurgerFi restaurants, existing BurgerFi capital investments (both for remodels and maintenance), as well as investments in our digital and corporate infrastructure.
We believe our existing cash will be sufficient to fund our operating and finance lease obligations, capital expenditures, and working capital needs for at least the next 12 months and the foreseeable future.
On January 30, 2020, the WHO announced a global health emergency because of the COVID-19 outbreak and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law. As a result of the required changes to consumer behavior to largely off-premises dining, as well as promotional activities associated with delivery, we experienced steady recovery in the business during the third quarter of 2021. Systemwide same store sales increased 17% compared to the nine months ended September 30, 2020.
We did not experience any material supply chain difficulties as a result of COVID-19; however, there can be no assurance that we will not experience supply chain challenges in the future. Although we have experienced some recovery since the initial impact of the COVID-19 outbreak and are currently able to meet our obligations as they become due with our cash flow from operations, the long-term impact of the COVID-19 outbreak on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted. In addition, we continue to monitor the spread of new variants, including the pandemic’s recent emergence of the Delta variant, as described above.
We are currently able to pay our obligations as they become due, with our current cash balance and cash flow generated from operations. We are constructing additional restaurants and are committed to certain construction payment obligations within the next 12 months. The total amount currently due on these contracts is approximately $1,535,000. We expect capital expenditures to be approximately $13 million for 2021.We are also a guarantor for six operating leases for franchised restaurants owned by an affiliated
27
entity of one of our significant shareholders. We may become responsible for the payments under this guarantee. We have determined that the maximum exposure to loss from the lease guarantees amounts to approximately $5,431,000 as of September 30, 2021.
We believe that we will be able to pay these commitments from our cash generated from operations and our current cash balance. Should federal, state or municipal government authorities impose mandatory restrictions in excess of what they currently are, we believe that our current cash balance will allow us the liquidity to meet these commitments.
The following table presents the summary cash flow information for the periods indicated:
|
| Successor |
|
|
| Predecessor |
| ||
|
| Nine Months Ended September, 2021 |
|
|
| Nine Months Ended September 30, 2020 |
| ||
Net cash (used in) provided by |
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | (813 | ) |
|
| $ | 2,282 |
|
Investing activities |
|
| (8,217 | ) |
|
|
| (3,473 | ) |
Financing activities |
|
| (3,058 | ) |
|
|
| 2,017 |
|
Net (decrease) increase in cash |
| $ | (12,088 | ) |
|
| $ | 826 |
|
Cash Flows Used In Operating Activities
During the nine months ended September 30, 2021, cash flows used in operating activities were approximately $0.8 million. The cash flows used in operating activities resulted from net loss of $4.2 million and a net working capital increase of approximately $2.1 million. Our working capital increase was due primarily to an increase in accounts payable, accrued expenses, and deferred rent as well as a decrease in other liabilities. The accounts payable, accrued expenses, and deferred rent increases were primarily due to our opening eight new corporate owned restaurants and construction of additional restaurants during the nine months ended September 30, 2021.
Cash Flows Used in Investing Activities
During the nine months ended September 30, 2021, cash flows used in investing activities were approximately $8.2 million due to the construction and development of new corporate owned restaurants. During the nine months ended September 30, 2021 the Company opened eight new corporate owned restaurants and had six corporate owned restaurants under construction.
Cash Flows Used In Financing Activities
During the nine months ended September 30, 2021 cash flows used in financing activities were $3.1 million primarily due to the termination and repayment of our line of credit in the amount of $3.0 million.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Except as described in Note 2, “Basis of Presentation,” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the 2020 Form 10-K.
28
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures continued to not be effective as of September 30, 2021, as a result of the material weakness described below.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
In the 2020 Form 10-K, filed with the SEC on April 29, 2021, management concluded that our internal control over financial reporting was not effective as of December 31, 2020. In the evaluation, management identified a material weakness in internal control related to our financial close and reporting process. Management also concluded that we did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, management extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting
Our remediation efforts for these material weaknesses currently consist of the following:
| • | we hired a new Chief Financial Officer effective May 3, 2021; |
| • | we have hired and are actively recruiting additional personnel to address the segregation of duties issues and the application of accounting standards in our financial closing and reporting process; |
| • | we have engaged external advisors to provide financial accounting and reporting assistance; and |
| • | we have engaged external advisors to evaluate and document the design and operating effectiveness of our internal control over financial reporting and assist with the remediation and implementation of our internal control function. |
We will continue to assess our internal control over financial reporting and our disclosure controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify. The actions we have taken and will continue to take are subject to continued review, supported by confirmation and testing by management as well as audit committee oversight. While we have a plan to remediate the identified material weaknesses, we cannot assure you that we will be able to remediate these material weaknesses, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. Moreover, a failure to remediate these material weaknesses identified above or the identification of additional material weaknesses, could adversely affect our external financial reporting, and with that, confidence in our public disclosures, our stock price, and our ability to maintain compliance with Nasdaq listing requirements.
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Notwithstanding the foregoing, having given full consideration to the material weaknesses described above, we have concluded that the financial statements and other financial information included in this quarterly report fairly present in all material respects our financial condition, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control over Financial Reporting
Other than as described above, there has been no change in our internal control over financial reporting during the three months ended September 30, 2021 that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There have been no material changes to our legal proceedings disclosed in the 2020 Form 10-K.
ITEM 1A.RISK FACTORS
Our business, financial condition, operating results, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in the 2020 Form 10-K, the occurrence of any one of which could have a material adverse effect on our actual results.
Except as set forth below, there have been no material changes to the risk factors disclosed in the 2020 Form 10-K.
Our business could be adversely affected by the Delta variant of COVID-19.
The global health crisis caused by the novel coronavirus COVID-19 pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. In addition, in the first half of 2021, a new Delta variant of COVID-19, which appears to be the most transmissible variant to date, began to spread globally and caused an increase in COVID-19 cases in many places in the United States. Public health officials and medical professionals have warned that COVID-19 cases may continue to spike, particularly if vaccination rates do not quickly increase or if additional, potent disease variants emerge. It is unclear how long the resurgence will last, how severe it will be, and what safety measures governments will impose in response to it. Despite a recent decline in cases, hospitalizations and deaths in large portions of the United States, mask mandates, social distancing, travel restrictions and stay-at-home orders could be reinstated. Even before the recent increases in cases, many individuals remained cautious about resuming activities. The impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business. An extended period of economic disruption could have a material adverse impact on our business, results of operations, access to sources of liquidity and overall financial condition.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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ITEM 6.EXHIBITS
The Exhibit Index below contains a list of exhibits filed or furnished with this Form 10-Q.
Exhibit No. |
| Description |
|
|
|
|
|
|
10.1+ |
| |
10.2+ |
| |
10.3+ |
| |
10.4+ |
| |
10.5+ |
| |
10.6+ |
| |
10.7+ |
| |
10.8+ |
| |
10.9+ |
| |
10.10+ |
| |
10.11+ |
| |
10.12+ |
| |
10.13+ |
| |
10.14+ |
| |
31.1* |
| Certifications required by Section 302(a) of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2* |
| Certifications required by Section 302(a) of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1** |
| Certifications required by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2** |
| Certifications required by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
| Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are
embedded within the Inline XBRL document. |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase |
|
|
|
104 |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021 has been formatted in Inline XBRL. |
|
|
|
* |
| Filed herewith. |
** |
| Furnished herewith. |
+ |
| Indicates a management contract or a compensatory plan or agreement. |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| BURGERFI INTERNATIONAL, INC. | |
Date: November 12, 2021 |
|
| |
|
| By: | /s/ IAN BAINES |
|
| Ian Baines | |
|
| Chief Executive Officer | |
|
| (Principal Executive Officer) | |
|
|
|
|
|
| By: | /s/ MICHAEL RABINOVITCH |
|
| Michael Rabinovitch | |
|
| Chief Financial Officer | |
|
| (Principal Financial and Accounting Officer) |
33