BurgerFi(BFI) - 2020 Q4 - Annual Report

Part I Business The company operates a fast-casual burger concept with company-owned and franchised restaurants, having gone public in late 2020 - On December 16, 2020, Opes Acquisition Corp. completed a business combination with BurgerFi International, LLC, resulting in the public company BurgerFi International, Inc[5] Restaurant Count as of December 31, 2020 | Restaurant Type | Count | | :--- | :--- | | Company-Operated | 17 | | Franchise-Operated | 102 | | Total | 119 | - The company's menu emphasizes all-natural ingredients, featuring 100% natural Angus beef, and was the first national brand to feature the Beyond Burger[57][63][65] - A key growth strategy includes a partnership with REEF Technology to launch delivery-only "ghost kitchens," aiming for approximately 25 operating kitchens by the end of 2021[120][121] Risk Factors The company faces significant risks from the COVID-19 pandemic, operational growth challenges, and material weaknesses in financial controls - The COVID-19 pandemic has materially and adversely affected financial results and consumer behavior, with its long-term impact remaining uncertain[177] - The company's growth is highly dependent on opening new restaurants, which is subject to risks such as site availability and construction costs[136][137] - Management identified several material weaknesses in internal control over financial reporting, including lack of segregation of duties and insufficient accounting resources[204][205] - Approximately 60.7% of the company's voting power is controlled by directors, officers, and affiliates under a Director Voting Agreement, which could create conflicts of interest[208] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[231] Properties The company leases all its restaurant and office properties, with a significant concentration of locations in Florida - The company leases all its properties, including 17 company-operated restaurants and its 16,564 sq. ft. executive office in North Palm Beach, FL[232][234] Restaurant Locations by State (as of Dec 31, 2020) | State | Company-Operated | Total | | :--- | :--- | :--- | | Florida | 14 | 52 | | Texas | — | 11 | | New York | 2 | 6 | | Georgia | — | 5 | | Maryland | — | 5 | | North Carolina | — | 5 | | Alabama | — | 4 | | Other States | 1 | 29 | | International | — | 3 | Legal Proceedings The company is involved in several legal proceedings for which management cannot determine the potential financial impact - A lawsuit with franchisee DAJA I, LLC was settled in October 2020, with the franchisee dropping all claims and transferring its restaurant to BurgerFi[237] - The company is defending a lawsuit from former CEO Corey Winograd alleging breach of an employment agreement, which it believes is meritless[238] - Management is unable to determine the potential loss from ongoing legal cases and has not recorded any contingent liability as of December 31, 2020[239] Mine Safety Disclosures This item is not applicable to the company's business operations - Not Applicable[240] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants trade on Nasdaq, and it does not anticipate paying cash dividends in the foreseeable future - The company's common stock and public warrants trade on Nasdaq under the symbols 'BFI' and 'BFIIW'[241] - As of April 19, 2021, there were 17,888,476 shares of common stock outstanding[242] - The company has never paid cash dividends and does not intend to in the foreseeable future[242] Selected Financial Data This item is not applicable to the company - Not applicable[243] Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenue increased slightly in 2020, while net income grew significantly due to a non-cash gain on warrant liabilities - The COVID-19 pandemic led to a systemwide same-store sales decline of 4% in Q4 2020, an improvement from earlier in the year[250][251] S/P Combined Results of Operations (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Total Revenue | $34,282 | $33,555 | | Restaurant Sales | $25,316 | $23,183 | | Royalty and other fees | $6,371 | $7,369 | | Total Operating Expenses | $34,922 | $30,506 | | Operating (Loss) Income | ($640) | $3,049 | | Gain on change in value of warrant liability | $5,597 | $0 | | Net Income | $5,983 | $2,970 | - Company restaurant sales increased 9.2% to $25.3 million in 2020 due to new openings, though same-store sales declined by 15% due to COVID-19[262] - Royalty and other fees from franchisees decreased 13.5% to $6.4 million, reflecting lower franchisee sales due to the pandemic[263] - The company ended 2020 with approximately $40 million in cash and cash equivalents and plans for capital expenditures of about $15 million in 2021[283][284] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not Applicable[356] Financial Statements and Supplementary Data The financial statements received an unqualified audit opinion and reflect a significant increase in assets post-business combination - The independent auditor, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements, with an emphasis of matter related to COVID-19[359][363] Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2020 (Successor) | Dec 31, 2019 (Predecessor) | | :--- | :--- | :--- | | Cash and Restricted Cash | $40,383 | $2,417 | | Total Current Assets | $44,421 | $3,599 | | Goodwill | $119,542 | $398 | | Intangible Assets | $116,824 | $235 | | Total Assets | $289,116 | $14,382 | | Total Current Liabilities | $9,158 | $6,358 | | Derivative warrant liability | $16,516 | $0 | | Total Liabilities | $30,041 | $11,875 | | Total Stockholders' Equity | $259,075 | $2,507 | Consolidated Statement of Operations Data (in thousands) | | Successor (12/16-12/31/20) | Predecessor (1/1-12/15/20) | Predecessor (FY 2019) | | :--- | :--- | :--- | :--- | | Total Revenue | $1,704 | $32,578 | $33,555 | | Operating (Loss) Income | ($1,400) | $760 | $3,049 | | Gain on change in value of warrant liability | $5,597 | $0 | $0 | | Net Income | $5,348 | $635 | $2,970 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting principles or financial disclosure - None[586] Controls and Procedures Management identified several material weaknesses in internal control over financial reporting and has initiated remediation efforts - Management identified several material weaknesses in internal control over financial reporting[589] - Specific weaknesses include lack of control over the financial closing process, insufficient resources for applying complex accounting standards, and errors in accounting for VIEs[589] - Remediation efforts include hiring a new CFO, recruiting additional personnel, and engaging external advisors to improve internal controls[592] Other Information The company reports no other information - None[596] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes a five-member classified board with three standing committees and has adopted a Code of Ethics Key Directors and Executive Officers | Name | Position | | :--- | :--- | | Ophir Sternberg | Executive Chairman of the Board | | Julio Ramirez | Chief Executive Officer | | Michael Rabinovitch | Chief Financial Officer (incoming) | | Ross Goldstein | Chief Legal Officer | | Jim Esposito | Chief Operating Officer | | Martha Stewart | Director | | Steven Berrard | Director | - The Board of Directors is classified into three classes (A, B, C) with staggered three-year terms[614] - The standing committees of the Board are the Audit Committee, Compensation Committee, and Nominating Committee[616][618][620] - Two directors and one trust were delinquent in filing their Form 3 ownership reports[625] Executive Compensation Executive compensation in 2020 was dominated by large, multi-million dollar stock awards tied to the business combination 2020 Summary Compensation Table (in $) | Name and Principal Position | Salary | Stock Awards | Total | | :--- | :--- | :--- | :--- | | Ophir Sternberg, Executive Chairman | — | 14,535,000 | 14,535,000 | | Julio Ramirez, CEO | 55,000 | 5,355,000 | 5,413,600 | | Bryan McGuire, CFO | 105,505 | — | 105,505 | | Ross Goldstein, CLO | 207,625 | — | 207,625 | Outstanding Equity Awards at Fiscal Year-End | Name | Stock Awards Not Vested () | Market Value of Unvested Stock ($) | | :--- | :--- | :--- | | Ophir Sternberg | 950,000 | 13,005,500 | | Julio Ramirez | 350,000 | 4,791,500 | - Employment agreements for the Executive Chairman and CEO include substantial restricted stock grants with vesting tied to service, revenue, and stock price targets[633][634] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Ownership is highly concentrated among a few beneficial owners, and the company has established an equity incentive plan Security Ownership of Major Holders (as of April 19, 2021) | Name of Beneficial Owner | Percent of Class | | :--- | :--- | | The John Rosatti Revocable Trust | 32.7% | | Lion Point Capital, LP | 15.4% | | Ophir Sternberg | 10.1% | | Lionheart Equities, LLC | 9.8% | | All directors and executive officers as a group | 10.2% | - The 2020 Omnibus Equity Incentive Plan initially authorized 2,000,000 shares, with 700,000 available for future issuance as of year-end 2020[655] Certain Relationships and Related Transactions, and Director Independence The company engaged in significant related-party transactions, including leases and a forward purchase contract, and most directors are independent - The company leases its corporate office from an entity affiliated with John Rosatti, its pre-merger majority owner, with rent expense of approximately $160,000 in 2020[678] - In connection with the business combination, Lion Point and an affiliate of the Sponsor purchased an aggregate of $30 million in Forward Purchase Units[673][675] - Four of the five directors are deemed independent under Nasdaq rules[679] Principal Accounting Fees and Services The company appointed BDO USA, LLP as its auditor post-merger, replacing the predecessor's auditor, Marcum, LLP Audit and Other Fees (2020) | Firm | Audit Fees | Total Fees | | :--- | :--- | :--- | | BDO USA, LLP | $433,241 | $433,241 | | Marcum, LLP | $159,135 | $159,135 | - BDO USA, LLP was appointed as the company's auditor in December 2020, following the dismissal of Marcum, LLP[680][687] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the annual report, including governance documents, material contracts, and certifications - This section provides an index of all exhibits filed with the annual report, including governance documents, material contracts, and certifications[699][701][703] Form 10-K Summary No Form 10-K summary was provided in the filing - None[708]