What amount of goodwill was recognized by Lees Famous Recipe related to identifiable assets acquired?
Lees_Famous_Recipe Franchise · 2025 FDDAnswer from 2025 FDD Document
OH Advertising Cooperative, Inc. as of December 31, 2022.
NOTE 9 - RELATED PARTY TRANSACTIONS (Continued)
During the years ended December 31, 2023 and 2022, the Company paid Lee's Famous Recipe Advertising Cooperative, Inc. and LFRC OH Adverting Cooperative, Inc. $626,167 and $393,235, respectively. No amounts were paid to the related parties in the period ended December 31, 2021.
NOTE 10 - ACQUISITIONS
LFRC Springfield, LLC:
On April 12, 2022, the Company acquired certain fixed assets from Far From Famous, LLC. The goodwill of approximately $600,000 arising from the acquisition consists largely of future earnings potential. The Company paid approximately $8,500,000 for the acquisition.
| Acquisition-related costs and expenses recognized | $ 29,934 |
|---|---|
| Recognized amounts of identifiable assets acquired | |
| and liabilities assumed | |
| Property and equipment | 7,892,500 |
| Recognized amounts of identifiable liabilities acquired | 20,997 |
| Goodwill | 616,162 |
| Purchase price | $ 8,517,599 |
NOTE 10 - ACQUISITIONS (Continued)
LFRC Mt. Sterling, LLC:
On June 20, 2022, the Company acquired certain fixed assets from Lee's of Mt. Sterling, Inc. The goodwill of approximately $1,850,000 arising from the acquisition consists largely of future earnings potential. The Company paid approximately $3,100,000 for the acquisition.
| Acquisition-related costs and expenses recognized | $ 9,671 |
|---|---|
| Recognized amounts of identifiable assets acquired | |
| and liabilities assumed | |
| Cash | 2,400 |
| Non-compete agreement | 20,000 |
| Property and equipment | 1,240,000 |
| Total identifiable net assets | 1,262,400 |
| Recognized amounts of identifiable liabilities acquired | 13,091 |
| Goodwill | 1,851,154 |
| Purchase price | $ 3,110,134 |
NOTE 10 - ACQUISITIONS (Continued)
LFRC Ft. Wayne, LLC:
On January 16, 2023, the Company acquired certain fixed assets from Hagan Real Estate, LLC, Carol J. Hagan and TC Hagan, LLC. The goodwill of approximately $76,000 arising from the acquisition consists largely of future earnings potential. The Company paid approximately $4,460,000 for the acquisition.
The following table summarizes the amounts of the assets acquired at the acquisition date.
| Acquisition-related costs and expenses recognized | $ 14,000 |
|---|---|
| Recognized amounts of identifiable assets acquired | |
| and liabilities assumed | |
| Cash | 4,000 |
| Non-compete agreement | 17,000 |
| Property and equipment | 4,353,000 |
| Total identifiable net assets | 4,374,000 |
| Goodwill | 76,000 |
| Purchase price | $ 4,464,000 |
LFRC Sanford, LLC:
On October 30, 2023, the Company acquired certain fixed assets from Sobik's Sandwich Shops, Inc. The goodwill of approximately $279,000 arising from the acquisition consists largely of future earnings potential. The Company paid approximately $810,000 for the acquisition.
| Acquisition-related costs and expenses recognized | $ 8,031 |
|---|---|
| Recognized amounts of identifiable assets acquired | |
| Cash | 900 |
| Inventory | 11,210 |
| Property and equipment | 520,000 |
| Total identifiable net assets | 532,110 |
| Goodwill | 279,100 |
| Purchase price | $ 811,210 |
NOTE 11 - FRANCHISES AND VARIABLE CONSIDERATION
There were not any franchise contracts at December 31, 2023 and 2022 where the consideration amount was variable.
A summary of franchise agreement activity as of December 31 is as follows:
| 2023 | 2022 | |
|---|---|---|
| Franchise agreements at the beginning of the period | 129 | 130 |
| Franchise agreements signed | 1 | 2 |
| 130 | 132 | |
| Less: franchise agreements terminated | 3 | 3 |
| Franchises in operation at the end of the period | 127 | 129 |
The Company is obligated to perform pre-opening services before restaurant operations commence. This obligation is satisfied when the services are rendered. The Company signed a market development agreement for 12 potential stores in 2021, which was subsequently amended in 2023 for 16 potential stores. As of December 31, 2023 and 2022, not all of the pre-opening services had been performed.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 69)
What This Means (2025 FDD)
According to the 2025 FDD, Lees Famous Recipe has recognized goodwill in association with the acquisition of identifiable assets in several instances.
Specifically, in April 2022, Lees Famous Recipe acquired fixed assets from Far From Famous, LLC, resulting in approximately $600,000 of goodwill. This goodwill was largely attributed to future earnings potential, and the total purchase price for this acquisition was approximately $8,500,000.
In another instance, the FDD states that in January 2024, Lees Famous Recipe acquired certain fixed assets and assumed a lease from Lumena, LLC, paying approximately $375,000, which resulted in approximately $264,000 in goodwill. Additionally, one table shows goodwill of $275,000 related to property and equipment valued at $100,000 and right of use assets of $39,485. Another table shows goodwill of $9,863,500 related to cash of $11,500, inventory of $640,517, property and equipment of $1,184,000 and right of use assets of $10,338,284. Another table shows goodwill of $616,162 related to property and equipment of $7,892,500. Another table shows goodwill of $279,100 related to cash of $900, inventory of $11,210 and property and equipment of $520,000. Another table shows goodwill of $1,851,154 related to cash of $2,400, a non-compete agreement of $20,000 and property and equipment of $1,240,000. Another table shows goodwill of $76,000 related to cash of $4,000, a non-compete agreement of $17,000 and property and equipment of $4,353,000.
Furthermore, when Lees Famous Recipe entered into an agreement with Famous Recipe Group, it recorded goodwill of $908,786 upon execution of the agreement in 2021. Additional consideration liability of $94,838 and $271,692 was recorded in 2024 and 2023, respectively. This goodwill is associated with a contingent consideration liability, where Famous Recipe Group could receive between $0 and $1,500,000 if Lees Famous Recipe meets specific criteria. At the end of 2024, management estimated that $1,275,000 would be paid under this arrangement.