UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

~~[X]~~☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June ~~28, 2020~~27, 2021

~~[ ]~~☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-38250

FAT Brands Inc.

(Exact name of registrant as specified in its charter)

Delaware

82-1302696

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

9720 Wilshire Blvd., Suite 500

Beverly Hills, CA90212

(Address of principal executive offices, including zip code)

(310)319-1850

(Registrant’s telephone number, including area code)

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	FAT	The Nasdaq Stock Market LLC
Series B Cumulative Preferred Stock, par value $0.0001 per share	FATBP	The Nasdaq Stock Market LLC
Warrants to purchase Common Stock	FATBW	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 ~~[X]~~ ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ~~[X]~~ ☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	~~[X]~~☒	Smaller reporting company	~~[X]~~☒

Emerging growth company	~~[X]~~☒

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. ~~[X]~~☒

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ~~[ ]~~ ☐ No ~~[X]~~ ☒

As of August ~~3, 2020,~~2, 2021, there were ~~11,894,895~~14,653,961 shares of common stock outstanding.

FAT BRANDS INC.

QUARTERLY REPORT ON FORM 10-Q

June ~~28, 2020~~27, 2021

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	FAT Brands Inc. and Subsidiaries:
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Changes in Stockholders’ ~~Equity~~Deficit (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	67
	Notes to Condensed Consolidated Financial Statements (Unaudited)	78

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3328
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4234
Item 4.	Controls and Procedures	4234

PART II.	OTHER INFORMATION	4335
Item 1.	Legal Proceedings	4335
Item 1A.	Risk Factors	4436
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4436
Item 3.	Defaults Upon Senior Securities	4436
Item 4.	Mine Safety Disclosures	4436
Item 5.	Other Information	4436
Item 6.	Exhibits	4537

SIGNATURES		4638

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FAT BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

	June 28, 2020			December 29, 2019			June 27, 2021			December 27, 2020
				(Audited)			Unaudited
Assets
Current assets
Cash	$	1,741		$	25		$	48,124		$	3,944
Restricted cash		1,347			-			4,096			2,867
Accounts receivable, net of allowance for doubtful accounts of $470 and $595, as of June 28, 2020 and December 29, 2019, respectively		2,469			4,144
Trade notes receivable, net of allowance for doubtful accounts of $103 and $37 as of June 28, 2020 and December 29, 2019, respectively		204			262
Accounts receivable, net of allowance for doubtful accounts of $816 and $739, as of June 27, 2021 and December 27, 2020, respectively								5,583			4,208
Trade and other notes receivable, net of allowance for doubtful accounts of $103 as of June 27, 2021 and December 27, 2020								217			208
Assets classified as held for sale		3,384			5,128			7,735			10,831
Other current assets		985			929			2,486			2,365
Total current assets		10,130			10,488			68,241			24,423

Non-current restricted cash		400			-
Notes receivable – noncurrent, net of allowance for doubtful accounts of $270 and $112, as of June 28, 2020 and December 29, 2019, respectively		1,584			1,802
Due from affiliates		34,729			25,967
Deferred income taxes		3,556			2,032
Noncurrent restricted cash								1,800			400
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271, as of June 27, 2021 and December 27, 2020								1,583			1,622
Deferred income tax asset, net								33,555			30,551
Operating lease right of use assets		2,776			860			4,913			4,469
Goodwill		9,450			10,912			9,706			10,909
Other intangible assets, net		27,557			29,734			46,950			47,711
Other assets		708			755			2,420			1,059
Total assets	$	90,890		$	82,550		$	169,168		$	121,144

Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable	$	7,243		$	7,183		$	8,410		$	8,625
Accrued expenses and other liabilities								21,235			19,833
Deferred income, current portion		930			895			1,684			1,887
Accrued expenses		6,192			6,013
Accrued advertising		543			762			1,980			2,160
Accrued interest payable		806			1,268			1,473			1,847
Dividend payable on preferred shares (includes amounts due to related parties of $223 and $149 as of June 28, 2020 and December 29, 2019, respectively)		2,110			1,422
Dividend payable on preferred shares								1,397			893
Liabilities related to assets classified as held for sale		2,298			3,325			7,131			9,892
Current portion of operating lease liability		368			241			929			748
Current portion of preferred shares, net								7,980			7,961
Current portion of long-term debt		661			24,502			913			19,314
Other								18			17
Total current liabilities		21,151			45,611			53,150			73,177

Deferred income – noncurrent		5,246			5,247			9,691			9,099
Acquisition purchase price payable		4,259			4,504			776			2,806
Preferred shares, net		15,456			15,327
Deferred dividend payable on preferred shares (includes amounts due to related parties of $129 and $99 as of June 28, 2020 and December 29, 2019, respectively)		828			628
Operating lease liability, net of current portion		2,471			639			4,508			4,011
Long-term debt, net of current portion		43,925			5,216			146,140			73,852
Derivative liability from conversion feature of preferred shares		1,142			-
Other liabilities								58			82
Total liabilities		94,478			77,172			214,323			163,027

Commitments and contingencies (Note 17)
Commitments and contingencies (Note 19)								-			-

Stockholders’ equity
Common stock, $.0001 par value; 25,000,000 shares authorized; 11,894,895 and 11,860,299 shares issued and outstanding at June 28, 2020 and December 29, 2019, respectively		9,069			11,414
Stockholders’ deficit
Preferred stock, $.0001 par value; 5,000,000 shares authorized; 1,643,272 and 1,183,272 shares issued and outstanding at June 27, 2021 and December 27, 2020, respectively; liquidation preference $25 per share								29,092			21,788
Common stock, $.0001 par value; 25,000,000 shares authorized; 12,491,528 and 11,926,264 shares issued and outstanding at June 27, 2021 and December 27, 2020, respectively (1)								(45,086	)		(42,775	)
Accumulated deficit		(12,657	)		(6,036	)		(29,254	)		(20,896	)
Total stockholders’ equity		(3,588	)		5,378
Total liabilities and stockholders’ equity	$	90,890		$	82,550
Stockholders’ deficit attributable to FAT Brands Inc.								(45,248	)		(41,883	)
Noncontrolling interests								93			-
Total stockholders’ deficit								(45,155	)		(41,883	)
Total liabilities and stockholders’ deficit							$	169,168		$	121,144

(1)

Issued and outstanding share count excludes 86,463 common shares committed, but unissued as of June 27, 2021.

The accompanying notes are an integral part of these condensed consolidated financial statements.

FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except ~~per~~ share data)

For the ~~thirteen~~Thirteen and ~~twenty-six weeks ended~~Twenty-six Weeks Ended June 27, 2021 and June 28, 2020 ~~and June 30, 2019~~ (Unaudited)

													June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
	Thirteen Weeks Ended						Twenty-six Weeks Ended						Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019			June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020

Revenue
Royalties	$	2,213		$	3,663		$	5,522		$	7,127		$	6,161		$	2,213		$	11,057		$	5,522
Franchise fees		273			994			449			1,306			482			273			1,022			449
Store opening fees		-			184			-			289
Advertising fees		613			1,031			1,544			2,008			1,370			613			2,560			1,544
Restaurant sales														234			-			234			-
Management fees and other income		8			23			15			38			35			8			58			15
Total revenue		3,107			5,895			7,530			10,768			8,282			3,107			14,931			7,530

Costs and expenses
General and administrative expense		4,104			3,106			7,636			5,820			5,483			4,104			10,408			7,636
Restaurant operating expenses														244			-			244			-
Impairment of assets		3,174			-			3,174			-			-			3,174			-			3,174
Refranchising loss (gain)		1,006			(467	)		1,544			51
Refranchising (gain) loss														(856	)		1,006			(429	)		1,544
Advertising expense		613			1,031			1,544			2,008			1,367			613			2,560			1,544
Total costs and expenses		8,897			3,670			13,898			7,879			6,238			8,897			12,783			13,898

(Loss) income from operations		(5,790	)		2,225			(6,368	)		2,889
Income (loss) from operations														2,044			(5,790	)		2,148			(6,368	)

Other income (expense), net
Interest expense, net		(289	)		(834	)		(1,911	)		(2,520	)
Interest expense, net of interest income of $836 and $1,554 due from affiliates during the thirteen and twenty-six weeks ended June 28, 2020, respectively. There was no interest income due from affiliates in 2021.														(2,406	)		(289	)		(4,866	)		(1,911	)
Interest expense related to preferred shares		(476	)		(431	)		(928	)		(862	)		(264	)		(476	)		(552	)		(928	)
Change in fair value-derivative liability		1,264			-			1,264			-
Net loss on extinguishment of debt														(6,405	)		-			(6,405	)		-
Change in fair value of derivative liability														-			1,264			-			1,264
Other expense, net		(49	)		(124	)		(64	)		(100	)		(892	)		(49	)		(809	)		(64	)
Total other income (expense), net		450			(1,389	)		(1,639	)		(3,482	)
Total other (expense) income, net														(9,967	)		450			(12,632	)		(1,639	)

(Loss) income before income tax expense		(5,340	)		836			(8,007	)		(593	)
Loss before income tax expense														(7,923	)		(5,340	)		(10,484	)		(8,007	)

Income tax (benefit) expense		(1,089	)		1,344			(1,386	)		625
Income tax benefit														(1,992	)		(1,089	)		(2,121	)		(1,386	)

Net loss	$	(4,251	)	$	(508	)	$	(6,621	)	$	(1,218	)		(5,931	)		(4,251	)		(8,363	)		(6,621	)
Less: Net loss attributable to noncontrolling interest														(5	)		-			(5	)		-
Net loss attributable to FAT Brands Inc.													$	(5,926	)	$	(4,251	)	$	(8,358	)	$	(6,621	)

Basic and diluted loss per common share	$	(0.36	)	$	(0.04	)	$	(0.56	)	$	(0.10	)	$	(0.48	)	$	(0.36	)	$	(0.69	)	$	(0.56	)
Basic and diluted weighted average shares outstanding		11,886			11,726			11,878			11,726			12,275,370			11,886,182			12,122,938			11,877,507
Cash dividends declared per common share	$	-		$	-		$	-		$	-		$	0.26		$	-		$	0.26		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ ~~EQUITY~~DEFICIT

(dollars in thousands, except share ~~data)~~data, unaudited)

~~Unaudited~~

For the ~~twenty-six weeks ended~~Twenty-six Weeks Ended June 27, 2021

			Common Stock Par		Common Stock Additional paid-in			Total Common Stock					Preferred Stock Par		Preferred Stock Additional paid-in			Total Preferred			Non- controlling			Accum- ulated			Total
	Common Stock										Preferred Stock
			Par		Additional paid-in			Total Common					Par		Additional paid-in			Total Preferred			Non- controlling			Accum- ulated
	Shares		value		capital			Stock			Shares		value		capital			Stock			interest			deficit			Total

Balance at December 27, 2020 – audited		11,926,264	$	1	$	(42,776	)	$	(42,775	)		1,183,272	$	-	$	21,788		$	21,788		$	-		$	(20,896	)	$	(41,883	)
Net loss		-		-		-			-			-		-		-			-			(5	)		(8,358	)		(8,363	)
Issuance of common stock through exercise of warrants (1)		265,264		-		1,140			1,140			-		-		243			243			-			-			1,383
Issuance of preferred stock		-		-		-			-			460,000		-		8,281			8,281			-			-			8,281
Share-based compensation		300,000		-		230			230			-		-		-			-			-			-			230
Measurement period adjustment in accordance with ASU 2015-16		-		-		(1,451	)		(1,451	)		-		-		-			-			-			-			(1,451	)
Stock contracted for issue in payment of debt (2)		-		-		816			816			-		-		-			-			-			-			816
Sale of interest in operating restaurant						151			151													98						249
Dividends declared on common stock		-		-		(3,197	)		(3,197	)		-		-		-			-			-			-			(3,197	)
Dividends declared on Series B preferred stock		-		-		-			-			-		-		(1,220	)		(1,220	)		-			-			(1,220	)
Issuance of common stock in lieu of cash directors fees payable
Issuance of common stock in lieu of cash directors fees payable
Fair value of derivative liability
Correction of recorded conversion rights associated with Series A-1 preferred shares

Balance at June 27, 2021		12,491,528	$	1	$	(45,087	)	$	(45,086	)		1,643,272	$	-	$	29,092		$	29,092		$	93		$	(29,254	)	$	(45,155	)

(1)

Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.

(2)

Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.

For the Twenty-six Weeks Ended June 28, 2020

	Common Stock										Preferred Stock
			Par		Additional paid-in										Par				Additional paid-in				Total Preferred				Non- controlling				Accumulated
	Shares		value		capital			Total			Shares				value				capital				Stock				interest				deficit				Total

Balance at December 29, 2019 - audited		11,860,299	$	1	$	11,413		$	11,414		-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	$	(6,036	)		$	5,378
Net loss		-		-		-			-																							(6,621	)			(6,621	)
Issuance of common stock in lieu of cash directors’ fees payable		34,596		-		135			135			-				-				-				-				-				-				135
Share-based compensation		-		-		16			16																							-				16
Fair value of derivative liability		-		-		(2,406	)		(2,406	)																										(2,406	)
Correction of recorded conversion rights associated with Series A-1 preferred shares		-		-		(90	)		(90	)																						-				(90	)

Balance at June 28, 2020		11,894,895	$	1	$	9,068		$	9,069			-				-				-				-				-		$		(12,657	)	$		(3,588)

For the Thirteen Weeks Ended June 27, 2021

Common Stock
Additional
Par paid-in Accumulated
Shares value capital Total deficit Total

Balance at December 29, 2019 11,860,299 $ 1 $ 11,413 $ 11,414 $ (6,036 ) $ 5,378
Net loss - - - - (6,621 ) (6,621 )
Issuance of common stock in lieu of cash directors fees payable 34,596 - 135 135 - 135
Share-based compensation - - 16 16 - 16
Fair value of derivative liability - - (2,406 ) (2,406 ) (2,406 )
Correction of recorded conversion rights associated with Series A-1 preferred shares - - (90 ) (90 ) - (90 )

Balance at June 28, 2020 11,894,895 $ 1 $ 9,068 $ 9,069 $ (12,657 ) $ (3,588 )

	Common Stock										Preferred Stock
			Par		Additional paid-in			Total Common					Par		Additional paid-in			Total Preferred			Non- controlling			Accum- ulated
	Shares		value		capital			Stock			Shares		value		capital			Stock			interest			deficit			Total

Balance at March 28, 2021		12,029,264	$	1	$	(43,516	)	$	(43,515	)		1,183,272	$	-	$	21,267		$	21,267		$	-		$	(23,328	)	$	(45,576	)
Net loss		-		-		-			-			-		-		-			-			(5	)		(5,926	)		(5,931	)
Issuance of common stock through exercise of warrants (1)		162,264		-		714			714			-		-		154			154			-			-			868
Issuance of preferred stock		-		-		-			-			460,000		-		8,281			8,281			-			-			8,281
Share-based compensation		300,000		-		193			193			-		-		-			-			-			-			193
Measurement period adjustment in accordance with ASU 2015-16		-		-		(248	)		(248	)		-		-		-			-			-			-			(248	)
Stock contracted for issue in payment of debt (2)		-		-		816			816			-		-		-			-			-			-			816
Sale of interest in operating restaurant						151			151													98						249
Dividends declared on common stock		-		-		(3,197	)		(3,197	)		-		-		-			-			-			-			(3,197	)
Dividends declared on Series B preferred stock		-		-		-			-			-		-		(610	)		(610	)		-			-			(610	)

Balance at June 27, 2021		12,491,528	$	1	$	(45,087	)	$	(45,086	)		1,643,272	$	-	$	29,092		$	29,092		$	93		$	(29,254	)	$	(45,155	)

(1)

Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.

(2)

Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.

For the ~~twenty-six weeks ended June 30, 2019~~

Common Stock
Additional
Par paid-in Accumulated
Shares value capital Total deficit Total

Balance at December 30, 2018 11,546,589 $ 1 $ 10,756 $ 10,757 $ (5,018 ) $ 5,739
Net loss - - - - (1,218 ) (1,218 )
Common stock dividend 245,376 - - - - -
Cash paid in lieu of fractional shares - - (2 ) (2 ) - (2 )
Issuance of common stock in lieu of cash directors fees payable 34,800 - 180 180 - 180
Share-based compensation - - 159 159 - 159

Balance at June 30, 2019 11,826,765 $ 1 $ 11,093 $ 11,094 $ (6,236 ) $ 4,858

~~For the thirteen weeks ended~~Thirteen Weeks Ended June 28, 2020

Common Stock
Additional
Par paid-in Accumulated
Shares value capital Total deficit Total

Balance at March 29, 2020 11,876,659 $ 1 $ 11,413 $ 11,414 $ (8,406 ) $ 3,008
Net loss - - - - (4,251 ) (4,251 )
Issuance of common stock in lieu of cash directors fees payable 18,236 - 60 60 - 60
Share-based compensation - - 1 1 - 1
Fair value of derivative liability (2,406 ) (2,406 ) (2,406 )

Balance at June 28, 2020 11,894,895 $ 1 $ 9,068 $ 9,069 $ (12,657 ) $ (3,588 )

~~For the thirteen weeks ended June 30, 2019~~

	Common Stock										Preferred Stock
			Par		Additional paid-in										Par				Additional paid-in				Total Preferred				Non- controlling				Accumulated
	Shares		value		capital			Total			Shares				value				capital				Stock				interest				deficit			Total

Balance at March 29, 2020		11,876,659	$	1	$	11,413		$	11,414			-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	$	(8,406	)	$	3,008
Net loss		-		-		-			-																							(4,251	)		(4,251	)
Issuance of common stock in lieu of cash directors’ fees payable		18,236		-		60			60			-				-				-				-				-				-			60
Share-based compensation		-		-		1			1																							-			1
Fair value of derivative liability						(2,406	)		(2,406	)																									(2,406	)

Balance at June 28, 2020		11,894,895	$	1	$	9,068		$	9,069			-			-	-			-	-				-				-			$	(12,657	)	$	(3,588	)

Common Stock
Additional
Par paid-in Accumulated
Shares value capital Total deficit Total

Balance at March 31, 2019 11,807,349 $ 1 $ 10,925 $ 10,926 $ (5,728 ) $ 5,198
Net loss - - - - (508 ) (508 )
Issuance of common stock in lieu of cash directors fees payable 19,416 - 90 90 - 90
Share-based compensation - - 78 78 - 78

Balance at June 30, 2019 11,826,765 $ 1 $ 11,093 $ 11,094 $ (6,236 ) $ 4,858

The accompanying notes are an integral part of these condensed consolidated financial statements.

FAT BRANDS INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF CASH FLOWS

(dollars in ~~thousands)~~thousands, unaudited)

For the ~~twenty-six weeks ended~~Twenty-six Weeks Ended June 27, 2021 and June 28, 2020 ~~and June 30, 2019 (Unaudited)~~

	Twenty-six Weeks Ended
	June 28, 2020			June 30, 2019			2021			2020
Cash flows from operating activities
Net loss	$	(6,621	)	$	(1,218	)	$	(8,363	)	$	(6,621	)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes		(1,524	)		(330	)		(3,003	)		(1,524	)
Net loss on extinguishment of debt								4,859			-
Depreciation and amortization		500			271			784			500
Share-based compensation		16			159			230			16
Change in operating right of use assets								1,065			399
Accretion of loan fees and interest		412			1,093			696			412
Change in operating right of use assets		399			370
Gain on sale refranchised restaurants		(165	)		(970	)
Accretion of preferred shares		38			32			47			38
Accretion of purchase price liability		255			263			20			255
Gain on sale of refranchised assets								(1,119	)		(165	)
Change in fair value of derivative liability								-			(1,264	)
Impairment of assets		3,174			-			-			3,174
Fair value of derivative liability		(1,261	)		-
Provision for (recovery of) bad debts		1,069			(91	)
Change in operating assets and liabilities:
Provision for bad debts								23			1,069
Change in:
Accounts receivable		856			(456	)		(1,395	)		856
Trade notes receivable		-			22
Prepaid expenses and other current assets		(102	)		681
Accounts payable and accrued expense		386			2,337
Accrued advertising		(220	)		(352	)
Accrued interest receivable from affiliate		(1,554	)		(623	)		-			(1,554	)
Tax Sharing Agreement liability		(154	)		(46	)		-			(154	)
Other current assets								(783	)		(102	)
Deferred income								388			33
Accounts payable								(395	)		386
Accrued expense								2,014			-
Accrued advertising								(180	)		(220	)
Accrued interest payable		(462	)		(1,185	)		(374	)		(462	)
Deferred income		33			(1,335	)
Dividend payable on preferred shares		889			577			533			889
Other		42			(183	)		21			45
Total adjustments		2,627			234			3,431			2,627
Net cash used in operating activities		(3,994	)		(984	)		(4,932	)		(3,994	)

Cash flows from investing activities
Additions to property and equipment		(52	)		(34	)
Change in due from affiliates								-			(7,040	)
Payments received on loans receivable		68			-			-			68
Proceeds from sale of refranchised restaurants		698			870
Change in due from affiliates		(7,040	)		(4,091	)
Acquisition of Elevation Burger, net of cash acquired		-			(2,332	)
Net cash used in investing activities		(6,326	)		(5,587	)
Net proceeds from sale of refranchised restaurants								1,442			698
Purchases of property and equipment								(1,258	)		(52	)
Other								37			-
Net cash provided by (used in) investing activities								221			(6,326	)

Cash flows from financing activities
Proceeds from borrowings and associated warrants, net of issuance costs		38,803			23,053
Proceeds from borrowings, net of issuance costs								140,789			38,803
Repayments of borrowings		(24,224	)		(16,417	)		(92,613	)		(24,224	)
Issuance of preferred shares, net								8,281			-
Change in operating lease liabilities								(798	)		(296	)
Payments made on acquisition purchase price liability		(500	)		-			(1,075	)		(500	)
Dividends paid in cash		-			(2	)
Change in operating lease liabilities		(296	)		(176	)
Exercise of warrants								1,382			-
Dividends paid in cash on common shares								(3,197	)		-
Dividends paid in cash on preferred shares								(1,249	)		-
Net cash provided by financing activities		13,783			6,458			51,520			13,783

Net increase (decrease) in cash and restricted cash		3,463			(113	)
Cash and restricted cash at beginning of period		25			653
Cash and restricted cash at end of period	$	3,488		$	540
Net increase in cash and restricted cash								46,809			3,463
Cash and restricted cash at beginning of the period								7,211			25
Cash and restricted cash at end of the period							$	54,020		$	3,488

Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,526		$	3,436		$	4,619		$	2,526
Cash paid for income taxes	$	17		$	135		$	400		$	17

Supplemental disclosure of non-cash financing and investing activities:

Issuance of common stock in lieu of cash directors fees payable	$	135		$	180
Income taxes receivable adjusting amounts due from affiliates	$	(154	)	$	(46	)
Director fees converted to common stock							$	-		$	135
Income taxes receivable included in amounts due from affiliates							$	-		$	(154	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Unaudited)~~

NOTE 1. ORGANIZATION AND RELATIONSHIPS

Organization and Nature of Business

FAT Brands Inc. (the ~~“Company”~~“Company or FAT”) ~~was formed on~~is a leading multi-brand restaurant franchising company that develops, markets and acquires primarily quick-service, fast casual and casual dining restaurant concepts around the world. Organized in March ~~21,~~ 2017 as a wholly owned subsidiary of Fog Cutter Capital Group, Inc. (“FCCG”)~~. On October 20, 2017,~~ , the Company completed an initial public offering on October 20, 2017 and issued additional shares of common stock representing 20 percent of its ~~ownership~~ownership. During the fourth quarter of 2020, the Company completed a transaction in which FCCG merged into a wholly owned subsidiary of FAT (the ~~“Offering”~~“Merger”)~~. The Company’s common stock trades on~~ and FAT became the ~~Nasdaq Capital Market under the symbol “FAT.”~~ indirect parent company of FCCG.

As of June ~~28, 2020, FCCG continues to control a significant voting majority of the Company.~~

~~The Company is a multi-brand franchisor specializing in fast casual and casual dining restaurant concepts around the world. As of June 28, 2020,~~ 27, 2021, the Company owns and franchises ~~eight~~9 restaurant ~~brands:~~brands through various wholly owned subsidiaries: Fatburger, Johnny Rockets, Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Ponderosa Steakhouses, Bonanza Steakhouses, Yalla Mediterranean and Elevation Burger. Combined, ~~as of June 28, 2020,~~ these brands ~~franchise over 375~~have approximately 700 locations, including units ~~worldwide~~under construction, and ~~have~~ more than 200 ~~additional units~~ under development.

~~The Company~~Each franchising subsidiary licenses the right to use its brand ~~names~~name and provides franchisees with operating procedures and methods of merchandising. Upon signing a franchise agreement, the franchisor is committed to provide training, some supervision and assistance and access to operations manuals. As needed, the franchisor will also provide advice and written materials concerning techniques of managing and operating the restaurants.

~~COVID-19~~With minor exceptions, the Company’s operations are comprised exclusively of franchising a growing portfolio of restaurant brands. This growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and corporate accounting services. As part of its ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations. During the refranchising period, the Company will generally operate the restaurants and classifies the operational activities as refranchising gains or losses and the assets and associated liabilities as held-for sale.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and other countries. As a result, Company franchisees ~~have~~ temporarily closed some retail locations, modified store operating hours, adopted a “to-go” only operating model or a combination of these actions. These actions ~~have~~ reduced consumer traffic, all resulting in a negative impact to franchisee and Company ~~revenues.~~revenue. While the disruption to our business from the COVID-19 pandemic is currently expected to be temporary, there is still a great deal of uncertainty around the severity and duration of the disruption. We may experience longer-term effects on our business and economic growth and changes in consumer demand in the U.S. and worldwide. The effects of COVID-19 may materially adversely affect our business, results of operations, liquidity and ability to service our existing debt, particularly if these effects continue in place for a significant amount of time.

Liquidity

The Company recognized income from operations of $2.1 million during the twenty-six weeks ended June 27, 2021 compared to a loss from operations of ~~$6,368,000~~$6.4 million for the twenty-six weeks ended June 28, 2020. The Company recognized a net loss of $8.4 million during the twenty-six weeks ended June 27, 2021 compared to a net loss of $6.6million during the twenty-six weeks ended June 28, ~~2020 and income from~~2020. A one-time net charge of $6.4million relating to the refinance of the Company’s debt was included in the net loss for 2021. Net cash used in operations ~~of $2,889,000~~totaled $4.9 million for the twenty-six weeks ended June ~~30, 2019, respectively. The Company recognized net losses of $6,621,000 and $1,218,000 during the~~27, 2021 compared to $4.0 million for twenty-six weeks ended June 28, 2020. As of June 27, 2021, the Company’s total liabilities exceeded total assets by $45.2 million compared to $41.9 million as of December 27, 2020.

In the Company’s 2020 Annual Report on Form 10-K (“2020 Form 10-K”), the Company disclosed that the combination of the operating performance during the twelve months ended December 27, 2020 and ~~June 30, 2019, respectively. The reduction in earnings is primarily due~~the Company’s financial position as of December 27, 2020 raised substantial doubt about the Company’s ability to ~~reductions in revenues and impairment~~continue as a going concern as assessed under the framework of ~~assets due to~~FASB’s Accounting Standard Codification (“ASC”) 205 for the ~~effects~~twelve months following the date of ~~COVID-19, coupled with higher general and administrative costs.~~

On March 6, 2020, the Company completed a whole-business securitization (the “Securitization”) through the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”) in which FAT Royalty issued new notes (the “Securitization Notes”) pursuant to an indenture and the supplement thereto (collectively, the “Indenture”). Net proceeds from the issuance of the ~~Securitization Notes were $37,314,000, which consisted~~2020 Form 10-K.

On April 26, 2021, the Company completed the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured notes. Proceeds of the ~~combined face amount of $40,000,000, net of discounts of $246,000 and debt offering costs of $2,440,000 (See Note 10). A portion of the proceeds from the Securitization was~~Offering were used to repay ~~the remaining $26,771,000~~ in ~~outstanding balance under the Loan and Security Agreement and to pay the~~full its 2020 Securitization ~~debt offering costs. The remaining proceeds from the Securitization are being used for working capital.~~

During the second quarter of 2020, the Company received loan proceeds in the amount of $1,532,000 from the Paycheck Protection Program administered by the Small Business Administration (“PPP”) in response to economic difficulties resulting from the outbreak of COVID-19. These loan proceeds relate to FAT Brands Inc.Notes as well as ~~five restaurant locations that are part of the Company’s refranchising program.~~

~~Subsequent~~fees and expenses related to the ~~end of the second quarter, on July 13, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) to issue and sell~~Offering, resulting in a public offering (the “Offering”) 360,000 shares of 8.25% Series B Cumulative Preferred Stock (“Series B Preferred Stock”) and 1,800,000 warrants (the “2020 Series B Warrants”) to purchase common stock at $5.00 per share. The Company also granted the underwriters an option to purchase, for a period of 45 calendar days, up to an additional 54,000 shares Series B Preferred Stock and 270,000 of the 2020 Series B Warrants. In the Underwriting Agreement, the Company agreed to pay the underwriters an underwriting discount of 8.0% of the gross proceeds received by the Company in the Offering and issue five-year warrants exercisable for 1% of the securities sold in the Offering.

~~The Offering closed on July 16, 2020 with~~ net proceeds to the Company of ~~$8,211,000, which was~~approximately $57 million (see Note 11).

The Company utilized a portion of the net proceeds from the Offering to repay approximately $12.5 million of ~~$790,000~~indebtedness assumed as a result of the Merger (see Note 11).

The change in ~~underwriting and offering costs.~~

~~While~~the Company’s financial position reflects operating improvements as the effects of COVID-19 began to stabilize. In addition to the liquidity provided by the successful completion of the Offering, the Company ~~expects~~has experienced improvement in its operating performance subsequent to December 27, 2020 as COVID-19 vaccinations have become more prevalent in the ~~COVID-19 pandemic to negatively impact~~United States and federal, state and local restrictions have eased in many of the markets where its ~~business, results of operations, and financial position, the related financial impact cannot be reasonably estimated at this time. However, the Company~~franchisees operate. Management believes that the working capital from the Securitization, Series B Preferred Stock Offering, and PPP proceeds, combined with royalties and franchise fees collected from the limited operations of its franchisees, and disciplined management of the Company’ operating expensesCompany will be in compliance with its debt covenants and has sufficient sources of cash to meet its liquidity needs for the next twelve ~~months of operations following the issuance of this Form 10-Q.~~months.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of ~~Presentation~~presentation – The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The operations of Johnny Rockets have been included since its acquisition on September 21, 2020 and the operations of FCCG have been included since the merger on December 24, 2020. All intercompany accounts and transactions have been eliminated in consolidation. The Company operates its business as one operating and reportable segment.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of the Company, all adjustments considered necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature.

~~Nature of operations~~Fiscal year – The Company operates on a 52-week calendar and its fiscal year ends on the last Sunday of the calendar year. Consistent with ~~the~~ industry practice, the Company measures its stores’ performance based upon 7-day work weeks. Using the 52-week cycle ensures consistent weekly reporting for operations and ensures that each week has the same days since certain days are more profitable than others. The use of this fiscal year means a 53^rd week is added to the fiscal year every 5 or 6 years. In a 52-week year, all four quarters are comprised of 13 weeks. In a 53-week year, one extra week is added to the fourth quarter. ~~Both fiscal 2020 and 2019 are 52-week years.~~

~~Principles of consolidation~~ – The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. The operations of Elevation Burger have been included since its acquisition on June 19, 2019. Intercompany accounts have been eliminated in consolidation.

Use of estimates in the preparation of the condensed consolidated financial statements – The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the determination of fair values of certain financial instruments for which there is no active market, the allocation of basis between assets acquired, sold or retained, and valuation allowances for notes receivable and accounts receivable. Estimates and assumptions also affect the reported amounts of revenuesrevenue and expenses during the reporting period. Actual results could differ from those estimates.

Financial statement reclassification– Certain account balances from prior periods have been reclassified in these condensed consolidated financial statements to conform to current period ~~classifications.~~classifications including measurement period adjustments to the preliminary purchase price allocations relating to the acquisition of Johnny Rockets and the Merger in accordance with ASU 2015-16. During the first half of 2021, adjustments were made to provisional amounts reclassifying $1.5 million between goodwill and additional paid in capital on the condensed consolidated balance sheet. These adjustments did not impact the Company’s condensed consolidated statement of operations during the current or prior periods.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments, and ~~Depository Risks~~ ~~– Financial instruments~~later amended the ASU in 2019, as described below. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that ~~potentially subject the Company to concentrations~~reflects its current estimate of credit risk consist principally of cash and accounts receivable. Management reviews each of its customer’s financial conditions prior to entry into a franchise or other agreement and believes that it has adequately provided for any exposure to potential credit losses. As of June 28, 2020, accounts receivable, net of allowance for doubtful accounts, totaled $2,469,000, with no customer representing more than 10% of that amount. As of December 29, 2019, the Company had two customers each representing 20% of accounts receivable, net of allowance for doubtful accounts.

The Company maintains cash deposits in national financial institutions. From time to time the balances for these accounts exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insured amount. Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per account. As of June 28, 2020, the Company had uninsured deposits in the amount of $1,859,000. As of December 29, 2019, the Company had no accounts with uninsured balances.

~~Restricted Cash –~~ The Company has restricted cash consisting of funds required to be held in trust in connection with the Company’s Securitization. The current portion of restricted cash at June 28, 2020 consisted of $1,347,000. Non-current restricted cash of $400,000 at June 28, 2020 represents interest reserves required to be set aside for the duration of the securitized debt. There were no restricted cash balances as of December 29, 2019.

~~Accounts receivable~~ – Accounts receivable are recorded at the invoiced amount and are stated net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is based on historical collection data and current franchisee information. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 28, 2020 and December 29, 2019, accounts receivable were stated net of an allowance for doubtful accounts of $470,000 and $595,000, respectively.

~~Trade notes receivable –~~ Trade notes receivable are created when an agreement is reached to settle a delinquent franchisee receivable account and the entire balance is not immediately paid. Generally, trade notes receivable include personal guarantees from the franchisee. The notes are made for the shortest time frame negotiable and will generally carry an interest rate of 6% to 7.5%. Reserve amounts on the notes are established based on the likelihood of collection.

~~Assets classified as held for sale –~~ Assets are classified as held for sale when the Company commits to a plan to sell the asset, the asset is available for immediate sale in its present condition and an active program to locate a buyer at a reasonable price has been initiated. The sale of these assets is generally expected to be completed within one year. The combined assets are valued at the lower of their carrying amount or fair value, net of costs to sell and included as current assets on the Company’s consolidated balance sheet. Assets classified as held for sale are not depreciated. However, interest attributable to the liabilities associated with assets classified as held for sale and other related expenses are recorded as expenses in the Company’s consolidated statement of operations.

~~Goodwill and other intangible assets~~ – Intangible assets are stated at the estimated fair value at the date of acquisition and include goodwill, trademarks, and franchise agreements. Goodwill and other intangible assets with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually or more frequently if indicators arise. All other intangible assets are amortized over their estimated weighted average useful lives, which range from nine to twenty-five years. Management assesses potential impairments to intangible assets at least annually, or when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Judgments regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of the acquired businesses, market conditions and other factors.

~~Fair Value Measurements -~~ The Company determines the fair market values of its financial assets and liabilities, as well as non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis, based on the fair value hierarchy established in U.S. GAAP. As necessary, the Company measures its financial assets and liabilities using inputs from the following three levels of the fair value hierarchy:

●	~~Level 1 inputs are quoted prices in active markets for identical assets or liabilities.~~
●	~~Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities.~~
●	~~Level 3 inputs are unobservable and reflect the Company’s own assumptions.~~

~~Other than the derivative liability,~~ the Company does not have a material amount of financial assets or liabilities that are required to be measured at fair value on a recurring basis under U.S. GAAP (See Note 11). None of the Company’s non-financial assets or non-financial liabilities are required to be measured at fair value on a recurring basis. Assets recognized or disclosed at fair value in the consolidated financial statements on a nonrecurring basis include items such as property and equipment, operating lease assets, goodwill and other intangible assets, which are measured at fair value if determined to be impaired.

The Company has not elected to use fair value measurement for any assets or liabilities for which fair value measurement is not presently required. However, the Company believes the fair values of cash equivalents, restricted cash, accounts receivable, assets held for sale and accounts payable approximate their carrying amounts due to their short duration.

~~Income taxes~~ – Effective October 20, 2017, the Company entered into a Tax Sharing Agreement with FCCG that provides that FCCG will, to the extent permitted by applicable law, file consolidated federal, California and Oregon (and possibly other jurisdictions where revenue is generated, at FCCG’s election) income tax returns with the Company and its subsidiaries. The Company will pay FCCG the amount that its tax liability would have been had it filed a separate return. As such, the Company accounts for income taxes as if it filed separately from FCCG.

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

A two-step approach is utilized to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon the ultimate settlement.

~~Franchise Fees:~~ The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The services provided by the Company are highly interrelated with the franchise license and are considered a single performance obligation. Franchise fee revenue from the sale of individual franchises is recognized over the term of the individual franchise agreement. Unamortized non-refundable deposits collected in relation to the sale of franchises are recorded as deferred franchise fees.

The franchise fee may be adjusted at management’s discretion or in a situation involving store transfers. Deposits are non-refundable upon acceptance of the franchise application. In the event a franchisee does not comply with their development timeline for opening franchise stores, the franchise rights may be terminated, and franchise fee revenue is recognized for non-refundable deposits.

~~Store opening fees~~ – Prior to September 29, 2019, the Company recognized store opening fees in the amount of $35,000 to $60,000 from the up-front fees collected from franchisees upon store opening. The amount of the fee was dependent on brand and location (domestic versus international stores). The remaining balance of the up-front fees were then amortized as franchise feesincurred over the life of the ~~franchise agreement. If the fees collected were less than the respective store opening fee amounts, the full up-front fees were recognized at store opening. The store opening fees were~~financial instrument based on ~~out-of-pocket costs~~historical experience, current conditions and reasonable and supportable forecasts.

In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of this amendment is to create a two-tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to implement major FASB standards, including ASU 2016-13. Larger public companies will have an effective date for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until the earlier of fiscal periods beginning after December 15, 2022. Under the current SEC definitions, the Company meets the definition of an SRC and is adopting the deferral period for ASU 2016-13. The guidance requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company does not expect the adoption of this standard will have a material impact on its condensed consolidated financial statements.

NOTE 3. MERGERS AND ACQUISITIONS

Merger with Fog Cutter Capital Group Inc.

On December 10, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with FCCG, Fog Cutter Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), and Fog Cutter Holdings, LLC, a Delaware limited liability company (“Holdings”).

Pursuant to the Merger Agreement, FCCG agreed to merge with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of the Company ~~for each store opening and are primarily comprised~~(the “Merger”). Upon closing of ~~labor expenses associated with training, store design, and supply chain setup. International fees recognized were higher due~~the Merger, the former stockholders of FCCG became direct stockholders of the Company holding, in the aggregate, 9,679,288 shares of the Company’s common stock (the same number of shares of common stock held by FCCG immediately prior to the ~~additional cost of travel.~~

~~During~~Merger) and received certain limited registration rights with respect to the fourth quarter of 2019, the Company performed a study of other public company restaurant franchisors’ application of ASC 606 and determined that a preferred, alternative industry application exists in which the store opening fee portion of the franchise fees is amortized over the life of the franchise agreement rather than at milestones of standalone performance obligationsshares received in the franchise agreements. In order to provide financial reporting consistent with other franchise industry peers, the Company applied this preferred, alternative application of ASC 606 during the fourth quarter of 2019 on a prospective basis.Merger. As a result of the ~~adoption~~Merger, FCCG and certain of ~~this preferred accounting treatment~~its wholly owned subsidiaries, Homestyle Dining, LLC, Fog Cap Development LLC, Fog Cap Acceptance Inc. and BC Canyon LLC, became indirect wholly owned subsidiaries of the Company (the “Merged Entities”).

Under the Merger Agreement, Holdings has agreed to indemnify the Company for breaches of FCCG’s representations and warranties, covenants and certain other matters specified in the Merger Agreement, subject to certain exceptions and qualifications. Holdings has also agreed to hold a minimum fair market value of shares of Common Stock of the Company to ensure that it has assets available to satisfy such indemnification obligations if necessary.

In connection with the Merger, the Company declared a special stock dividend (the “Special Dividend”) payable on the record date to holders of our Common Stock, other than FCCG, consisting of 0.2319998077 shares of the Company’s 8.25% Series B Cumulative Preferred Stock (liquidation preference $25.00 per share) (the “Series B Preferred Stock”) for each outstanding share of Common Stock held by such stockholders, with the value of any fractional shares of Series B Preferred Stock being paid in cash. FCCG did not receive any portion of the Special Dividend, which had a record date of December 21, 2020 and payment date of December 23, 2020. The Special Dividend was expressly conditioned upon the satisfaction or valid waiver of the conditions to closing of the Merger set forth in the Merger Agreement. The Special Dividend was intended to reflect consideration for the potential financial impact of the Merger on the common stockholders other than FCCG, including the assumption of certain debts and obligations of FCCG by the Company by virtue of the Merger.

The Company undertook the Merger primarily to simplify its corporate structure and eliminate limitations that restrict the Company’s ability to issue additional Common Stock for acquisitions and capital raising. FCCG holds a substantial amount of net operating loss carryforwards (“NOLs”), which could only be made available to the Company as long as FCCG owned at least 80% of FAT Brands. With the Merger, the NOLs will be held directly by the Company, which will then have greater flexibility in managing its capital structure. In addition, after the Merger the Company will no longer be required to compensate FCCG for utilizing its NOLs under the Tax Sharing Agreement previously in effect between the Company and FCCG.

The Merger is treated under ASC ~~606,~~805-50-30-6, which provides that when there is a transfer of assets or exchange of shares between entities under common control, the ~~Company discontinued~~receiving entity shall recognize those assets and liabilities at their net carrying amounts at the ~~recognition~~date of ~~store opening fees upon store opening~~transfer. As such, on the date of the Merger, all of the transferred assets and ~~began accounting for~~assumed liabilities of the ~~entire up-front deposit received from franchisees as described above in~~ ~~Franchise Fees.~~ ~~A cumulative adjustment to store opening fees and franchise fees was recorded in the fourth quarter of 2019 for store opening fees recognized during the first three quarters of 2019. (See “~~~~Immaterial Adjustments Related to Prior Periods”,~~ ~~below.)~~

~~Royalties –~~ In addition to franchise fee revenue, the Company collects a royalty calculated as a percentage of net sales from our franchisees. Royalties range from 0.75% to 6% and are recognized as revenue when the related sales are made by the franchisees. Royalties collected in advance of sales are classified as deferred income until earned.

~~Advertising –~~ The Company requires advertising payments from franchisees based on a percent of net sales. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Advertising funds collected are required to be spent for specific advertising purposes. Advertising revenue and associated expense isMerged Entities were recorded on the Company’s ~~consolidated statement~~books at the Merged Entities’ book value. The consolidation of ~~operations. Assets and liabilities associated~~the operations of the Merged Entities with the ~~related advertising fees are reflected in the Company’s consolidated balance sheet.~~

~~Share-based compensation~~ ~~– The~~ Company has a stock option plan which provides for options to purchase shares of the Company’s common stock. Options issued under the plan may have a variety of terms as determined by the Board of Directors including the option term, the exercise price and the vesting period. Options granted to employees and directors are valued at the date of grant and recognized as an expense over the vesting period in which the options are earned. Cancellations or forfeitures are accounted for as they occur. Stock options issued to non-employees as compensation for services are accounted for based upon the estimated fair value of the stock option. The Company recognizes this expense over the period in which the services are provided. Management utilizes the Black-Scholes option-pricing model to determine the fair value of the stock options issued by the Company. See Note 14 for more details on the Company’s share-based compensation.

~~Earnings per share~~ ~~– The Company reports basic earnings or loss per share in accordance with FASB ASC 260, “Earnings Per Share”. Basic earnings per share~~ is computed using the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed using the weighted average number of common shares outstanding plus the effect of dilutive securities during the reporting period. Any potentially dilutive securities that have an anti-dilutive impact on the per share calculation are excluded. During periods in which the Company reports a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all potentially dilutive securities would be anti-dilutive. As of June 28, 2020 and June 30, 2019, there were no potentially dilutive securities excluded from the calculation of diluted loss per common share due to a loss for the period.

The Company declared a stock dividend on February 7, 2019 and issued 245,376 shares of common stock in satisfaction of the stock dividend (See Note 16). Unless otherwise noted, earnings per share and other share-based information for 2020 and 2019 have been adjusted retrospectively to reflect the impact of the stock dividend.

~~Immaterial Adjustments Related to Prior Periods~~

During the fourth quarter of 2019, the Company identified two immaterial potential adjustments to its previously issued financial statements. These potential adjustments are (1) its assessment of the Series A-1 Fixed Rate Cumulative Preferred Stock and (2) its treatment of the store opening component of its franchise fees under ASC 606. Based on its assessment of the Series A-1 Fixed Rate Cumulative Preferred Stock, the Company determined that an error occurred in the analysis of the rights that the holders of the Series A-1 Fixed Rate Cumulative Preferred Stock have with respect to the conversion of the securities into shares of the Company’s common stock. In our reassessment, the conversion rights did not represent a beneficial conversion feature as we had initially concluded at the time of issuance. A cumulative correction was recorded to additional paid in capital during the first quarter of 2020 in the amount of $90,000.

The Company originally adopted ASC 606 on January 1, 2018. During the fourth quarter of 2019, the Company performed a study of other public company restaurant franchisors’ application of ASC 606 and determined that a preferred, alternative industry application exists in which the store opening fee portion of the franchise fees is amortized over the life of the franchise agreement rather than at milestones of standalone performance obligations in the franchise agreements. In order to provide financial reporting consistent with other franchise industry peers, the Company applied this preferred, alternative application of ASC 606 during the fourth quarter of 2019presented on a prospective basis ~~effective December 31, 2018.~~from the date of transfer.

~~In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, codified~~The Merger resulted in ~~ASC 250 (“ASC 250”), Presentation of Financial Statements,~~the following assets and ~~SAB 108, Considering~~liabilities being included in the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Consolidated Statements of Income, Balance Sheets, Shareholders Equity and Cash Flows, also codified in ASC 250, management assessed the materiality of (1) the error in its treatmentcondensed consolidated financial statements of the ~~beneficial conversion feature related to the Series A-1 Fixed Rate Cumulative Preferred Stock and (2) the adoption~~Company as of the ~~preferential accounting treatment under ASC 606. Based on such analysis~~Merger date (in thousands):

SCHEDULE OF ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS ACQUIRED

		Dec 10, 2020
Prepaid assets	$	33
Cash
Accounts receivable
Assets held for sale
Goodwill
Other intangible assets
Deferred tax assets		20,402
Other assets		100
Accounts payable		(926	)
Accrued expense		(7,094	)
Current portion of debt		(12,486	)
Litigation reserve		(3,980	)
Due to affiliates		(43,653	)
Deferred franchise fees
Operating lease liability
Other liabilities
Total net identifiable liabilities (net deficit)	$	(47,604	)

Proforma Information

The table below presents the proforma revenue and net loss of ~~quantitative and qualitative factors,~~ the Company ~~has determined that neither~~for the ~~error nor~~thirteen and twenty-six weeks ended June 28, 2020, assuming the adoption of the preferential accounting treatment under ASC 606, in aggregate or individually, were material to any of the reporting periods affected, and no amendments to previously filed 10-Q or 10-K reports with the SEC are required.

~~Recently Adopted Accounting Standards~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.~~” This ASU adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The Company adopted this ASUMerger had occurred on December 30, ~~2019. The adoption~~2019 (the beginning of ~~this standard did not have a material effect on~~ the Company’s ~~financial position,~~2020 fiscal year), pursuant to ASC 805-10-50 (in thousands). This proforma information does not purport to represent what the actual results of operations ~~or cash flows.~~

~~The FASB issued ASU No. 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40).~~ ~~The new guidance reduces complexity for~~of the ~~accounting for costs of implementing a cloud computing service arrangement and aligns~~Company would have been had the ~~requirements for capitalizing implementation costs incurred in a hosting arrangement~~Merger occurred on that ~~is a service contract with~~date, nor does it purport to predict the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations ~~or cash flows.~~for future periods.

SCHEDULE OF PROFORMA REVENUE AND NET (LOSS) INCOME

	Thirteen Weeks Ended June 28, 2020			Twenty-six Weeks Ended June 28, 2020

Revenue	$	3,107		$	7,530
Net loss	$	(5,673	)	$	(10,285	)

The ~~FASB issued ASU 2019-12,~~ ~~Simplifying~~proforma information above reflects the ~~Accounting for Income Taxes:~~ This standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance in certain areas, including the recognitioncombination of franchise taxes, recognition of deferred taxes for tax goodwill, allocation of taxes to members of a consolidated group, computation of annual effective tax rates related to enacted changes in tax laws, and minor improvements related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s ~~financial position,~~results as disclosed in the accompanying condensed consolidated statements of operations for the thirteen and twenty-six weeks ended June 28, 2020, together with the results of ~~operations or cash flows.~~the Merged Entities for the thirteen and twenty-six weeks ended June 28, 2020, with the following adjustment:

●

FCCG historically made loan advances to Andrew A. Wiederhorn, its CEO and significant stockholder (the “Stockholder Loan”). Prior to the Merger, the Stockholder Loan was cancelled, and the balance recorded as a loss by FCCG on forgiveness of loan to stockholder. Had the Merger been completed as of the assumed proforma date of December 30, 2019 (the beginning of the Company’s 2020 fiscal year), the Stockholder Loan would have been cancelled prior to that date and there would have been no further advances made. As a result, the proforma information above eliminates the loss by FCCG on forgiveness of loan to stockholder and the related interest income recorded by FCCG in its historical financial statements.

~~NOTE 3. ACQUISITIONS AND SIGNIFICANT TRANSACTIONS~~

Acquisition of ~~Elevation Burger~~Johnny Rockets

On ~~June 19, 2019,~~September 21, 2020, the Company completed the acquisition of ~~EB Franchises, LLC,~~Johnny Rockets Holding Co., a ~~Virginia limited liability company, and its related companies (collectively, “Elevation Burger”~~Delaware corporation (“Johnny Rockets”) for a cash purchase price of ~~up to $10,050,000. Elevation Burger is the franchisor of Elevation Burger restaurants,~~approximately $24.7 million. The transaction was funded with ~~44 locations~~proceeds from an increase in the ~~U.S. and internationally.~~Company’s securitization facility (See Note 11).

~~The purchase price consists of $50,000 in cash, a contingent warrant to purchase 46,875 shares of~~Immediately following the Company’s common stock at an exercise price of $8.00 per share (the “Elevation Warrant”), and the issuance to the Seller of a convertible subordinated promissory note (the “Elevation Note”) with a principal amount of $7,509,816, bearing interest at 6.0% per year and maturing in July 2026. The Elevation Warrant is only exercisable in the event that the Company merges with FCCG. The Seller Note is convertible under certain circumstances into shares of the Company’s common stock at $12.00 per share. In connection with the purchase, the Company also loaned $2,300,000 in cash to the Seller under a subordinated promissory note (the “Elevation Buyer Note”) bearing interest at 6.0% per year and maturing in August 2026. The balance owing to the Company under the Elevation Buyer Note may be used by the Company to offset amounts owing to the Seller under the Elevation Note under certain circumstances. In addition, the Seller will be entitled to receive earn-out payments of up to $2,500,000 if Elevation Burger realizes royalty fee revenue in excess of certain amounts. As of the dateclosing of the acquisition ~~the fair market value~~ of this contingent consideration totaled $531,000. As of June 28, 2020, and December 29, 2019, the contingent purchase price payable totaled $680,000 and $633,000, respectively, which includes the accretion of interest expense at an effective interest rate of 18%.

~~The purchase documents contain customary representations and warranties of the Seller and provides that the Seller will, subject to certain limitations, indemnify~~Johnny Rockets, the Company ~~against claims and losses incurred or suffered by~~contributed the ~~Company as~~franchising subsidiaries of Johnny Rockets to FAT Royalty I, LLC pursuant to a ~~result of, among other things, any inaccuracy of any representation or warranty of the Seller contained in the purchase documents.~~Contribution Agreement. (See Note 11).

The preliminary assessment of the fair value of the net assets and liabilities acquired by the Company ~~for~~through the acquisition of ~~Elevation Burger~~Johnny Rockets was estimated at ~~$7,193,000.~~$24.7 million. This preliminary assessment of fair value of the net assets and liabilities as well as the final purchase price were estimated at closing and are subject to change. Under Sections 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”, as defined, there are annual limitations on the amount of the NOLs and certain other deductions and credits which are available to the Company (the “Section 382 and 383 Limitations”). The portion of the NOLs and other tax benefits accumulated by Johnny Rockets prior to the Acquisition are subject to these Section 382 and 382 Limitations. Analysis of these Section 382 and 383 Limitations are ongoing. The preliminary allocation of the consideration to the preliminary valuation of net tangible and intangible assets acquired is presented in the table below (in thousands):

Cash $ 10
Goodwill 521
Other intangible assets 7,140
Other assets 558
Current liabilities (91 )
Deferred franchise fees (758 )
Other liabilities (187 )
Total net identifiable assets $ 7,193

SCHEDULE OF ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS ACQUIRED

Cash	$	812
Accounts receivable		1,452
Assets held for sale		10,765
Goodwill		258
Other intangible assets		26,900
Deferred tax assets		4,039
Other assets		438
Accounts payable		(1,113	)
Accrued expenses		(3,740	)
Deferred franchise fees		(4,988	)
Operating lease liability		(10,028	)
Other liabilities		(65	)
Total net identifiable assets	$	24,730

The values of goodwill and other intangible assets were initially considered as of the acquisition date. Descriptions of the Company’s ~~assessment~~subsequent assessments of impairment of the goodwill and other intangible assets acquired in this acquisition related to COVID-19 are ~~located~~ in Note 6.

Proforma Information

The table below presents the proforma revenue and net (loss) income of the Company for the thirteen and twenty-six weeks ended June 28, 2020, assuming the acquisition of Johnny Rockets had occurred on December 30, 2019 (the beginning of the Company’s 2020 fiscal year), pursuant to ASC 805-10-50 (in thousands). This proforma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition of Johnny Rockets occurred on this date nor does it purport to predict the results of operations for future periods.

SCHEDULE OF PROFORMA REVENUE AND NET (LOSS) INCOME

	Thirteen Weeks Ended June 28, 2020			Twenty-six Weeks Ended June 28, 2020

Revenue	$	3,923		$	11,597
Net loss	$	(5,158	)	$	(7,515	)

The proforma information above reflects the combination of the Company’s unaudited results as disclosed in the accompanying condensed consolidated statements of operations for the thirteen and twenty-six weeks ended June 28, 2020, together with the unaudited results of Johnny Rockets for the thirteen and twenty-six weeks ended June 28, 2020, with the following adjustments:

	●	Revenue – The unaudited proforma revenue and net (loss) income present franchise fee revenue and advertising revenue in accordance with ASC 606 in a manner consistent with the Company’s application thereof. As a non-public company, Johnny Rockets had not yet been required to adopt ASC 606.
	●	Overhead allocations from the former parent company have been adjusted to the estimated amount the Company would have allocated for the thirteen and twenty-six weeks ended June 28, 2020.
	●	Former parent company management fees have been eliminated from the proforma.
	●	Amortization of intangible assets has been adjusted to reflect the preliminary fair value at the assumed acquisition date.
	●	Depreciation on assets treated as held for sale by the Company has been eliminated.
	●	The proforma adjustments include advertising expenses in accordance with ASC 606.
	●	The proforma interest expense has been adjusted to exclude actual Johnny Rockets interest expense incurred prior to the acquisition. All interest-bearing liabilities were paid off at closing.
	●	The proforma interest expense has been adjusted to include proforma interest expense that would have been incurred relating to the acquisition financing obtained by the Company.
	●	Non-recurring gains and losses have been eliminated from the proforma statements.

nOTE 4. REFRANCHISING

As part of its ongoing franchising efforts, the Company may, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations or acquire existing franchise locations to resell to another franchisee across all of its brands.

~~Certain assets designated by the~~The Company ~~for refranchising meet~~meets all of the criteria requiring that ~~they~~acquired assets used in the operation of certain restaurants be classified as held for sale. As a result, the following assets have been classified as held for sale on the accompanying condensed consolidated balance ~~sheet~~sheets as of June ~~28,~~27, 2021 and December 27, 2020 (in thousands):

SCHEDULE OF REMAINING ASSETS CLASSIFIED AS HELD FOR SALE

	June 28, 2020		June 27, 2021		December 27, 2020

Property, plant and equipment	$	1,213	$	1,025	$	1,352
Operating lease right of use assets		2,171		6,710		9,479
Total	$	3,384	$	7,735	$	10,831

Operating lease liabilities related to the assets classified as held for sale in the amount of ~~$2,298,000,~~$7.1 million and $9.9 million have been classified as current liabilities on the accompanying condensed consolidated balance ~~sheet~~sheets as of June ~~28, 2020.~~27, 2021 and December 27, 2020, respectively.

Refranchising gains in the first half of 2021 were comprised of $1.1 million in net gains related to refranchised restaurants, partially offset by $0.7 million of restaurant operating costs, net of food sales. Refranchising losses in the first half of 2020 were comprised of $1.7 million of restaurant operating costs, net of food sales, less $0.2 million in net gains related to refranchised restaurants.

During the thirteen and twenty-six weeks ended June 28, 2020, refranchising operations incurred losses of $1,006,000 and $1,544,000, respectively, compared to a gain of $467,000 and a loss of $51,000, respectively, for the corresponding periods in 2019. The refranchising results for the twenty-six weeks ended June 28, 2020 include a gain of $165,000 relating to the sale and refranchising of two restaurant locations, compared toRefranchising gains ~~of $970,000 from the sale and refranchising of two restaurant locations~~ in the ~~2019 period.~~

~~During the fiscal year ended December 29, 2019, a franchisee had entered into an agreement with the Company~~second quarter of 2021 were comprised of $1.1 million in net gains related to refranchised restaurants, partially offset by which it agreed to sell two existing franchised locations to the Company for its refranchising program. Additionally, during the fiscal year, the Company had completed transactions to sell the two locations to new owners. During$0.2 million of restaurant operating costs, net of food sales. Refranchising losses in the second quarter of 2020 aswere comprised of restaurant operating costs, net of food sales.

During the thirteen weeks ended June 27, 2021, one restaurant location was sold to an entity which is 49% owned by a subsidiary of the Company. The 51% owner of the entity is not affiliated with the Company. In addition to its significant equity interest in the restaurant, the Company provides virtually all of the management functions associated with the operation of the business. As a result, the assets, liabilities and operating results of ~~COVID-19,~~ the ~~locations acquired from~~restaurant are included in the ~~existing franchisee became unavailable. The Company is determining alternative operating restaurants that can be used as a replacement for~~Company’s condensed consolidated financial statements, subject to the ~~new owners.~~noncontrolling interests of the non-affiliated investor.

Note 5. ~~NOTES~~NOTE RECEIVABLE

~~Notes receivable consist of trade notes receivable and the Elevation Buyer Note.~~

Trade notes receivable are created when a settlement is reached relating to a delinquent franchisee account and the entire balance is not immediately paid. Trade notes receivable generally include personal guarantees from the franchisee. The notes are made for the shortest time frame negotiable and will generally carry an interest rate of 6% to 7.5%. Reserve amounts, on the notes, are established based on the likelihood of collection. As of June 28, 2020, the trade notes had been fully reserved. At December 29, 2019, these trade notes receivable totaled $250,000, net of reserves of $123,000.

The Elevation Buyer Note was funded in connection with the purchase of Elevation Burger ~~(See Note 3).~~in 2019. The Company loaned ~~$2,300,000~~$2.3 million in cash to the Seller under a subordinated promissory note bearing interest at ~~6.0%~~6.0% per year and maturing in August 2026. This Note is subordinated in right of payment to all indebtedness of the Seller arising under any agreement or instrument to which the Seller or any of its affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment to the Elevation Buyer Note, whether existing on the effective date of the Elevation Buyer Note or arising thereafter.2026. The balance owing to the Company under the Elevation Buyer Note may be used by the Company to offset amounts owing to the Seller under the Elevation Note under certain ~~circumstances.~~circumstances (See Note 11). As part of the total consideration for the Elevation acquisition, the Elevation Buyer Note was recorded at a carrying value of ~~$1,903,000,~~$1.9 million, which was net of a discount of ~~$397,000.~~$0.4 million. As of June ~~28, 2020,~~27, 2021 and December ~~29, 2019,~~27, 2020, the balance of the Elevation Note was ~~$1,788,000 and $1,814,000, respectively,~~$1.8 million, which ~~were~~was net of discounts of ~~$308,000~~$0.2 million and ~~$352,000,~~$0.3 million, respectively. During the thirteen and twenty-six weeks ended June 27, 2021, the Company recognized $50,000 and $102,000 in interest income on the Elevation Buyer Note, respectively. During the thirteen and twenty-six weeks ended June 28, 2020, the Company recognized ~~$53,000~~ $53,000 and ~~$106,000,~~$106,000, respectively, in interest ~~income. During~~income on the ~~thirteen and twenty-six weeks ended June 30, 2019, the Company recognized $4,200 in interest income.~~Elevation Buyer Note.

Note 6. GOODWILL ~~and other intangible assets~~

~~Goodwill~~

Goodwill ~~consists~~consisted of the following (in thousands):

SCHEDULE OF GOODWILL

	June 28, 2020		December 29, 2019		June 27, 2021		December 27, 2020
Goodwill:
Fatburger	$	529	$	529	$	529	$	529
Buffalo’s		5,365		5,365		5,365		5,365
Hurricane		2,772		2,772		2,772		2,772
Ponderosa and Bonanza		-		1,462
Yalla		263		263		261		261
Elevation Burger		521		521		521		521
Johnny Rockets						258		1,461
Total goodwill	$	9,450	$	10,912	$	9,706	$	10,909

A review of the carrying value of goodwill as of June 27, 2021 did not result in any impairment charges for the twenty-six weeks ended as of that date. When considering the available facts, assessments and judgments, as of June 28, 2020, the Company recorded goodwill impairment charges of $1.5 million relating to the Ponderosa and Bonanza brands for the twenty-six weeks ended as of that date.

Because of the risks and uncertainties related to the COVID-19 pandemic events, the negative effects on the operations of the Company’s franchisees could prove to be worse than currently estimated and result in the need to record additional goodwill impairment charges in future periods.

~~Other Intangible Assets~~Note 7. OTHER INTANGIBLE ASSETS

Other intangible assets consist of trademarks and franchise agreements that were classified as identifiable intangible assets at the time of the brands’ acquisition by the Company or by FCCG prior to FCCG’s contribution of the brands to the Company at the time of the initial public offering (in thousands):

SCHEDULE OF INTANGIBLE ASSETS

	June 28, 2020			December 29, 2019			June 27, 2021			December 27, 2020
Trademarks:
Fatburger	$	2,135		$	2,135		$	2,135		$	2,135
Buffalo’s		27			27			27			27
Hurricane		6,840			6,840			6,840			6,840
Ponderosa and Bonanza		5,518			7,230
Ponderosa								300			300
Yalla		1,530			1,530			776			776
Elevation Burger		4,690			4,690			4,690			4,690
Johnny Rockets								20,300			20,300
Total trademarks		20,740			22,452			35,068			35,068

Franchise agreements:
Hurricane – cost		4,180			4,180			4,180			4,180
Hurricane – accumulated amortization		(643	)		(482	)		(965	)		(804	)
Ponderosa and Bonanza – cost		1,640			1,640
Ponderosa and Bonanza – accumulated amortization		(298	)		(243	)
Ponderosa – cost								1,477			1,477
Ponderosa – accumulated amortization								(388	)		(337	)
Elevation Burger – cost		2,450			2,450			2,450			2,450
Elevation Burger – accumulated amortization		(512	)		(263	)		(1,010	)		(761	)
Johnny Rockets – cost								6,600			6,600
Johnny Rockets – accumulated amortization								(462	)		(162	)
Total franchise agreements		6,817			7,282			11,882			12,643
Total Other Intangible Assets	$	27,557		$	29,734		$	46,950		$	47,711

The ~~expected future amortization~~Company reviewed the carrying value of ~~the Company’s capitalized franchise agreements is as follows (in thousands):~~

Fiscal year:
2020 $ 467
2021 932
2022 932
2023 932
2024 932
Thereafter 2,622
Total $ 6,817

~~In response to the adverse effects of COVID-19, we considered whether goodwill and~~its other intangible assets ~~needed to be evaluated for impairment~~ as of June 27, 2021 and June 28, ~~2020, specifically related to goodwill and~~2020. During the ~~trademark assets. Given the uncertainty regarding the severity, duration and long-term effects of COVID-19, making estimates of the fair value of these~~twenty-six weeks ended June 27, 2021, no impairment charges for other intangible assets at this time is significantly affected by assumptions related to ongoing operations including but not limited to the timing of lifting of restrictions on restaurant operating hours, in-house dining limitations or other restrictions that largely limited restaurants to take-out and delivery sales, customer engagement with our brands, the short-term and long-term impact on consumer discretionary spending, and overall global economic conditions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The fair value technique used in this instance is classified as Level 3, where unobservable inputs are used when little or no market data is available. In performing the quantitative test for impairment of goodwill, the Company used the income approach method of valuation that includes the discounted cash flow method to determine the fair value of goodwill and intangible assets. Significant assumptions made by management in estimating fair value under the discounted cash flow model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital, along with an appropriate discount rate based on the Company’s estimated cost of equity capital and after-tax cost of debt.

In performing the impairment review of the tradename, the Company used the relief of royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief of royalty method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.

In performing the impairment review of the franchise agreement assets, the Company used the residual earnings method under the income approach method of valuation. Significant assumptions used to determine fair value under the residual earnings method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.

~~As a result of these analyses, when~~were deemed necessary. When considering the available facts, assessments and judgments as of June 28, 2020, the Company recorded ~~goodwill impairment charges of $1,462,000 and~~non-cash tradename impairment charges of ~~$1,712,000~~$1.7 million relating to the Ponderosa and Bonanza ~~brands.~~brands for the twenty-six weeks ended as of that date.

Because of the risks and uncertainties related to the COVID-19 pandemic events, the negative effects on the operations of ~~our~~the Company’s franchisees could prove to be worse than we currently ~~estimate~~estimated and ~~lead us~~result in the need to record additional ~~non-cash goodwill or~~ other intangible asset impairment charges in ~~the~~ future periods.

~~Note 7. DEFERRED INCOME~~

~~Deferred income~~The expected future amortization of the Company’s franchise agreements as of June 27, 2021 is as follows (in thousands):

SCHEDULE OF FUTURE AMORTIZATION

June 28, 2020 December 29, 2019

Deferred franchise fees $ 5,493 $ 5,417
Deferred royalties 359 422
Deferred advertising revenue 324 303
Total $ 6,176 $ 6,142

Fiscal year:
Remaining 2021	$	761
2022		1,522
2023		1,522
2024		1,217
2025		1,023
Thereafter		5,837
Total	$	11,882

~~Note 8. Income Taxes~~

Effective October 20, 2017, the Company entered into a Tax Sharing Agreement with FCCG that provides that FCCG will, to the extent permitted by applicable law, file consolidated federal, California and Oregon (and possibly other jurisdictions where revenue is generated, at FCCG’s election) income tax returns with the Company and its subsidiaries. The Company will pay FCCG the amount that its current tax liability would have been had it filed a separate return. To the extent the Company’s required payment exceeds its share of the actual combined income tax liability (which may occur, for example, due to the application of FCCG’s net operating loss carryforwards), the Company will be permitted, in the discretion of a committee of its board of directors comprised solely of directors not affiliated with or having an interest in FCCG, to pay such excess to FCCG by issuing an equivalent amount of its common stock in lieu of cash, valued at the fair market value at the time of the payment. An inter-company receivable of approximately $29,529,000 due from FCCG and its affiliates will be applied first to reduce excess income tax payment obligations to FCCG under the Tax Sharing Agreement.

For financial reporting purposes, the Company has recorded a tax benefit as of June 28, 2020, calculated as if the Company files its tax returns on a stand-alone basis. The amount receivable from FCCG determined by this calculation of $154,000 and $46,000 was added to amounts due from FCCG as of June 28, 2020 and June 30, 2019, respectively, (See Note 12.)

Note 8. DEFERRED INCOME

Deferred taxes reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for calculating taxes payable on a stand-alone basis. Significant components of the Company’s deferred tax assets and liabilities areincome was as follows (in thousands):

SCHEDULE OF DEFERRED INCOME

	June 27, 2021		December 27, 2020

Deferred franchise fees	$	10,548	$	10,003
Deferred royalties		189		291
Deferred vendor incentives		638		692
Total	$	11,375	$	10,986

Note 9. INCOME TAXES

The following table presents the Company’s benefit for income taxes (in thousands):

SCHEDULE OF BENEFIT FOR INCOME TAXES

	June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
	Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Benefit for income taxes	$	(1,992	)	$	(1,089	)	$	(2,121	)	$	(1,386	)
Effective tax rate		25.1	%		20.4	%		20.2	%		17.3	%

The difference between the statutory tax rate of 21% and the effective tax rate in the thirteen weeks ended June 27, 2021 was primarily due to the impact of state income taxes and the forgiveness of loans under the Paycheck Protection Program (the “PPP Loans”) (see Note 11).

June 28, 2020 December 29, 2019
Deferred tax assets (liabilities)
Deferred income $ 1,508 $ 1,353
Reserves and accruals 208 208
Intangibles (154 ) (614 )
Deferred state income tax (135 ) (91 )
Tax credits 477 244
Share-based compensation 192 192
Property and equipment (137 ) (137 )
Net operating loss carryforwards 1,661 894
Other (64 ) (17 )
Total $ 3,556 $ 2,032

NOTE 10. LEASES

~~Components of the income tax (benefit) expense are as follows (in thousands):~~

Twenty-six Weeks
Ended
June 28, 2020 Twenty-six Weeks
Ended
June 30, 2019
Current
Federal $ (118 ) $ 318
State 22 262
Foreign 233 375
137 955
Deferred
Federal (1,312 ) (89 )
State (211 ) (241 )
(1,523 ) (330 )
Total income tax (benefit) expense $ (1,386 ) $ 625

~~Income tax provision related to continuing operations differ from the amounts computed by applying the statutory income tax rate to pretax income as follows (in thousands):~~

Twenty-six Weeks
Ended Twenty-six Weeks
Ended
June 28, 2020 June 30, 2019

Tax benefit at statutory rate $ (1,681 ) $ (124 )
State and local income taxes (150 ) 14
Foreign taxes 233 375
Tax credits (233 ) (375 )
Dividends on preferred stock 361 643
Other 84 92
Total income tax expense (benefit) $ (1,386 ) $ 625

As of June ~~28, 2020,~~27, 2021, the Company’s subsidiaries’ annual tax filings for the prior three years are open for audit by Federal and for the prior four years for state tax agencies. The Company is the beneficiary of indemnification agreements from the prior owners of the subsidiaries for tax liabilities related to periods prior to its ownership of the subsidiaries. Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of June 28, 2020.

~~NOTE 9. LEASES~~

~~The~~ Company has ~~recorded seven~~ 12operating leases for corporate offices, two Company owned stores and for certain restaurant properties that are in the process of being refranchised. The ~~Company is not a guarantor to the leases for the restaurant locations. The~~ leases have remaining ~~lease~~ terms ranging from ~~nine months~~ 2.3 to ~~seven years. Three of the leases also have options to extend the term for 5 to 10~~ 7.9 years. The Company recognized lease expense of ~~$720,000~~$0.7million and ~~$702,000 for the twenty-six weeks ended June 28, 2020 and June 30, 2019, respectively. The Company recognized lease expense of $367,000 and $355,000~~$0.4million for the thirteen weeks ended June 27, 2021 and June 28, 2020, respectively. For the twenty-six weeks ended June 27, 2021 and June ~~30, 2019,~~28, 2020, the Company recognized lease expense of $1.5 million and $0.7 million, respectively. The weighted average remaining lease term of the operating leases ~~(not including optional lease extensions) at~~as of June ~~28, 2020~~27, 2021 was ~~5.6~~ 5.5 years.

Operating lease right of use assets and operating lease liabilities relating to the operating leases are as follows (in thousands):

SUMMARY OF OPERATING LEASE RIGHT OF USE ASSETS AND OPERATING LEASE LIABILITIES RELATING TO OPERATING LEASES

	June 28, 2020		December 29, 2019		June 27, 2021		December 27, 2020

Right of use assets	$	4,947	$	4,076	$	11,623	$	13,948
Lease liabilities	$	5,137	$	4,206	$	12,568	$	14,651

The operating lease right of use assets and operating lease liabilities include obligations relating to the optional term extensions available on the five restaurant leases based on management’s intention to exercise the options. At adoption of ASC 842, theweighted average discount rate used to calculate the carrying value of the right of use assets and lease liabilities was ~~15.9% as this was consistent with~~9.3% which is based on the Company’s incremental borrowing rate at the ~~time.~~time the lease is acquired.

The contractual future maturities of the Company’s operating lease liabilities as of June ~~28, 2020,~~27, 2021, including anticipated lease extensions, are as follows (in thousands):

SCHEDULE OF CONTRACTUAL FUTURE MATURITIES OF OPERATING LEASE LIABILITIES

Fiscal year:
2020	$	545
2021		1,141		$	1,491
2022		1,183			3,059
2023		1,223			3,148
2024		1,028			3,007
2025					2,656
Thereafter		4,737			2,693
Total lease payments		9,857			16,054
Less imputed interest		(4,720	)		3,486
Total	$	5,137		$	12,568

Supplemental cash flow information for the twenty-six weeks ended June ~~28, 2020~~27, 2021 related to leases iswas as follows (in thousands):

SUMMARY OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES

Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	412	$	1,296
Operating lease right of use assets obtained in exchange for new lease obligations:
Operating lease liabilities	$	2,174	$	-

~~Note 10. DEBT~~

~~Loan and Security Agreement~~

On January 29, 2019, the Company as borrower, and its subsidiaries and affiliates as guarantors, entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, “Lion”). Pursuant to the Loan and Security Agreement, the Company borrowed $20.0 million from Lion, and utilized the proceeds to repay the existing $16.0 million term loan from FB Lending, LLC plus accrued interest and fees, and provide additional general working capital to the Company.

~~The term loan under~~Note 11. DEBT

Securitization

On April 26, 2021 (the “Closing Date”), FAT Brands Royalty I, LLC, a Delaware limited liability company (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the ~~Loan and Security Agreement was due to mature on June 30, 2020. Interest on the term loan accrued at an annual~~Offering of three tranches of fixed rate ~~of 20.0% and was payable quarterly. In connection with~~senior secured notes (collectively, the ~~Loan and Security Agreement,~~“2021 Securitization Notes”) as follows:

SCHEDULE OF SECURITIZATION OF NOTES

Closing Date	Class		Seniority	Principal Balance		Coupon			Weighted Average Life (Years)		Non-Call Period (Months)		Anticipated Call Date	Final Legal Maturity Date
4/26/2021		A-2	Senior	$	97,104,000		4.75	%		2.25		6	7/25/2023	4/25/2051
4/26/2021		B-2	Senior Subordinated	$	32,368,000		8.00	%		2.25		6	7/25/2023	4/25/2051
4/26/2021		M-2	Subordinated	$	15,000,000		9.00	%		2.25		6	7/25/2023	4/25/2051

Net proceeds from the ~~Company issued to Lion a warrant to purchase up to 1,167,404 shares~~issuance of the Company’s common stock at $0.01 per share (the “Lion Warrant”), exercisable only if the amounts outstanding under the Loan and Security Agreement were not repaid in full by June 30, 2020, as extended. If the Loan and Security Agreement was repaid in full prior to June 30, 2020, the Lion Warrant would be terminated in its entirety.

~~As security for its obligations under the Loan Agreement, the Company granted a lien on substantially all of its assets to Lion. In addition, certain~~2021 Securitization Notes totaled $140.8 million, which consisted of the ~~Company’s subsidiaries~~combined face amount of $144.5 million (net of debt offering costs of $3.0 million and ~~affiliates entered into a Guaranty (the “Guaranty”) in favor~~original issue discount of ~~Lion, pursuant to which they guaranteed~~$0.7 million). As of June 27, 2021, the ~~obligations~~carrying value of the ~~Company under the Loan~~2021 Securitization Notes was $140.9 million (net of debt offering costs of $2.9 million and ~~Security Agreement and granted as security for their guaranty obligations a lien on substantially all~~original issue discount of ~~their assets.~~

The Loan and Security Agreement was subsequently amended several times which allowed the Company to increase its borrowing by $3,500,000 in connection with the acquisition of Elevation Burger; extended the exercise date of the Lion Warrant to June 30, 2020; extended the due date for certain quarterly payments and imposed associated extension and other loan fees.

On March 6, 2020, the Company repaid the Lion Loan and Security Agreement in full by making a total payment of approximately $26,771,000. This consisted of $24,000,000 in principle, approximately $2,120,000 in accrued interest and $651,000 in penalties and fees. As a result of the prepayment, the Lion Warrant was cancelled in its entirety.

$0.7 million). The Company recognized interest expense on the ~~Loan and Security Agreement~~2021 Securitization Notes of ~~$1,783,000~~$1.6 million for the thirteen and twenty-six weeks ended June ~~28, 2020,~~27, 2021, which includes ~~$212,000~~$0.1 million for amortization of ~~all unaccreted~~ debt offering costs atand $34,000 for amortization of the original issue discount. The average annualized effective interest rate of the 2021 Securitization Notes, including the amortization of debt offering costs and original issue discount, was 6.7% for the time the debt was outstanding during the twenty-six weeks ended June 27, 2021.

The 2021 Securitization Notes require that the principal and interest obligations have first priority and amounts are segregated weekly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of weekly cash flow that exceeds the required weekly interest reserve is generally remitted to the Company. Interest payments are required to be made on a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on each tranche. The material terms of the ~~repayment~~2021 Securitization Notes also include, among other things, the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and ~~$650,000~~(iii) senior leverage ratio. As of June 27, 2021, we were in ~~penalties~~compliance with these covenants.

The 2021 Securitization Notes are generally secured by a security interest in substantially all the assets of FB Royalty and ~~fees.~~ its subsidiaries.

A portion of the proceeds of the 2021 Securitization Notes were used to repay and retire the following notes issued in 2020 under the Base Indenture:

Note

Public

Rating

Seniority

Issue Amount

Coupon

First Call Date

Final Legal Maturity Date

Series A-2

Senior

20,000,000

6.50

4/27/2021

4/27/2026

Series B-2

Senior Subordinated

20,000,000

9.00

4/27/2021

4/27/2026

Series M-2

N/A

Subordinated

40,000,000

9.75

4/27/2021

4/27/2026

The payoff amount totaled $83.7 million, which included principle of $80.0 million, accrued interest of $2.2 million and prepayment premiums of $1.5 million. FB Royalty recognized a loss on extinguishment of debt of $7.8 million in connection with the refinance.

The Company recognized interest expense on the ~~Loan~~2020 Securitization Notes of $0.5 million and ~~Security Agreement of $1,076,000 and $1,796,000~~$0.9 million for the thirteen weeks ended June 27, 2021 and June 28, 2020, respectively. The Company recognized interest expense related to the 2020 Securitization Notes of $2.6 million and $1.2 million for the twenty-six weeks ended June ~~30, 2019.~~27, 2021 and June 28, 2020, respectively.

Elevation Note

On June 19, 2019, the Company completed the acquisition of Elevation Burger. A portion of the purchase price included the issuance to the Seller of a convertible subordinated promissory note (the “Elevation Note”) with a principal amount of ~~$7,509,816,~~$7.5 million, bearing interest at ~~6.0%~~6.0% per year and maturing in July ~~2026.~~2026. The Elevation Note is convertible under certain circumstances into shares of the Company’s common stock at ~~$12.00~~ $12.00 per share. In connection with the valuation of the acquisition of Elevation Burger, the Elevation Note was recorded on the condensed consolidated financial statements of the Company at ~~$6,185,000, which is net~~$6.2 million (net of a loan discount of ~~$1,295,000~~$1.3 million and debt offering costs of ~~$30,000.~~$30,000).

As of June ~~28,~~27, 2021, the carrying value of the Elevation Note was $5.9 million (net of the loan discount of $0.7 million and debt offering costs of $51,000). As of December 27, 2020, the carrying value of the Elevation Note was ~~$5,778,000 which is net~~$5.9 million (net of the loan discount of ~~$1,008,000~~$0.9 million and debt offering costs of ~~$61,000.~~$56,000). The Company recognized interest expense relating to the Elevation Note during the thirteen and twenty-six weeks ended June ~~28, 2020~~27, 2021 in the amount of ~~$175,000,~~$169,000 and $340,000, respectively, which included amortization of the loan discount of ~~$70,000~~$64,000 and $130,000, and amortization of ~~$2,000~~$3,000 and $5,000 in debt offering ~~costs.~~costs, respectively. The Company recognized interest expense relating to the Elevation Note during the thirteen and twenty-six weeks ended June 28, 2020 in the amount of ~~$364,000,~~$175,000 and $364,000, respectively, which included amortization of the loan discount of ~~$141,000~~$70,000 and $141,000, and amortization of ~~$5,000~~$2,000 and $5,000 in debt offering ~~costs.~~ costs, respectively.

The ~~Company recognized interest expense of $23,000 on the Elevation Note for the thirteen and twenty-six weeks ended June 30, 2019. The~~annualized effective interest rate for the Elevation Note during the twenty-six weeks ended June ~~28, 2020~~27, 2021 was ~~12.7%~~11.4%.

The Elevation Note is a general unsecured obligation of Company and is subordinated in right of payment to all senior indebtedness of the Company.

Assumed Debt from Merger

In connection with the Merger, certain debts of FCCG totaling $12.5 million (the “FCCG Debt”) were assumed by Fog Cutter Acquisition LLC.

During the thirteen weeks ended June 27, 2021, the FCCG Debt was paid in full in the amount of $12.5 million, including accrued interest. The Company ~~arising~~recognized interest expense relating to the FCCG Debt of $78,000 and $241,000 during the thirteen and twenty-six weeks ended July 27, 2021, respectively.

The FCCG Debt as of December 27, 2020 was as follows (in thousands):

SCHEDULE OF FCCG MERGER

	December 27, 2020
Note payable to a private lender. The note bore interest at a fixed rate of 12% per annum and was unsecured. Interest was due monthly in arrears. The note was scheduled to mature on May 21, 2021.	$	1,977

Note payable to a private lender. The note bore interest at a fixed rate of 12% per annum and was unsecured. Interest was due monthly in arrears. The note was scheduled to mature on May 21, 2021.		2,871

Note payable to a private lender. The note bore interest at a fixed rate of 15% per annum. The note was scheduled to mature May 21, 2021.		17

Note payable to a private lender. The note bore interest at a fixed rate of 12% per annum. Interest was due monthly in arrears. The note was scheduled to mature May 21, 2021.		762

Consideration payable to former FCCG stockholders issued in redemption of fractional shares of FCCG’s stock. The consideration was unsecured and non-interest bearing and was due and payable on May 21, 2021.		6,864

Total	$	12,491

Loan and Security Agreement

On January 29, 2019, the Company as borrower, and its subsidiaries and affiliates as guarantors, entered into the Loan and Security Agreement with The Lion Fund, L.P (“Lion”). Pursuant to the Loan and Security Agreement, the Company borrowed $20.0 million from Lion, and utilized the proceeds to repay the existing $16.0 million term loan from FB Lending, LLC plus accrued interest and fees, and provide additional general working capital to the Company.

The term loan under ~~any agreement or instrument~~the Loan and Security Agreement was due to mature on June 30, 2020. Interest on the term loan accrued at an annual fixed rate of 20.0% and was payable quarterly.

The Loan and Security Agreement was subsequently amended several times which allowed the Company ~~or any~~to increase its borrowing by $3.5 million in connection with the acquisition of ~~its Affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment. FCCG has guaranteed payment~~Elevation Burger; extended the exercise date of the ~~Elevation Note.~~Lion Warrant to June 30, 2020; extended the due date for certain quarterly payments and imposed associated extension and other loan fees.

~~Securitization~~

On March 6, 2020, the Company ~~completed a whole-business securitization (the “Securitization”) through~~repaid the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”) in which FAT Royalty issued new notes (the “Securitization Notes”) pursuant to an indenture and the supplement thereto (collectively, the “Indenture”).

~~The new notes consist of the following:~~

Note
Public
Rating
Seniority Issue Amount Coupon First Call Date Final Legal Maturity Date

A-2 BB Senior $ 20,000,000 6.50 % 4/27/2021 4/27/2026
B-2 B Senior Subordinated $ 20,000,000 9.00 % 4/27/2021 4/27/2026

Net proceeds from the issuance of the Securitization Notes were $37,314,000, which consists of the combined face amount of $40,000,000, net of discounts of $246,000 and debt offering costs of $2,440,000. The discount and offering costs will be accreted as additional interest expense over the expected term of the Securitization Notes.

~~A portion of the proceeds from the Securitization was used to repay the remaining $26,771,000 in outstanding balance under the~~Lion Loan and Security Agreement ~~with Lion and to pay Securitization debt offering costs. The remaining proceeds from the Securitization will be used for working capital.~~

~~While the Securitization Notes are outstanding, scheduled payments of principal and interest are required to be made on~~in full by making a quarterly basis. It is expected that the Securitization Notes will be repaid prior to the Final Legal Maturity Date, with the anticipated repayment date occurring in January 2023 for the A-2 Notes and October 2023 for the B-2 Notes (the “Anticipated Repayment Dates”). If the Company has not repaid or refinanced the Securitization Notes prior to the applicable Anticipated Repayment Date, additional interest expense will begin to accrue and all additional proceeds will be utilized for additional amortization, as defined in the Indenture.

In connection with the Securitization, FAT Royalty and each of the FAT Brands Franchising Entities (as defined in the Indenture) entered into a Management Agreement with the Company, dated as of the Closing Date (the “Management Agreement”), pursuant to which the Company agreed to act as manager of FAT Royalty and each of the FAT Brands Franchise Entities. The Management Agreement provides for a management fee payable monthly by FAT Royalty to the Company in the amount of $200,000, subject to three percent (3%) annual increases (the “Management Fee”). The primary responsibilities of the manager are to perform certain franchising, distribution, intellectual property and operational functions on behalf of the FAT Brands Franchise Entities pursuant to the Management Agreement.

The Notes are secured by substantially all of the assets of FAT Royalty, including the equity interests in the FAT Brands Franchising Entities. The restrictions placed on the Company’s subsidiaries require that the Company’s principal and interest obligations have first priority, after thetotal payment of ~~the Management Fee~~approximately $26.8 million. This consisted of $24.0 million in principle, approximately $2.1 million in accrued interest and ~~certain other FAT Royalty expenses (as defined~~$0.7 million in ~~the Indenture),~~penalties and amounts are segregated monthly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of monthly cash flow that exceeds the required monthly debt service is generally remitted to the Company. Once the required obligations are satisfied, there are no further restrictions, including payment of dividends, on the cash flows of the subsidiaries. As of June 28, 2020, the Company was in compliance with these covenants.fees.

The Notes have not been and will not be registered under the Securities Act or the securities laws of any jurisdiction. No Notes or any interest or participation thereof may be reoffered, resold, pledged or otherwise transferred unless such Note meets certain requirements as described in the Indenture.

The Notes are subject to certain financial and non-financial covenants, including a debt service coverage ratio calculation, as defined in the Indenture. In the event that certain covenants are not met, the Notes may become partially or fully due and payable on an accelerated schedule. In addition, the Company may voluntarily prepay, in part or in full, the Notes in accordance with the provisions in the Indenture.

~~As of June 28, 2020, the recorded balance of the Securitization Notes was $37,420,000, which is net of debt offering costs of $2,347,000 and original issue discount of $233,000.~~ The Company recognized interest expense on the ~~Securitization Notes~~Loan and Security Agreement of $886,000 for the thirteen weeks ended June 28, 2020, which includes $103,000 for amortization of debt offering costs and $7,000 for amortization of the original issue discount. The Company recognized interest expense on the Securitization Notes of $1,173,000$1.8 million for the twenty-six weeks ended June 28, 2020, which includes ~~$136,000~~$0.2 million for amortization of all unaccreted debt offering costs ~~and $12,000 for amortization~~at the time of the ~~original issue discount. The effective interest rate of the Securitization Notes was 9.4% for the twenty-six weeks ended June 28, 2020.~~repayment and $0.7 million in penalties and fees.

Paycheck Protection Program Loans

During ~~the thirteen weeks ended July 28,~~ 2020, the Company received loan proceeds in the amount of approximately ~~$1,532,000~~$1.5 million under the ~~Paycheck Protection~~PPP Loans and Economic Injury Disaster Loan Program (the ~~“PPP~~“EIDL Loans”). The Paycheck Protection Program, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

~~The~~At inception, the PPP Loans ~~relate~~and EIDL Loans related to FAT Brands Inc. ~~as well as~~and five restaurant locations that ~~are~~were part of the Company’s refranchising program. ~~While~~As of December 27, 2020, the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loans, there can be no assurance that the Company will be eligible for forgiveness of the loan, in whole or in part. Any unforgiven portion ofbalance remaining on the PPP Loans ~~is payable over two years at an~~and EIDL Loans had been reduced to $1.2 million due to the closure or refranchising of the five restaurant locations during the second and third quarters of 2020. During the thirteen weeks ended June 27, 2021, the Company received confirmation that the entire balance remaining on the PPP Loans, plus accrued interest, ~~rate~~had been forgiven under the terms of ~~1%, with~~the program. The Company recognized interest expense of $4,000 and a ~~deferral~~gain on extinguishment of ~~payments for~~debt in the ~~first six months.~~amount of $1.2 million relating to the PPP Loans and EIDL Loans during the twenty-six weeks ended June 27, 2021.

Note ~~11.~~ 12. PREFERRED STOCK

Series B Cumulative Preferred Stock

On ~~October 3 and October 4, 2019,~~July 13, 2020, the Company ~~completed the initial closing of its continuous~~entered into an underwriting agreement (the “Underwriting Agreement”) to issue and sell in a public offering (the ~~“Series B Preferred Offering”~~“Offering”) 360,000 shares of ~~up to $30,000,000 of units (the “Series B Units”) at $25.00 per Series B Unit, with each Series B Unit comprised of one share of~~ 8.25% Series B Cumulative Preferred Stock (“Series B Preferred Stock”) and ~~0.60~~ 1,800,000 warrants ~~(the “Series B Warrants”)~~ to purchase common stock at ~~$8.50~~$5.00 per share, ~~exercisable for five years.~~plus 99,000 additional warrants pursuant to the underwriter’s overallotment option (the “2020 Series B Offering Warrants”).

The Offering closed on July 16, 2020 with net proceeds to the Company of $8.1 million (net of $0.9 million in underwriting and offering costs).

In addition to the shares issued in the Offering, the Company concurrently engaged in the following transactions:

	●	The holders of the outstanding 57,140 shares of Original Series B Preferred became subject to the new terms of the Certificate of Designation and received an additional 3,537 shares of Series B Preferred stock in payment of previously accrued dividends.

	●	The Company entered into an agreement to exchange 15,000 shares of Series A Fixed Rate Cumulative Preferred Stock owned by FCCG, including accrued dividends thereon, for 74,449 shares of Series B Preferred Stock.

	●	The Company exchanged all of the outstanding shares of Series A-1 Fixed Rate Cumulative Preferred Stock for 168,001 shares of Series B Preferred Stock.

In December 2020, in connection with the acquisition of FCCG by the Company, the Company declared a special stock dividend (the “Special Dividend”) payable only to holders of the Company’s Common Stock, other than FCCG, on the record date, consisting of 0.2319998077 shares of Series B Cumulative Preferred Stock for each outstanding share of Common Stock held by such stockholders. The ~~offering includes up to 1,200,000~~Special Dividend was paid on December 23, 2020 and resulted in the issuance of 520,145 additional shares of Series B Preferred Stock ~~and~~ with a market value on the payment date of approximately $8.9 million.

On June 22, 2021, the Company closed a second underwritten public offering of 460,000 shares of 8.25% Series B ~~Warrants initially exercisable to purchase up to an aggregate of 720,000 shares of our common stock. The shares of Series B~~Cumulative Preferred Stock at a price to the public of $20.00 per share. The net proceeds to the Company totaled $8.3 million (net of $0.9 million in underwriting discounts and Series B Warrants will be issued separately but can only be purchased together in the Series B Preferred Offering. Each Warrant will be immediately exercisable and will expire on the five-year anniversaryother offering expenses).

As of ~~the date of issuance.~~

~~The Company will pay cumulative dividends on~~June 27, 2021, the Series B Preferred Stock ~~from and including~~consisted of 1,643,272 shares outstanding with a balance of $29.1 million. The Company paid preferred dividends to the ~~date~~holders of ~~original issuance in the amount of $2.0625 per share each year, which is equivalent to 8.25% of the $25.00 liquidation preference per share. Dividends on~~ the Series B Preferred Stock ~~will be payable quarterly in arrears based on~~totaling $0.6 million and $1.2 million during the ~~Company’s fiscal quarters.~~thirteen weeks and twenty-six weeks ended June 27, 2021.

The Company may not redeem the Series B Preferred Stock before the first anniversary of the initial issuance date. After the first anniversary of the initial issuance date the Company has the option to redeem the Series B Preferred Stock, in whole or in part, for cash plus any accrued and unpaid dividends to the date of redemption at the following redemption price per share:

	●	~~After the first anniversary and on or prior to the second anniversary at $27.50 per share~~
	●	~~After the second anniversary and on or prior to the third anniversary at $26.125 per share~~
	●	~~After the third anniversary at $25.00 per share~~

The Series B Preferred Stock will mature on the five-year anniversary of the initial issuance date or the earlier liquidation, dissolution or winding-up of the Company. Upon maturity, the holders of Series B Preferred Stock will be entitled to receive cash redemption of their shares in an amount equal to $25.00 per share plus any accrued and unpaid dividends.

Holders of Series B Preferred Stock have the option to cause the Company to redeem all or any portion of their Series B Preferred Stock following the first anniversary of the initial issuance date for cash at the following redemption prices per share, plus any accrued and unpaid dividends:

	●	~~After the first anniversary and on or prior to the second anniversary at $22.00 per share~~
	●	~~After the second anniversary and on or prior to the third anniversary at $22.50 per share~~
	●	~~After the third anniversary and on or prior to the fourth anniversary at $23.00 per share~~
	●	~~After the fourth anniversary at $25.00 per share~~

~~The rights of holders of Series B Preferred Stock to receive their liquidation preference also will be subject to the proportionate rights of our~~ Series A Fixed Rate Cumulative Preferred Stock ~~and any other class or series of our capital stock ranking in parity with the Series B Preferred Stock as to liquidation.~~

~~As of June 28, 2020, there were 57,140 shares of Series B Preferred Stock outstanding.~~

The Company classified the Series B Preferred Stock as long-term debt because it contains an unconditional obligation requiring the Company to redeem the instruments at the maturity date (October 3, 2024) or upon the election of the holders as described above in cash. The associated Series B Warrants have been recorded as additional paid-in capital. On the issuance date, the Company allocated the proceeds between the Series B Preferred Stock and the Series B Warrants based on the relative fair values of each.

As of June 28, 2020, the net Series B Preferred Stock balance was $1,108,000 including an unaccreted debt discount of $14,000 and unamortized debt offering costs of $306,000. The Company recognized interest expense on the Series B Preferred Stock of $48,000 for the thirteen weeks ended June 28, 2020, which includes amortization of debt offering costs of $18,000. The Company recognized interest expense on the Series B Preferred Stock of $96,000 for the twenty-six weeks ended June 28, 2020, which includes accretion expense of the debt discount of $1,000 and amortization of debt offering costs of $36,000. The year-to-date effective interest rate for the Series B Preferred Stock for 2020 was 17.8%.

On July 13, 2020, the Company entered into an agreement to exchange the 34,284 outstanding Series B Warrants for 285,700 new warrants (the “Series B Offering Warrants”), pursuant to Warrant Exchange Agreements with the holders of the Series B Warrants in consideration of their consent to amend and restate the terms of the Series B Cumulative Preferred Stock .On July 15, 2020, the Company filed an Amended and Restated Certificate of Designation of Rights and Preferences of Series B Cumulative Preferred Stock with the Secretary of State of Delaware (See Note 20).

~~Series A Fixed Rate Cumulative Preferred Stock~~

On June 8, 2018, the Company filed a Certificate of Designation of Rights and Preferences of Series A Fixed Rate Cumulative Preferred Stock (“Series A Preferred Stock”) with the Secretary of State of the State of Delaware (the “Certificate of Designation”), designating a total of 100,000 shares of Series A Preferred Stock.

The ~~Certificate of Designation contains the following terms pertaining to the Series A Preferred Stock:~~

~~Dividends~~ – Holders of Series A Preferred Stock will be entitled to receive cumulative dividends on the $100.00 per share stated liquidation preference of the Series A Preferred Stock, in the amount of (i) cash dividends at a rate of 9.9% per year, plus (ii) deferred dividends equal to 4.0% per year, payable on the Mandatory Redemption Date (defined below).

~~Voting Rights~~ ~~– As long as any shares of Series A Preferred Stock are outstanding and remain unredeemed, the~~ Company may not, without the majority vote of the Series A Preferred Stock, (a) alter or change adversely the rights, preferences or voting power given to the Series A Preferred Stock, (b) enter into any merger, consolidation or share exchange that adversely affects the rights, preferences or voting power of the Series A Preferred Stock, (c) authorize or increase any other series or class of stock that has rights senior to the Series A Preferred Stock, or (d) waive or amend the dividend restrictions in Sections 3(d) or 3(e) of the Certificate of Designation. The Series A Preferred Stock will not have any other voting rights, except as may be provided under applicable law.

~~Liquidation and Redemption~~ - Upon (i) the five-year anniversary of the initial issuance date (June 8, 2023), or (ii) the earlier liquidation, dissolution or winding-up of the Company (the “Series A Mandatory Redemption Date”), the holders of Series A Preferred Stock will be entitled to cash redemption of their shares in an amount equal to $100.00 per share plus any accrued and unpaid dividends.

In addition, prior to the Series A Mandatory Redemption Date, the Company may optionally redeem the Series A Preferred Stock, in whole or in part, at the following redemption prices per share, plus any accrued and unpaid dividends:

	~~(i)~~	~~On or prior to June 30, 2021: $115.00 per share.~~
	~~(ii)~~	~~After June 30, 2021 and on or prior to June 30, 2022: $110.00 per share.~~
	~~(iii)~~	~~After June 30, 2022: $100.00 per share.~~

Holders of Series A Preferred Stock may also optionally cause the Company to redeem all or any portion of their shares of Series A Preferred Stock beginning any time after the two-year anniversary of the initial issuance date for an amount equal to $100.00 per share plus any accrued and unpaid dividends, which amount may be settled in cash or common stock of the Company, at the option of the holder. If a holder elects to receive common stock, the shares will be issued ~~based on the 20-day volume weighted average price of the common stock immediately preceding the date of the holder’s redemption notice.~~

~~As of June 28, 2020, there were~~ 100,000 shares of Series A Preferred stock ~~outstanding, issued~~ in the following two transactions:

(i)

On June 7, 2018, the Company entered into a Subscription Agreement for the issuance and sale (the ~~“Offering”~~“Series A Offering”) of 800 units (the “Units”), with each Unit consisting of (i) 100 shares of the Company’s newly designated Series A Fixed Rate Cumulative Preferred Stock (the “Series A Preferred Stock”) and (ii) warrants (the “Series A Warrants”) to purchase 127 shares of the Company’s common stock at ~~$7.83~~$7.83 per share. The sales price of each Unit was ~~$10,000,~~$10,000, resulting in gross proceeds to the Company from the initial closing of ~~$8,000,000~~$8.0 million and the issuance of 80,000 shares of Series A Preferred Stock and Series A Warrants to purchase 102,125 shares of common stock (the “Subscription Warrants”).

~~(ii)~~

(ii)

On June 27, 2018, the Company entered into a Note Exchange Agreement, as amended, under which it agreed with FCCG to exchange ~~all but $950,000~~$2.0 million of the remaining balance of the Company’s outstanding Promissory Note issued to the FCCG on October 20, 2017 in the original principal amount of $30,000,000 (the “Note”). At the time, the Note had an estimated outstanding balance of principal plus accrued interest of $10,222,000 (the “Note Balance”). On June 27, 2018, $9,272,053 of the Note Balance was exchanged for ~~shares of capital stock of the Company and warrants in the following amounts (the “Exchange Shares”):~~

●

~~$2,000,000 of the Note Balance was exchanged for~~ 200 Units consisting of 20,000 shares of Series A Fixed Rate Cumulative Preferred Stock of the Company at ~~$100~~$100 per share and Series A Warrants to purchase 25,530 of the Company’s common stock at an exercise price of ~~$7.83~~$7.83 per share (the “Exchange Warrants”);.

On July 13, 2020, the Company entered into the following transactions pertaining to the outstanding Series A Preferred Stock:

	1.	The Company entered into an agreement to redeem 80,000 outstanding shares of the Series A Preferred Stock, plus accrued dividends thereon, held by Trojan Investments, LLC pursuant to a Stock Redemption Agreement that provides for the redemption at face value of a portion of such shares for cash from the proceeds of the Offering and the balance to be redeemed in $2 million tranches every six months, with the final payment due by December 31, 2021.

	●2.	~~$7,272,053~~The Company redeemed 5,000 outstanding shares of Series A Preferred Stock, plus accrued dividends thereon, held by Ridgewood Select Value Fund LP and its affiliate at face value for cash from the proceeds of the ~~Note Balance was~~Offering.

	3.	The Company exchanged ~~for 1,010,420~~15,000 outstanding shares of ~~common stock~~Series A Preferred Stock, plus accrued dividends thereon, held by FCCG at face value for shares of ~~the Company, representing an exchange price of $7.20 per share, which was the closing trading price of the common stock on June 26, 2018.~~Series B Preferred Stock.

The Company classifies the Series A Preferred Stock as ~~long-term debt because it contains an obligation to issue a variable number of common shares for a fixed monetary amount.~~ debt.

As of June ~~28, 2020, the net~~27, 2021, there were 80,000 shares of Series A Preferred Stock outstanding, with a balance ~~was $9,925,000 which is net~~ of ~~an unaccreted debt discount of $65,000 and unamortized debt offering costs of $11,000.~~$8.0 million.

The Company recognized interest expense on the Series A Preferred Stock of ~~$708,000~~$264,000 and $354,000 for ~~the twenty-six weeks ended June 28, 2020, which includes accretion expense of $11,000 as well as $2,000 for the amortization of debt offering costs. For~~ the thirteen weeks ended June 27, 2021 and June 28, 2020, ~~the Company recognized interest expense of $354,000, which includes accretion expense of $5,000 as well as $1,000 for the amortization of the debt offering costs.~~respectively. The Company recognized interest expense on the Series A Preferred Stock of ~~$708,000~~$552,000 and $708,000 for the twenty-six weeks ended June ~~30, 2019, which includes accretion expense of $11,000 as well as $2,000 for the amortization of debt offering costs. For the thirteen weeks ended~~27, 2021 and June ~~30, 2019, the Company recognized interest expense of $354,000, which includes accretion expense of $5,500 as well as $1,000 for the amortization of the debt offering costs.~~28, 2020. The year-to-date effective interest rate for the Series A Preferred Stock for ~~2020~~2021 was ~~14.3%~~13.9%.

Derivative Liability Relating to the Conversion Feature of the Series A Preferred Stock

~~As stated above, holders~~Holders of Series A Preferred Stock ~~have~~had the option to cause the Company to redeem all or any portion of their shares of Series A Preferred Stock beginning any time after the two-year anniversary of the initial issuance date for an amount equal to ~~$100.00~~$100.00 per share plus any accrued and unpaid dividends, which amount ~~may~~could be settled in cash or common stock of the Company, at the option of the holder (the “Conversion Option”). If a holder ~~elects~~elected to receive common stock, the shares ~~will~~would be issued based on the 20-day volume weighted average price of the common stock immediately preceding the date of the holder’s redemption notice.

On June 8, 2020, the Conversion Option became exercisable. As of that date, the Company calculated the estimated fair value of the Conversion Option to be ~~$2,406,000~~$2.4 million and recorded a derivative liability in that amount, together with an offsetting reduction in Additional Paid-In Capital. As of June 28, 2020, the Company calculated the estimated fair value of the Conversion Option to be ~~$1,142,000~~$1.1 million and adjusted the carrying value of the derivative liability accordingly and recognized ~~$1,264,000 as a~~income of $1.3 million from the change in the fair market value of the derivative liability.

On July 13, 2020, the Company entered into agreements with each of the holders of the Series A Preferred Stock regarding the redemption of their shares. Holders of 85,000 of the outstanding shares agreed to a full redemption in cash payments. Fog Cutter Capital Group Inc., the holder of the remaining 15,000 outstanding shares, agreed to redeem its Series A Preferred Stock in exchange for newly issued Series B Preferred Stock of the Company. As a result of these agreements, the Conversion Option was terminated as of July 13, ~~2020 (See Note 20).~~2020.

~~Series A-1 Fixed Rate Cumulative Preferred Stock~~NOTE 13. ACQUISITION PURCHASE PRICE PAYABLE

On ~~July 3, 2018,~~June 21, 2021, the Company ~~filed with~~settled in full, the ~~Secretary~~acquisition purchase price payable relating to the acquisition of ~~State~~Yalla Mediterranean. At the time of the ~~State~~settlement, the payable had a book value of ~~Delaware a Certificate~~$2.1 million. The Company paid cash of ~~Designation of Rights~~$1.1 million and ~~Preferences of Series A-1 Fixed Rate Cumulative Preferred Stock (the “Series A-1 Certificate of Designation”), designating a total of 200,000~~ agreed to issue 62,500 shares of ~~Series A-1 Fixed Rate Cumulative Preferred Stock (the “Series A-1 Preferred Stock”). As~~its common stock, with a market value of ~~June 28, 2020, there were 45,000 shares~~$0.8 million ($13.05 per share) in satisfaction of ~~Series A-1 Preferred Stock issued and outstanding.~~the obligation. The ~~Series A-1 Certificate of Designation contains the following terms pertaining to the Series A-1 Preferred Stock:~~

~~Dividends. Holders of Series A-1 Preferred Stock will be entitled to receive cumulative dividends~~Company recognized a gain on the ~~$100.00 per share stated liquidation preference~~extinguishment of the ~~Series A-1 Preferred Stock,~~debt in the amount of ~~cash dividends at a rate of 6.0% per year.~~

~~Voting Rights~~. As long as any shares of Series A-1 Preferred Stock are outstanding and remain unredeemed, the Company may not, without the majority vote of the Series A-1 Preferred Stock, (a) materially and adversely alter or change the rights, preferences or voting power given to the Series A-1 Preferred Stock, (b) enter into any merger, consolidation or share exchange that materially and adversely affects the rights, preferences or voting power of the Series A-1 Preferred Stock, or (c) waive or amend the dividend restrictions in Sections 3(d) or 3(e) of the Certificate of Designation. The Series A-1 Preferred Stock will not have any other voting rights, except as may be provided under applicable law.

~~Liquidation and Redemption.~~ Upon (i) the five-year anniversary of the initial issuance date (July 3, 2023), or (ii) the earlier liquidation, dissolution or winding-up of the Company (the “Series A-1 Mandatory Redemption Date”), the holders of Series A-1 Preferred Stock will be entitled to cash redemption of their shares in an amount equal to $100.00 per share plus any accrued and unpaid dividends. In addition, prior to the Mandatory Redemption Date, the Company may optionally redeem the Series A-1 Preferred Stock, in whole or in part, at par plus any accrued and unpaid dividends.

Holders of Series A-1 Preferred Stock may also optionally cause the Company to redeem all or any portion of their shares of Series A-1 Preferred Stock beginning any time after the two-year anniversary of the initial issuance date for an amount equal to $100.00 per share plus any accrued and unpaid dividends, which amount may be settled in cash or common stock of the Company, at the option of the holder. If a holder elects to receive common stock, shares will be issued as payment for redemption at the rate of $11.75 per share of common stock.

~~As of June 28, 2020, there were 45,000 shares of Series A-1 Preferred Stock outstanding.~~

~~The Company classifies the Series A-1 Preferred Stock as long-term debt because it contains an obligation to issue a variable number of common shares for a fixed monetary amount.~~

~~As of June 28, 2020, the net Series A-1 Preferred Stock balance was $4,421,000 which is net of an unaccreted debt discount of $58,000 and unamortized debt offering costs of $21,000.~~

The Company recognized interest expense on the Series A-1 Preferred Stock of $123,000 for the twenty-six weeks ended June 28, 2020, which was net of an adjustment to the debt discount in the amount of $15,000, as well as $3,000 for the amortization of debt offering costs. The Company recognized interest expense on the Series A-1 Preferred Stock of $74,000 for$0.2 million during the thirteen weeks ended June 28, 2020, which included recognized accretion expense of $4,000, as well as $1,000 for the amortization of debt offering costs. The Company recognized interest expense on the Series A-1 Preferred Stock of $154,000 for the twenty-six weeks ended June 30, 2019, which included recognized accretion expense of $16,000, as well as $3,000 for the amortization of debt offering costs. The Company recognized interest expense on the Series A-1 Preferred Stock of $77,000 for the thirteen weeks ended June 30, 2019, which included recognized accretion expense of $8,000, as well as $1,700 for the amortization of debt offering costs. The year-to-date effective interest rate for the Series A-1 Preferred Stock for 2020 was 5.6%.27, 2021.

On July 13, 2020, the Company entered into an agreement to exchange all outstanding shares of Series A-1 Preferred Stock, plus accrued dividends thereon, for shares of newly issued Series B Preferred Stock valued at $25.00 per share pursuant to a Settlement, Redemption and Release Agreement with the holders of such shares (See Note 20).

The issuance of the Series A Preferred Stock and Series A-1 Preferred Stock was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the investors in the Offering represented that it is an accredited investor within the meaning of Rule 501(a) of Regulation D and was acquiring the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered without any general solicitation by the Company or its representatives.

Note ~~12. Related Party Transactions~~14. RELATED PARTY TRANSACTIONS

During the twenty-six weeks ended June 27, 2021, there were no reportable related party transactions. For the twenty-six weeks ended June 28, 2020, the Company reported the following:

Due from Affiliates

On April 24, 2020, the Company entered into an Intercompany Revolving Credit Agreement with FCCG (“Intercompany Agreement”). The Company had previously extended credit to FCCG pursuant to a certain Intercompany Promissory Note (the “Original Note”), dated October 20, 2017, with an initial principal balance of ~~$11,906,000.~~$11.9 million. Subsequent to the issuance of the Original Note, the Company and certain of its direct or indirect subsidiaries made additional intercompany advances. Pursuant to the Intercompany Agreement, the revolving credit facility bears interest at a rate of 10% per annum, has a five-year term with no prepayment penalties, and has a maximum capacity of ~~$35,000,000.~~$35.0 million. All additional borrowings under the Intercompany Agreement are subject to the approval of the Board of Directors, in advance, on a quarterly basis and may be subject to other conditions as set forth by the Company. The initial balance under the Intercompany Agreement totaled ~~$21,067,000~~$21.1 million including the balance of the Original Note, borrowings subsequent to the Original Note, accrued and unpaid interest income and other adjustments through December 29, 2019. As of June 28, 2020, the balance receivable under the Intercompany Agreement was ~~$29,529,000.~~$29.5 million.

During the twenty-six weeks ended June 28, 2020, the Company recorded a receivable from FCCG in the amount of ~~$154,000~~$0.2 million under the Tax Sharing Agreement, which was added to the intercompany receivable. ~~During the twenty-six weeks ended June 30, 2019, the Company recorded a receivable from FCCG in the amount of $46,000 under the Tax Sharing Agreement (See Note 8).~~

Effective July 5, 2018, the Company made a preferred capital investment in Homestyle Dining LLC, a Delaware limited liability corporation (“HSD”) in the amount of ~~$4.0~~ $4.0 million (the “Preferred Interest”). FCCG owns all of the common interests in HSD. The holder of the Preferred Interest is entitled to a 15%per annum priority return on the outstanding balance of the investment (the “Preferred Return”). Any available cash flows from HSD on a quarterly basis are to be distributed to pay the accrued Preferred Return and repay the Preferred Interest until fully retired. On or before the five-year anniversary of the investment, the Preferred Interest is to be fully repaid, together with all previously accrued but unpaid Preferred Return. FCCG has unconditionally guaranteed repayment of the Preferred Interest in the event HSD fails to do so. As of June 28, 2020, the balance receivable, including accrued and unpaid interest income, under the Preferred Interest was ~~$5,200,000.~~$5.2 million.

~~Series B Cumulative Preferred Stock~~Note 15. STOCKHOLDERS’ EQUITY

On October 3 and October 4, 2019, the Company completed the initial closing of its continuous public offering (the “Series B Preferred Offering”) of up to $30,000,000 of units (the “Series B Units”) at $25.00 per Series B Unit, with each Series B Unit comprised of one share of 8.25% Series B Cumulative Preferred Stock (“Series B Preferred Stock”) and 0.60 warrants (the “Series B Warrants”) to purchase common stock at $8.50 per share, exercisable for five years. At the initial closing of the Preferred Offering, the Company completed the sale of 43,080 Series B Units for gross proceeds of $1,077,000.

As of June ~~28, 2020, the following reportable related persons participated in the initial closing of the Company’s Preferred Offering:~~

	●	Andrew Wiederhorn, the Company’s Chief Executive Officer, acquired 20,000 Series B Units for $500,000 comprised of 20,000 shares of Series B Preferred Stock and 12,000 Series B Warrants to purchase 12,000 shares of the Company’s common stock at $8.50 per share, and

	●	Squire Junger, a member of the Company’s Board of Directors, acquired 5,000 Series B Units for $125,000 comprised of 5,000 shares of Series B Preferred Stock and 3,000 Series B Warrants to purchase 3,000 shares of the Company’s common stock at $8.50 per share.

	●	In aggregate, Mr. Wiederhorn, Mr. Junger, and other related parties acquired 33,000 Series B Units for $825,000 comprised of 33,000 shares of Series B Preferred Stock and 19,800 Series B Warrants to purchase 19,800 shares of the Company’s common stock at $8.50 per share.

~~Note 13. SHAREHOLDERS’ EQUITY~~

~~As of June 28, 2020,~~27, 2021 and December ~~29, 2019,~~27, 2020, the total number of authorized shares of common stock was 25,000,000, and there were ~~11,894,895~~12,491,528 and ~~11,860,299~~11,926,264 shares of common stock issued and outstanding, respectively.

Below are the changes to the Company’s common stock during the twenty-six weeks ended June ~~28, 2020:~~27, 2021:

	●	~~On February 11, 2020, the non-employee members of the board of directors elected~~Warrants to ~~receive their compensation in shares of the Company’s common stock in lieu of cash. As such, the Company issued a total of 16,360~~purchase 289,227 shares of common stock ~~at a value of $4.585 per share~~were exercised during the twenty-six weeks ended June 27, 2021. The proceeds to the ~~non-employee members~~Company from the exercise of the ~~board of directors as consideration for accrued directors’ fees.~~warrants totaled $1.1 million.

	●	OnBetween April 6, 2021 and May ~~12, 2020, the non-employee members of the board of directors elected to receive their compensation in shares of the Company’s common stock in lieu of cash. As such,~~18, 2021, the Company ~~issued a total of 18,236~~granted 300,000 restricted shares of common stock to certain senior executives of the Company. The shares vest over three yearsin equal installments at athe anniversary date of grant. The value of ~~$3.29~~ the restricted stock grant was $2.8 million and will be amortized as expense over the vesting period.

	●	On June 21, 2021, the Company entered into an agreement to issue 62,500 shares of common stock with a market value of $0.8 million in partial payment of the acquisition purchase price payable relating to the acquisition of Yalla Mediterranean (See Note 13). The shares were issued on June 30, 2021.

	●	On April 20, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on May 7, 2021 to stockholders of record as of May 3, 2021, for a total of $1.6 million.

	●	On June 1, 2021, the ~~non-employee members~~Board of ~~the board~~Directors declared a cash dividend of ~~directors~~$0.13 per share of common stock, payable on June 21, 2021 to stockholders of record as ~~consideration~~of June 14, 2021, for ~~accrued directors’ fees.~~a total of $1.6 million.

Note ~~14.~~ 16. SHARE-BASED COMPENSATION

Effective September 30, 2017, the Company adopted the 2017 Omnibus Equity Incentive Plan (the “Plan”). The Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, FAT Brands Inc. and its subsidiaries. The Plan provides a maximum of 1,021,250 shares available for grant.

The Company has periodically issued stock options under the Plan. All of the stock options issued by the Company to date have included a vesting period of three years, with one-third of each grant vesting annually. ~~The Company’s~~As of June 27, 2021, there were 656,105 stock ~~option activity for fiscal year~~options outstanding with a weighted average exercise price of $9.34 per share.

During the thirteen weeks ended June ~~28, 2020 can~~27, 2021 the Company granted a total of 300,000 shares of its common stock to three employees (the “Grant Shares”). The Grant Shares vest one-third each year on the anniversary date of the grant. The grantees are entitled to any common dividends relating to the Grant Shares during the vesting period. The Grant Shares were valued at $2.8 million as of the date of grant. The related compensation expense will be ~~summarized as follows:~~recognized over the vesting period.

Number of Shares Weighted
Average
Exercise
Price Weighted Average Remaining Contractual
Life (Years)
Stock options outstanding at December 29, 2019 722,481 $ 8.45 8.0
Grants - - -
Forfeited (127,648 ) 7.60 8.3
Expired - - -
Stock options outstanding at June 28, 2020 594,833 $ 8.64 7.9
Stock options exercisable at June 28, 2020 296,145 $ 9.85 7.7

~~The assumptions used in the Black-Scholes valuation model to record the stock-based compensation are as follows:~~

	~~Including Non-Employee Options~~
~~Expected dividend yield~~	~~4.00% - 10.43~~	%
~~Expected volatility~~	~~30.23% - 31.73~~	%
~~Risk-free interest rate~~	~~1.52% - 2.85~~	%
~~Expected term (in years)~~	~~5.50 – 5.75~~

The Company recognized share-based compensation expense in the amount of ~~$15,000~~$0.2 million and ~~$16,000~~$1,000, during the thirteen ~~and twenty-six~~ weeks ended June 27, 2021 and June 28, 2020, respectively. The Company recognized share-based compensation expense in the amount of ~~$78,000~~$0.2 million and ~~$159,000~~$16,000, during the ~~thirteen and~~ twenty-six weeks ended June ~~30, 2019,~~27, 2021 and June 28, 2020, respectively. As of June ~~28, 2020,~~27, 2021, there remains ~~$59,000~~$2.7 million of related share-based compensation expense relating to non-vested grants, which will be recognized over the remaining vesting period, subject to future forfeitures.

~~Note 15. WARRANTS~~

~~As of June 28, 2020, the Company had issued the following outstanding warrants to purchase shares of its common stock:~~

	●	Warrants issued on October 20, 2017 to purchase 81,700 shares of the Company’s stock granted to the selling agent in the Company’s initial public offering (the “Common Stock Warrants”). The Common Stock Warrants are exercisable commencing April 20, 2018 through October 20, 2022. The exercise price for the Common Stock Warrants is $14.69 per share, and the Common Stock Warrants were valued at $124,000 at the date of grant. The Common Stock Warrants provide that upon exercise, the Company may elect to redeem the Common Stock Warrants in cash by paying the difference between the applicable exercise price and the then-current fair market value of the common stock.

	●	Warrants issued on June 7, 2018 to purchase 102,125 shares of the Company’s common stock at an exercise price of $7.83 per share (the “Subscription Warrants”). The Subscription Warrants were issued as part of the Subscription Agreement (see Note 11). The Subscription Warrants were valued at $87,000 at the date of grant. The Subscription Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.24

	●	Warrants issued on June 27, 2018 to purchase 25,530 shares of the Company’s common stock at an exercise price of $7.83 per share (the “Exchange Warrants”). The Exchange Warrants were issued as part of the Exchange (See Note 11). The Exchange Warrants were valued at $25,000 at the date of grant. The Exchange Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.

	●	Warrants issued on July 3, 2018 to purchase 57,439 shares of the Company’s common stock at an exercise price of $7.83 per share (the “Hurricane Warrants”). The Hurricane Warrants were issued as part of the acquisition of Hurricane. The Hurricane Warrants were valued at $58,000 at the date of grant. The Hurricane Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.

	●	Warrants issued on July 3, 2018 to purchase 509,604 shares of the Company’s common stock at an exercise price of $7.20 per share (the “Lender Warrant”). The Lender Warrant was issued as part of the $16 million credit facility with FB Lending, LLC. The Lender Warrant was valued at $592,000 at the date of grant. The Lender Warrant may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date (See Note 20).

	●	Warrants issued on July 3, 2018 to purchase 66,691 shares of the Company’s common stock at an exercise price of $7.20 per share (the “Placement Agent Warrants”). The Placement Agent Warrants were issued to the placement agents of the $16 million credit facility with FB Lending, LLC (See Note 10). The Placement Agent Warrants were valued at $78,000 at the date of grant. The Placement Agent Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.

	●	Warrants issued on June 19, 2019, in connection with the acquisition of Elevation Burger (See Note 3), to purchase 46,875 shares of the Company’s common stock at an exercise price of $8.00 per share (the “Elevation Warrant”), exercisable for a period of five years, but only in the event of a merger of the Company and FCCG, commencing on the second business day following the potential merger and ending on the five year anniversary thereafter, at which time the Elevation Warrant shall terminate The Elevation Warrants were not valued at the date of grant due to the contingency relating to their exercise.

	●	Warrants issued between October 3, 2019 and December 29, 2019, in connection with the sale of Series B Units (See Note 11), to purchase 34,284 shares of the Company’s common stock at an exercise price of $8.50 per share (the “Series B Warrants”), exercisable for a period of five years from October 3, 2019. The outstanding Series B Warrants were valued at $21,000 at the date of grant (See Note 20).

Note 17. WARRANTS

The Company’s warrant activity for the thirteen weeks ended June ~~28, 2020 is~~27, 2021 was as follows:

SUMMARY OF WARRANT ACTIVITY

Number of
Shares

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Life (Years)

Warrants outstanding at December 29, 2019 2,091,652 $ 3.57 4.0
Grants - - -
Exercised - - -
Forfeited (1,167,404 ) 0.01 4.8
Expired - - -
Warrants outstanding at June 28, 2020 924,248 $ 8.08 3.1
Warrants exercisable at June 28, 2020 877,373 $ 8.08 3.0

~~The range of assumptions used to establish the value of the warrants using the Black-Scholes valuation model are as follows:~~

	~~Warrants~~
~~Expected dividend yield~~	~~4.00% - 6.63~~	%
~~Expected volatility~~	~~30.23% - 31.73~~	%
~~Risk-free interest rate~~	~~0.99% - 1.91~~	%
~~Expected term (in years)~~	~~3.80 - 5.00~~

	Number of Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (Years)
Warrants outstanding at December 27, 2020		2,273,533		$	5.68			3.8
Grants		-		$	-			-
Exercised		(300,437	)	$	(5.05	)		(4.0	)
Warrants outstanding at June 27, 2021		1,973,096		$	5.57			3.7
Warrants exercisable at June 27, 2021		1,954,106		$	5.58			3.7

Note ~~16.~~ 18. DIVIDENDS ON COMMON STOCK

~~Our~~On April 20, 2021, the Board of Directors ~~did not declare a dividend during the twenty-six weeks ended June 28, 2020.~~

~~The Company~~ declared a ~~stock~~cash dividend ~~on February 7, 2019 equal to 2.13% on its common stock, representing the number~~ of ~~shares equal to $0.12~~ $0.13 per share of common stock, ~~based~~payable on ~~the closing price as of February 6, 2019. The stock dividend was paid on February 28, 2019~~ May 7, 2021to stockholders of record as of May 3, 2021, for a total of $1.6 million.

On June 1, 2021, the ~~close~~Board of ~~business on February 19, 2019. The Company issued 245,376 shares~~Directors declared a cash dividend of $0.13 per share of common stock, atpayable on June 21, 2021to stockholders of record as of June 14, 2021, for a ~~per share price~~total of ~~$5.64 in satisfaction of the stock dividend. No fractional shares were issued, instead the Company paid stockholders cash-in-lieu of shares.~~$1.6 million.

Note ~~17. Commitments~~19. COMMITMENTS AND CONTINGENCIES

Litigation

James Harris and ~~Contingencies~~

~~Litigation~~

~~Eric Rojany, et al.~~Adam Vignola v. ~~FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC708539, and~~ ~~Daniel Alden, et al. v. FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC716017.~~

~~On June 7, 2018, FAT Brands, Inc., Andrew Wiederhorn, Ron Roe,~~Squire Junger, James Neuhauser, Edward H. Rensi, ~~Marc L. Holtzman, Squire Junger, Silvia Kessel, Jeff Lotman,~~Andrew Wiederhorn, Fog Cutter Holdings, LLC, and Fog Cutter Capital Group, Inc., and ~~Tripoint Global Equities, LLC (collectively, the “Original Defendants”) were named as defendants in a putative securities class action lawsuit entitled~~ ~~Rojany v.~~ FAT Brands Inc., nominal defendant (Delaware Chancery Court, Case No. ~~BC708539 (the “~~~~Rojany~~ 2021-0511)~~Case”), in the Superior Court~~

On June 10, 2021, plaintiffs James Harris and Adam Vignola, putative stockholders of the ~~State~~Company, filed a derivative action in Delaware nominally on the Company’s behalf against the Company’s current directors and our current and former majority stockholders alleging claims of ~~California, County~~breach of ~~Los Angeles. On July 31, 2018, the~~ ~~Rojany~~ ~~Case was designated as complex, pursuant to Rule 3.400~~fiduciary duty, unjust enrichment and waste arising out of the ~~California Rules of Court and assigned~~Company’s December 2020 merger with Fog Cutter Capital Group, Inc. Mr. Vignola was previously involved in litigation against the ~~matter to the Complex Litigation Program. On August 2, 2018, the Original Defendants were named defendants in~~Company, having filed a ~~second~~ putative class action lawsuit relating to the Company’s 2017 initial public offering, which lawsuit was voluntarily dismissed by stipulation in 2020. The defendants dispute the allegations of the new lawsuit and intend to vigorously defend against the claims. However, this matter is in the early stages and we cannot predict the outcome of this lawsuit. Subject to certain limitations, we are obligated to indemnify our directors in connection with the lawsuit and any related litigation or settlements amounts, which may be time-consuming, result in significant expense and divert the attention and resources of our management. An unfavorable outcome may exceed coverage provided under our insurance policies, could have an adverse effect on our financial condition and results of operations and could harm our reputation.

~~Alden~~Stratford Holding LLC v. ~~FAT Brands~~,Foot Locker Retail Inc. (U.S. District Court for the Western District of Oklahoma, Case No. ~~BC716017 (the “~~~~Alden~~5:12-cv-00772-HE) ~~Case”), filed~~

In 2012 and 2013, two property owners in ~~the same court. On September 17, 2018, the~~ ~~Rojany~~ Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and ~~Alden~~ ~~Cases were consolidated under the~~ ~~Rojany~~ Case number. On October 10, 2018, plaintiffs Eric Rojany, Daniel Alden, Christopher Hazelton-Harrington and Byron Marin (“Plaintiffs”) filed a First Amended Consolidated Complaint against FAT Brands, Inc., Andrew Wiederhorn, Ron Roe, James Neuhauser, Edward H. Rensi,our subsidiary Fog Cutter Capital Group Inc. (now known as Fog Cutter Acquisition, LLC), and Tripoint Global Equities, LLC (collectively, “Defendants”), thereby removing Marc L. Holtzman, Squire Junger, Silvia Kessel and Jeff Lotman as defendants. On November 13, 2018, Defendants filed a Demurrer to First Amended Consolidated Complaint. On January 25, 2019, the Court sustained Defendants’ Demurrer to First Amended Consolidated Complaint with Leave to Amend in Part. Plaintiffs filed a Second Amended Consolidated Complaintfor alleged environmental contamination on February 25, 2019. On March 27, 2019, Defendants filed a Demurrer to the Second Amended Consolidated Complaint. On July 31, 2019, the Court sustained Defendants’ Demurrer to the Second Amended Complaint in Part, narrowing the scopetheir properties, stemming from dry cleaning operations on one of the case. Defendants filed their Answer to the Second Amended Consolidated Complaint on November 12, 2019. On January 29, 2020, Plaintiffs filed a Motion for Class Certification. Plaintiffs’ Motion for Class Certification is fully briefed, and the hearing on Plaintiffs’ Motion for Class Certification is set for September 10, 2020. Defendants dispute Plaintiffs’ allegations and will continue to vigorously defend themselves in this litigation.

~~Adam Vignola, et al. v. FAT Brands Inc., et al.~~~~, United States District Court for the Central District of California, Case No. 2:18-cv-07469.~~

~~On August 24, 2018, the Original Defendants were named as defendants in a putative securities class action lawsuit entitled~~ ~~Vignola v. FAT Brands, Inc.~~~~, Case No. 2:18-cv-07469-PSG-PLA,~~properties. The property owners seek damages in the ~~United States District Court for~~range of $12 million to $22 million. From 2002 to 2008, a former Fog Cutter subsidiary managed a lease portfolio, which included the ~~Central District~~subject property. Fog Cutter denies any liability, although it did not timely respond to one of ~~California. On October 23, 2018, Charles Jordan~~the property owners’ complaints and ~~David Kovacs (collectively, “Lead Plaintiffs”) moved to be appointed lead plaintiffs,~~several of the defendants’ cross-complaints and the Court granted Lead Plaintiffs’ motion on November 16, 2018. On January 15, 2019, Lead Plaintiffs filed a First Amended Class Action Complaint against the Original Defendants. The allegations and claims for relief assertedthus is in ~~Vignola~~ ~~are substantively identical to those asserted in the~~ ~~Rojany~~ Case. Defendants filed a Motion to Dismiss First Amended Class Action Complaint, or, in the Alternative, to Stay the Action In Favor of a Prior Pending Action. On June 14, 2019, the Court denied Defendants’ motion to stay but granted Defendants’ motion to dismiss the First Amended Class Action Complaint, with Leave to Amend. Lead Plaintiffs filed a Second Amended Class Action Complaint on August 5, 2019. On September 9, 2019, Defendants’ filed a Motion to Dismiss the Second Amended Class Action Complaint. On December 17, 2019, the Court granted Defendants’ Motion to Dismiss the Second Amended Class Action Complaint in Part, Without Leave to Amend. The allegations remaining in ~~Vignola~~ ~~are substantively identical to those remaining in the~~ ~~Rojany~~ Case. Defendants filed their Answer to the Second Amended Class Action Complaint on January 14, 2020. On December 27, 2019, Lead Plaintiffs filed a Motion for Class Certification. By order entered March 16, 2020, the Court denied Lead Plaintiffs’ Motion for Class Certification. By order entered April 1, 2020, the Court set various deadlines for the case, including a fact discovery cut-off of December 29, 2020, expert discovery cut-off of February 23, 2021 and trial date of March 30, 2021. On July 16, 2020, the parties reached an agreement in principle to settle this case, pursuant to which lead plaintiffs will dismiss their claims against defendants with prejudice in exchange for a payment by or on behalf of defendants of $75,000.default. The parties are incurrently conducting discovery, and the ~~process of documenting this settlement.~~

~~The Company~~matter is ~~obligated to indemnify its officers and directors to the extent permitted by applicable law in connection with the above actions, and has insurance~~scheduled for ~~such individuals, to the extent of the limits of the applicable insurance policies and subject to potential reservations of rights.~~trial for November 2021. The ~~Company is also obligated to indemnify Tripoint Global Equities, LLC under certain conditions relating to the~~ ~~Rojany~~ ~~and~~ ~~Vignola~~ ~~matters. These proceedings are ongoing and the~~ Company is unable to predict the ultimate outcome of ~~these matters.~~this matter, however, reserves have been recorded on the balance sheet relating to this litigation. There can be no assurance that the defendants will be successful in defending against these actions.

SBN FCCG LLC v FCCGI (Los Angeles Superior Court, Case No. BS172606)

SBN FCCG LLC (which we refer to as “SBN”) filed a complaint against Fog Cutter Capital Group, Inc. (which we refer to as “FCCG”) in New York state court for an indemnification claim (which we refer to as the “NY case”) stemming from an earlier lawsuit in Georgia regarding a certain lease portfolio formerly managed by a former FCCG subsidiary. In February 2018, SBN obtained a final judgment in the NY case for a total of $0.7 million, which included $0.2 million in interest dating back to March 2012. SBN then obtained a sister state judgment in Los Angeles Superior Court, Case No. BS172606 (which we refer to as the “California case”), which included the $0.7 million judgment from the NY case, plus additional statutory interest and fees, for a total judgment of $0.7 million. In May 2018, SBN filed a cost memo, requesting an additional $12,411 in interest to be added to the judgment in the California case, for a total of $0.7 million. In May 2019, the parties agreed to settle the matter for $0.6 million, which required the immediate payment of $0.1 million, and the balance to be paid in August 2019. FCCG wired $0.1 million to SBN in May 2019, but has not yet paid the remaining balance of $0.5 million. The parties have not entered into a formal settlement agreement and they have not yet discussed the terms for the payment of the remaining balance.

The Company is involved in other claims and legal proceedings from time-to-time that arise in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on its business, financial condition, results of operations, liquidity or capital resources.

~~Operating Leases~~

The Company leases corporate headquarters located in Beverly Hills, California comprising 6,137 square feet of space, pursuant to a lease that expires on September 29, 2025, as well as an additional 2,915 square feet of space pursuant to a lease amendment that expires on February 29, 2024. The Company leases 1,775 square feet of space in Plano, Texas for pursuant to a lease that expires on March 31, 2021. As part of the acquisition of Elevation Burger, the Company assumed a lease of 5,057 square feet of space in Falls Church, Virginia that expires on December 31, 2020. The Company subleases approximately 2,500 square feet of this lease to an unrelated third party. The Company is not a guarantor to the leases of the Yalla restaurants that are being refranchised.

~~The Company believes that all existing facilities are in good operating condition and adequate to meet current and foreseeable needs.~~

Note ~~18. geographic information~~20. GEOGRAPHIC INFORMATION AND MAJOR FRANCHISEES

R~~evenues~~evenue by geographic area ~~are~~was as follows (in thousands):

SCHEDULE OF REVENUES BY GEOGRAPHIC AREA

	Thirteen Weeks Ended				Twenty-six Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019		June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
United States	$	2,564	$	5,059	$	6,273	$	9,070	$	6,316	$	2,564	$	11,146	$	6,273
Other countries		543		836		1,257		1,698		1,966		543		3,785		1,257
Total revenues	$	3,107	$	5,895	$	7,530	$	10,768
Total revenue									$	8,282	$	3,107	$	14,931	$	7,530

~~Revenues are~~Revenue is shown based on the geographic location of our franchisees’ restaurants. All ~~our~~ assets are located in the United States.

During the twenty-six weeks ended June 27, 2021 and June 28, 2020, ~~and June 30, 2019,~~ no individual franchisee accounted for more than 10% of the Company’s ~~revenues.~~revenue.

~~NOTE 19. OPERATING SEGMENTS~~

With minor exceptions, the Company’s operations are comprised exclusively of franchising a growing portfolio of restaurant brands. This growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and accounting services. While there are variations in the brands, the nature of the Company’s business is fairly consistent across its portfolio. Consequently, management assesses the progress of the Company’s operations as a whole, rather than by brand or location, which become more significant as the number of brands has increased.

As part of its ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations. During the refranchising period, the Company may operate the restaurants.

The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM reviews financial performance and allocates resources at an overall level on a recurring basis. Therefore, management has determined that the Company has one operating and reportable segment.

NOTE ~~20.~~ 21. SUBSEQUENT EVENTS

~~Pursuant to FASB ASC 855,~~ Management has evaluated all events and transactions that occurred ~~from~~subsequent to June ~~28, 2020~~27, 2021 through the date of issuance of these condensed consolidated financial statements. During this period, the Company did not have any significant subsequent events, ~~other than those described below:~~except as follows:

~~Underwritten Public Offering~~Acquisition of Global Franchise Group

On July ~~13, 2020,~~22, 2021, the Company ~~entered into an underwriting agreement (the “Underwriting Agreement”~~completed the acquisition of LS GFG Holdings Inc. (“GFG”) ~~to issue~~, a franchisor and ~~sell~~operator of a portfolio of five quick service restaurant concepts (Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker), for a total purchase price of $442.5 million, comprised of $350.0 million in ~~a public offering (the “Offering”) 360,000~~cash, $67.5 million in shares of ~~8.25%~~the Company’s Series B Cumulative Preferred Stock ~~(“Series B Preferred Stock”)~~ and 1,800,000 warrants (the “2020 Series B Warrants”) to purchase common stock at $5.00 per share. The Company also granted the underwriters an option to purchase, for a period of 45 calendar days, up to an additional 54,000$25.0 million in shares ~~Series B Preferred Stock and 270,000~~ of the ~~2020 Series B Warrants. In the Underwriting Agreement, the Company agreed~~Company’s Common Stock, subject to pay the underwriters an underwriting discount of 8.0% of the gross proceeds received by the Company in the Offering and issue five-year warrants exercisable for 1% of the securities sold in the Offering.certain customary adjustments, including with respect to working capital, to be finalized no later than 90 days after closing.

In connection with the ~~Offering,~~acquisition of GFG, on July ~~15, 2020~~22, 2021, FAT Brands GFG Royalty I, LLC, a Delaware limited liability company (“GFG Royalty”), a special purpose, wholly-owned subsidiary of the Company, ~~filed~~completed the issuance and sale in a private offering (the “GFG Offering”) of three tranches of fixed rate senior secured notes. The GFG notes were issued in a securitization transaction in which substantially all of the franchising and operating assets of GFG are pledged as collateral to secure the GFG Notes and have the following terms:

SCHEDULE OF SECURITIZATION TRANSACTION OF NOTES

Closing
Date
Class Seniority
Principal
Balance
Coupon
Weighted
Average
Life
(Years)

Non-Call
Period
(Months)

Anticipated
Call Date

Final Legal
Maturity
Date
7/22/2021 A-2 Senior $ 209,000,000 6.00 % 2.01 6 7/25/2023 7/25/2051
7/22/2021 B-2 Senior Subordinated $ 84,000,000 7.00 % 2.01 6 7/25/2023 7/25/2051
7/22/2021 M-2 Subordinated $ 57,000,000 9.50 % 2.01 6 7/25/2023 7/25/2051
In connection with the ~~Secretary~~acquisition of ~~State of Delaware an Amended~~ GFG, on July 22, 2021, the Company issued 3,089,245 and ~~Restated Certificate of Designation of Rights and Preferences~~1,964,865 shares of Series B Cumulative Preferred Stock ~~designating a total of 850,000 shares of Series B Preferred~~and Common Stock, ~~(the “Certificate of Designation”), and~~respectively. Additionally, on July 16, 2020 entered into a Warrant Agency Agreement with VStock Transfer, LLC, to act as the Warrant Agent for the Warrants (the “Warrant Agency Agreement”). The Warrant Agency Agreement sets forth the terms of the Warrants and includes the form of Warrant Certificate issued to investors in the Offering. The Warrants are exercisable beginning on the earlier of one year from the date of issuance or the consummation of a consolidation, merger or other similar business combination transaction involving the Company (or any of its subsidiaries) and its parent company, Fog Cutter Capital Group Inc., and will expire on July 16, 2025.
~~The Offering closed on July 16, 2020 with net proceeds to the Company of $8,211,000, which was net of $790,000 in underwriting and offering costs.~~
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~~Exchange Transactions~~
~~On July 13, 2020, the Company entered into the following additional transactions:~~
1. The Company entered into an agreement to redeem 80,000 outstanding shares of the Series A Preferred Stock, plus accrued dividends thereon, held by Trojan Investments, LLC pursuant to a Stock Redemption Agreement that provides for the redemption at face value of a portion of such shares for cash from the proceeds of the Offering and the balance to be redeemed in $2 million tranches every six months, with the final payment due by December 31, 2021.
2. The Company entered into an agreement to redeem 5,000 outstanding shares of Series A Preferred Stock, plus accrued dividends thereon, held by Ridgewood Select Value Fund LP and its affiliate at face value for cash from the proceeds of the Offering.
3. The Company entered into an agreement to exchange 15,000 outstanding shares of Series A Preferred Stock, plus accrued dividends thereon, held by Fog Cutter Capital Group, Inc. at face value for shares of Series B Preferred Stock valued at $25.00 per share.
4. The Company entered into an agreement to exchange all outstanding shares of Series A-1 Fixed Rate Cumulative Preferred Stock, plus accrued dividends thereon, for shares of Series B Preferred Stock valued at $25.00 per share pursuant to a Settlement, Redemption and Release Agreement with the holders of such shares; and
5. The Company entered into an agreement to exchange 34,284 outstanding Series B Warrants issued in October 2019 for 285,700 Warrants (the same class issued in the offering), pursuant to Warrant Exchange Agreements with the holders of the warrants in consideration of their consent to amend and restate the terms of the Series B Cumulative Preferred Stock.
~~The transactions described above were exempt from the registration requirements of the Securities Act of 1933, as amended (the “~~~~Securities Act~~”) pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws.
~~Warrant Purchase~~
~~On July 30, 2020,~~22, 2021, the Company entered into a ~~warrant~~put/call agreement with the GFG sellers, pursuant to which the Company may purchase ~~agreement (the “Lender Warrant Purchase Agreement”)~~or the GFG Sellers may require the Company to purchase ~~the Lender Warrant for $249,500. Issued by the Company on July 3, 2018, the Lender Warrant grants the right to purchase 509,604~~3,089,245 shares of ~~the Company’s common stock at an exercise price of $7.20 per share. The Lender Warrant may be exercised at any time~~Series B Cumulative Preferred Stock for $67.5 million plus accrued but unpaid dividends on or ~~times beginning on the issue date and ending on the five-year anniversary of the issue date (See Note 15).~~before April 22, 2022.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the ~~thirteen and~~ twenty-six weeks ended June ~~28, 2020~~27, 2021 and June ~~30, 2019,~~28, 2020, as applicable. Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, including but not limited to, COVID-19. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed on ~~April 28, 2020~~March 29, 2021 “Item 1A. Risk Factors” and elsewhere in this report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire.
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus ~~(COVID-19)~~(“COVID-19”) as a pandemic, which continues to spread throughout the United States and other countries. As a result, Company franchisees ~~have~~ temporarily closed some retail locations, reduced or modified store operating hours, adopted a “to-go” only operating model, or a combination of these actions. These actions ~~have~~ reduced consumer traffic, all resulting in a negative impact to Company ~~revenues.~~revenue. While the disruption to our business from the COVID-19 pandemic is currently expected to be temporary, there is a great deal of uncertainty around the severity and duration of the disruption, and also the longer-term effects on our business and economic growth and consumer demand in the U.S. and worldwide. The effects of COVID-19 may materially adversely affect our business, results of operations, liquidity and ability to service our existing debt, particularly if these effects continue in place for a significant amount of time.
~~As of June 28, 2020, the Company recorded goodwill impairment charges of $1,462,000 and tradename impairment charges of $1,712,000 relating to the Ponderosa and Bonanza brands. As~~ If additional information becomes available regarding the potential impact and the duration of the negative financial effects of the current pandemic, the Company may determine that additional impairment ~~adjustments~~adjustment to the recorded value of trademarks, goodwill and other intangible assets may be necessary.
Executive Overview
Business overview
FAT Brands Inc.~~, formed~~ is a leading multi-brand restaurant franchising company that develops, markets and acquires primarily quick-service, fast casual and casual dining concepts restaurant concepts around the world. Organized in March 2017 as a wholly owned subsidiary of Fog Cutter Capital Group, Inc. (“FCCG”), ~~is a leading multi-brand restaurant franchising company that develops, markets, and acquires predominantly fast casual restaurant concepts around the world. On~~we completed our initial public offering on October 20, 2017 ~~we completed an initial public offering~~ and issued additional shares of common stock representing 20 percent of our ownership ~~(the “Offering”). As of June 28, 2020, FCCG continues to control a significant voting majority~~upon completion of the ~~Company.~~offering. During the fourth quarter of 2020, we completed a transaction in which FCCG merged into a wholly owned subsidiary of ours, and we became the parent company of FCCG.
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As a franchisor, we generally do not own or operate restaurant locations, but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties. This asset light franchisor model provides the opportunity for strong profit margins and an attractive free cash flow profile while minimizing restaurant operating company risk, such as long-term real estate commitments or capital investments. Our scalable management platform enables us to add new stores and restaurant concepts to our portfolio with minimal incremental corporate overhead cost, while taking advantage of significant corporate overhead synergies. The acquisition of additional brands and restaurant concepts as well as expansion of our existing brands are key elements of our growth strategy.
As of June ~~28, 2020,~~27, 2021, the Company owns ~~eight~~nine restaurant brands: Fatburger, Johnny Rockets, Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Ponderosa and Bonanza Steakhouses, Elevation Burger and Yalla ~~Mediterranean that~~Mediterranean. Combined, these brands franchise ~~over 375~~approximately 700 restaurant locations, ~~worldwide.~~including units under construction.
~~Operating segments~~
With minor exceptions, our operations are comprised exclusively of franchising a growing portfolio of restaurant brands. Our growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and accounting services. While there are variations in the brands, the nature of our business is fairly consistent across our portfolio. Consequently, our management assesses the progress of our operations as a whole, rather than by brand or location, which has become more significant as the number of brands has increased.
Our chief operating decision maker (“CODM”) is our Chief Executive Officer. Our CODM reviews financial performance and allocates resources at an overall level on a recurring basis. Therefore, management has determined that the Company has one operating and reportable segment.
Results of Operations
We operate on a 52-week or 53-week fiscal year ending on the last Sunday of the calendar year. In a 52-week fiscal year, each quarter contains 13 weeks of operations. In a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations, which may cause our revenue, expenses and other results of operations to be higher due to an additional week of operations. ~~The 2020 and 2019 fiscal years are each 52-week years.~~
Results of Operations of FAT Brands Inc.
The following table ~~summarizes~~summarize key components of our ~~combined~~condensed consolidated results of operations for the thirteen ~~weeks~~ and twenty-six weeks ended June ~~28, 2020~~27, 2021 and June 30, 2019. Except for the short period subsequent to its acquisition, the results of Elevation Burger were not included in the operations for the periods ended June 30, 2019 because that subsidiary was acquired by the Company on June 19, 2019.28, 2020.
(In thousands)
Thirteen Weeks Ended Twenty-six Weeks Ended
June 28, 2020 June 30, 2019 June 28, 2020 June 30, 2019
Statement of operations data:

Revenues
Royalties $ 2,213 $ 3,663 $ 5,522 $ 7,127
Franchise fees 273 994 449 1,306
Store opening fees - 184 - 289
Advertising fees 613 1,031 1,544 2,008
Management fees and other income 8 23 15 38
Total revenues 3,107 5,895 7,530 10,768

Costs and expenses
General and administrative expenses 4,104 3,106 7,636 5,820
Advertising expenses 613 1,031 1,544 2,008
Impairment of assets 3,174 - 3,174 -
Refranchising restaurant losses (gains) 1,006 (467 ) 1,544 51
Costs and expenses 8,897 3,670 13,898 7,879

(Loss) income from operations (5,790 ) 2,225 (6,368 ) 2,889

Other income (expense), net 450 (1,389 ) (1,639 ) (3,482 )

(Loss) income before income tax expense (5,340 ) 836 (8,007 ) (593 )

Income tax (benefit) expense (1,089 ) 1,344 (1,386 ) 625

Net loss $ (4,251 ) $ (508 ) $ (6,621 ) $ (1,218 )
Thirteen Weeks Ended Twenty-six Weeks Ended

June 27,
2021

June 28,
2020

July 27,
2021

June 28,
2020

Statements of operations data:

Revenue
Royalties $ 6,161 $ 2,213 $ 11,057 $ 5,522
Franchise fees 482 273 1,022 449
Advertising fees 1,370 613 2,560 1,544
Restaurant sales 234 - 234 -
Management fees and other income 35 8 58 15
Total revenue 8,282 3,107 14,931 7,530

Costs and expenses
General and administrative expense 5,483 4,104 10,408 7,636
Restaurant operating expenses 244 - 244 -
Advertising expenses 1,367 613 2,560 1,544
Impairment of assets - 3,174 - 3,174
Refranchising restaurant (gain) loss (856 ) 1,006 (429 ) 1,544
Total costs and expenses 6,238 8,897 12,783 13,898

Income (loss) from operations 2,044 (5,790 ) 2,148 (6,368 )

Other (expense) income, net (9,967 ) 450 (12,632 ) (1,639 )

Loss before income tax expense (7,923 ) (5,340 ) (10,484 ) (8,007 )

Income tax benefit (1,992 ) (1,089 ) (2,121 ) (1,386 )

Net loss (5,931 ) (4,251 ) (8,363 ) (6,621 )
Less: Net loss attributable to noncontrolling interest (5 ) - (5 ) -
Net loss attributable to FAT Brands Inc. $ (5,926 ) $ (4,251 ) $ (8,358 ) $ (6,621 )
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For the twenty-six weeks ended June ~~28, 2020~~27, 2021 and June ~~30, 2019:~~28, 2020:
~~Net Loss~~- Net loss for the twenty-six weeks ended June 28, 2020 totaled $6,621,000 consisting of revenues of $7,530,000 less costs and expenses of $13,898,000, other expense of $1,639,000 and income tax benefit of $1,386,000. Net loss for the twenty-six weeks ended June 30, 2019 totaled $1,218,000 consisting of revenues of $10,768,000 less costs and expenses of $8,849,000, other expense of $2,512,000 and income tax expense of $625,000.
~~Revenues~~Revenue - ~~Revenues consist~~Revenue consists of royalties, franchise fees, ~~store opening fees,~~ advertising fees, restaurant sales and other ~~revenues. We had revenues~~revenue. Total revenue increased $7.4 million, or 98.3%, in the first two quarters of ~~$7,530,000 for the twenty-six weeks ended June 28, 2020~~2021, to $14.9 million compared to ~~$10,768,000 for~~$7.5 million in the ~~twenty-six weeks ended June 30, 2019.~~same period of 2020. The ~~decrease~~increase reflects revenue from Johnny Rockets, which was acquired during the third quarter of ~~$3,238,000 reflects~~2020, and the recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant ~~sales and the adoption of a preferred application of ASC 606 related to the recognition of franchise and store opening fees (See Note 2 in the accompanying financial statements).~~sales.
Costs and Expenses – Costs and expenses consist primarily of general and administrative costs, advertising expense impairment charges and refranchising restaurant losses. ~~Our costs~~Costs and expenses decreased $1.1 million, or 8.0%, in the first two quarters of 2021 to $12.8 million compared to the prior year period.
General and administrative expenses increased ~~from $7,879,000~~$2.8 million, or 36.3%, in the first two quarters of 2021 compared to the prior year period, primarily due to higher compensation cost as we filled out the management team and increased professional fees.
Advertising expenses increased $1.0 million, or 65.8%, in the first half of ~~2019 to $13,898,000 in the first half of 2020.~~
For the twenty-six weeks ended June 28, 2020, our general and administrative expenses totaled $7,636,000. For the twenty-six weeks ended June 30, 2019, our general and administrative expenses totaled $5,820,000. The increase in the amount of $1,875,000 was primarily the result of an increase in provisions for bad debts in the amount of $1,160,000 related2021 compared to the ~~effects of the COVID-19 pandemic; an increase in depreciation and amortization of $222,000; an increase in professional fees of $202,000 and an increase in public company related expenses of $180,000.~~
~~Advertising expenses totaled $1,544,000 during the first half of 2020 with $2,008,000 during the comparable~~ prior ~~year period, representing a decrease in advertising expense of $464,000.~~year. These expenses vary in relation to the advertising revenue ~~recognized.~~and have been affected by the acquisition of Johnny Rockets and the increase in customer activity as the recovery from COVID continues.
~~In response to the adverse effects of COVID-19, we considered whether~~We recorded non-cash goodwill ~~and other intangible assets needed to be evaluated for impairment as of June 28, 2020. As a result of this analysis, as of June 28, 2020, the Company recorded goodwill impairment charges of $1,462,000~~ and tradename impairment charges of ~~$1,712,000~~$1.5 million and $1.7 million, respectively, relating to the Ponderosa and Bonanza ~~brands.~~brands during the first half of 2020. There were no impairment charges recorded during the first half of 2021.
Refranchising gains in the ~~comparable period~~first half of ~~2019.~~
~~During the twenty-six weeks ended June 28, 2020, our refranchising efforts resulted~~2021 were comprised of $1.1 million in a net ~~loss~~gains related to refranchised restaurants, partially offset by restaurant operating costs, net of food sales, of $0.7 million. Refranchising losses in the ~~amount~~first half of $1,544,000 compared to $51,000 for the twenty-six weeks ended June 30, 2019. The 2019 period included a gain on the sale and refranchising of two locations in the amount of $970,000 while gains on sales during 2020 were ~~$165,000.~~comprised of restaurant operating costs, net of food sales, of $1.7 million, net of $0.2 million in net gains related to refranchised restaurants.
35
Other ~~Expense~~(Expense) Income – Other ~~net~~ expense for the ~~twenty-six weeks ended June 28, 2020 totaled $1,639,000~~first half of 2021 was $12.6 million and consisted primarily of $5.4 million in net interest expense and a $6.4 million net loss on the extinguishment of ~~$2,839,000, which~~debt. Other expense for the first two quarters of 2020 was $1.6 million and consisted primarily of $2.8 million of net interest expense, partially offset by ~~income in the amount of $1,264,000 from the~~a $1.3 million change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock. ~~Other net expense~~
Income Tax Benefit – The effective rate was 20.2% for the ~~twenty-six weeks ended June 30, 2019 totaled $3,482,000 and consisted primarily~~first two quarters of ~~net interest expense of $3,382,000.~~
~~Income Tax (Benefit) Expense –~~ ~~We recorded an income tax benefit of $1,386,000~~2021 compared to 17.3% for the twenty-six weeks ended June 28, 2020 compared to income tax expense of $625,000 for the twenty-six weeks ended June 30, 2019. These tax results were based on a net loss before taxes of $6,621,000 for 2020 compared to net loss before taxes of $593,000 for 2019. Non-deductible expenses, such as dividends paid on preferred stock, contributed to the higher effective tax rates.comparable period in 2020.
For the thirteen weeks ended June 27, 2021 and June 28, 2020:

Revenue – Total revenue increased $5.2 million, or 166.6%, in the second quarter of 2021, to $8.3 million compared to $3.1 million in the same period of 2020. The increase reflects revenue from Johnny Rockets, which was acquired during the third quarter of 2020, and ~~June 30, 2019:~~

~~Net Loss~~- ~~Net loss for~~ the thirteen weeks ended June 28, 2020 totaled $4,251,000 consisting of revenues of $3,107,000 less costs and expenses of $8,897,000, other income of $450,000 and income tax benefit of $1,089,000. Net loss for the thirteen weeks ended June 30, 2019 totaled $508,000 consisting of revenues of $5,895,000 less costs and expenses of $3,670,000, other expense of $1,389,000 and income tax expense of $1,344,000.

~~Revenues~~ - Revenues consist of royalties, franchise fees, store opening fees, advertising fees and other revenue. We had revenues of $3,107,000 for the thirteen weeks ended June 28, 2020 compared to $5,895,000 for the thirteen weeks ended June 30, 2019. The decrease of $2,788,000 reflectsrecovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales and the adoption of a preferred application of ASC 606 related to the recognition of store opening fees (See Note 2 in the accompanying financial statements). The majority of the decrease in recognized franchise fees was primarily the result of franchisee forfeitures of non-refundable deposits during the 2019 period.sales.

Costs and Expenses –Costs and expenses ~~consist primarily of general and administrative costs, advertising expense and refranchising restaurant gains~~decreased $2.7 million, or ~~losses. Our costs and expenses increased from $3,670,000~~30.0%, to $6.2 million in the second quarter of ~~2019~~2021 compared to ~~$8,897,000~~the prior year period.

General and administrative expenses increased $1.4 million, or 33.6%, in the second quarter of ~~2020.~~

For the thirteen weeks ended June 28, 2020, our general and administrative expenses totaled $4,104,000. For the thirteen weeks ended June 30, 2019, our general and administrative expenses totaled $3,106,000. The increase in the amount of $998,000 was primarily the result of an increase in provisions for bad debts in the amount of $907,000 related2021 compared to the ~~effects of COVID-19; an increase in depreciation~~prior year period, primarily due to higher compensation as we filled out the management team and ~~amortization of $122,000; an increase in~~increased professional ~~fees of $144,000 and an increase in public company related expenses of $88,000. These increases were partially offset by a decrease in travel related expenses of $151,000~~fees.

Advertising expenses ~~totaled $613,000 during~~increased $0.8 million, or 123.0%, in the second quarter of ~~2020,~~2021 compared ~~with $1,031,000 during~~to the prior ~~year period, representing a decrease in advertising expense of $418,000.~~year. These expenses vary in relation to the advertising revenue ~~recognized.~~and have been affected by the acquisition of Johnny Rockets and the increase in customer activity as the recovery from COVID continues.

~~In response to the adverse effects of COVID-19, we considered whether~~We recorded non-cash goodwill ~~and other intangible assets needed to be evaluated for impairment as of June 28, 2020. As a result of this analysis, as of June 28, 2020, the Company recorded goodwill impairment charges of $1,462,000~~ and tradename impairment charges of ~~$1,712,000~~$1.5 million and $1.7 million, respectively, relating to the Ponderosa and Bonanza ~~brands.~~brands during the first half of 2020. There were no impairment charges recorded during the first half of 2021.

Refranchising gains in the ~~comparable period~~second quarter of ~~2019.~~

~~During~~2021 were comprised of $1.1 million in net gains related to refranchised restaurants, partially offset by restaurant operating costs, net of food sales, of $0.2 million. Refranchising losses in the second quarter of 2020 ~~our refranchising efforts resulted in~~were comprised of restaurant operating costs, net of food sales.

Other (Expense) Income – Other expense for the second quarter of 2021 was $10.0 million and consisted primarily of interest expense of $2.7 million and a $6.4 million net loss ~~in the amount of $1,005,000 compared to a gain of $467,000 for the thirteen weeks ended June 30, 2019. The 2019 period included a gain~~ on the ~~sale and refranchising~~extinguishment of ~~two locations in the amount of $970,000 while gains on sales during 2020 period were $165,000.~~

~~Other Income (Expense) –~~ debt. Other income for the ~~thirteen weeks ended June 28,~~second quarter of 2020 ~~totaled $450,000~~was $0.5 million and consisted primarily of ~~income of $1,264,000 from the~~a $1.3 million change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock, ~~which was~~ partially offset by net interest expense of ~~$765,000. Other net expense~~$0.8 million.

Income Tax Benefit – The effective tax rate was 25.1% for the ~~thirteen weeks ended June 30, 2019 totaled $1,389,000 and consisted primarily~~second quarter of ~~net interest expense of $1,265,000.~~

~~Income Tax (Benefit) Expense –~~ ~~We recorded an income tax benefit~~2021 compared to 20.4% for the thirteen weeks ended July 28, 2020 of $1,089,000 and a provision for income taxes of $1,344,000 for the thirteen weeks ended June 30, 2019. These tax results were based on a net loss before taxes of $5,340,000 for 2020 compared to net income before taxes of $836,000 for 2019. Non-deductible expenses, such as dividends paid on preferred stock, contributed to the higher effective tax rates.comparable period in 2020.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, acquisitions and expansion of franchised restaurant locations and for other general business purposes. ~~In addition to our cash on hand, our~~Our primary sources of funds for liquidity during the ~~thirteen~~twenty-six weeks ended June ~~28, 2020~~27, 2021 consisted of ~~cash provided by borrowings.~~net proceeds from financing activities.

We are involved in a world-wide expansion of franchise locations, which will require significant liquidity, primarily from our franchisees. If real estate locations of sufficient quality cannot be located and either leased or purchased, the timing of restaurant openings may be delayed. Additionally, if we or our franchisees cannot obtain capital sufficient to fund this expansion, the extent of or timing of restaurant openings may be reduced or delayed.

We also plan to acquire additional restaurant concepts. These acquisitions typically require capital investments in excess of our normal cash on hand. We would expect that future acquisitions will necessitate financing with additional debt or equity transactions. If we are unable to obtain acceptable financing, our ability to acquire additional restaurant concepts ~~may~~likely would be negatively impacted.

~~As of June 28, 2020,~~On April 26, 2021, we ~~had cash and restricted cash of $3,488,000. On March 6, 2020, the Company~~ completed a whole-business securitization (the “Securitization”) through the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”) in which FAT Royalty issued new notes (the “Securitization Notes”) pursuant an indenture and the supplement thereto (collectively, the “Indenture”). Net proceeds from the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured notes. Proceeds of the ~~Securitization Notes~~Offering were ~~$37,314,000, which consists of the combined face amount of $40,000,000, net of discounts of $246,000 and debt offering costs of $2,440,000 (See “~~~~Liquidity”~~ ~~in Note 1. Organization and Relationship in the accompanying consolidated financial statements). A portion of the proceeds from the Securitization was~~ used to repay ~~the remaining $26,771,000~~ in ~~outstanding balance under the Loan~~full its 2020 Securitization Notes as well as fees and ~~Security Agreement and to pay the debt offering costs~~expenses related to the ~~Securitization.~~Offering, resulting in net proceeds to the Company of approximately $57 million.

On June 22, 2021, we closed a second underwritten public offering of 460,000 shares of 8.25% Series B Cumulative Preferred Stock at a price to the public of $20.00 per share. The ~~remaining~~net proceeds ~~from~~to the ~~Securitization~~Company totaled $8.3 million, after deducting $0.9 million in underwriting discounts and other offering expenses.

In addition to the liquidity provided by these capital market transactions, we have seen improvement in our operating performance subsequent to December 27, 2020, as COVID-19 vaccinations have become more prevalent in the United States and federal, state and local restrictions have eased in many, but not all, of the markets where our franchisees operate. We believe that we will be ~~used for working capital.~~

~~During the thirteen weeks ended June 28, 2020, as a result~~in compliance with our debt covenants and have sufficient sources of COVID-19, the Company received proceeds from the Paycheck Protection Program administered by the Small Business Administration. These loan proceeds totaled $1,532,000 million and relate to FAT Brands Inc. as well as five restaurant locations that are part of the Company’s refranchising program.

While we expect the COVID-19 pandemic to negatively impact our business, results of operations, and financial position, the related financial impact cannot be reasonably estimated at this time. However, we believe that the working capital from the Securitization, Series B Preferred Stock Offering, and PPP proceeds, combined with royalties and franchise fees collected from the limited operations of our franchisees, and disciplined management of our operating expenses will be sufficientcash to meet our ~~current~~ liquidity ~~needs.~~needs for the next twelve months.

Comparison of Cash Flows

Our cash and restricted cash balance was ~~$3,488,000~~$54.0 million as of June ~~28, 2020,~~27, 2021, compared to ~~$25,000~~$7.2 million as of December ~~29, 2019.~~27, 2020.

The following table summarize key components of our condensed consolidated cash flows for the twenty-six weeks ended June ~~28, 2020~~27, 2021 and June 30~~, 2019:~~28, 2020:

For the Twenty-six Weeks Ended

(In thousands)

~~For the Fiscal Years Ended~~

	June 27, 2021			June 28, 2020

Net cash used in operating activities	$	(4,932	)	$	(3,994	)
Net cash provided by (used in) investing activities		221			(6,326	)
Net cash provided by financing activities		51,520			13,783
Increase in cash flows	$	46,809		$	3,463

June 28, 2020 June 30, 2019

Net cash used in operating activities $ (3,994 ) $ (984 )
Net cash used in investing activities (6,326 ) (5,587 )
Net cash provided by financing activities 13,783 6,458
Increase (decrease) in cash flows $ 3,463 $ (113 )

Operating Activities

Net cash used in operating activities ~~was $3,994,000 during~~increased $1.0 million in the ~~twenty-six weeks ended June 28, 2020~~first half of 2021 compared to ~~$984,000 for~~2020. There were variations in the ~~same period~~components of ~~2019.~~the cash from operations between the two periods. Our net loss in ~~2020~~2021 was ~~$6,621,000~~$10.5 million compared to a$6.6 million in 2020. The net ~~loss in 2019 of $1,218,000. The~~positive adjustments to reconcile these net losses to net cash used in ~~operating activities~~operations were ~~$2,627,000~~$3.3 million in ~~2020~~2021 compared to ~~$234,000~~$2.6 million in ~~2019.~~2020. The primary components of the adjustments ~~included:~~to reconcile the net loss to net cash used in operations for each year were as follows:

For the first two quarters of 2021:

	●	~~A $386,000 positive adjustment to cash due to an increase in accounts payable and accrued expenses of $659,000 compared to an increase of $2,337,000 in 2019;~~
	●	A positive adjustment to reconcile cash used in operations due to ~~reserves for bad debts totaling $1,069,000~~a net loss on extinguishment of debt in ~~2020 compared to a negative cash adjustment in 2019~~the amount of ~~$91,000 for recoveries of bad debt reserves;~~$4.9 million,
	●
	●	A ~~positive~~negative adjustment to reconcile cash ~~of $3,174,000 due to impairment charges recorded during the twenty-six weeks ended June 28, 2020. There were no impairments recorded during the 2019 period;~~
	●	A positive adjustment to cash due to accretion expense related to each of the following: (i) the term loan, (ii) the preferred shares, and (iii) the acquisition purchase price payables totaling $705,000 compared to $1,388,000used in ~~2019;~~
	●	~~A positive adjustment to cash due to an increase in dividends payable on preferred stock of $889,000 compared to $577,000 in 2019;~~
	●	~~A positive adjustment to cash~~operations due to an increase in deferred income taxes of ~~$33,000 compared to a decrease of $1,335,000 in 2019;~~$3.0 million,
	●
	●	A positive adjustment to reconcile cash used in operations due to an increase in accrued expense of $2.1 million,

	●	A negative adjustment to reconcile cash used in operations due to a recognized gain on sale of refranchised assets in the amount of $1.1 million and

	●	A negative adjustment to reconcile cash used in operations due to an increase in accounts receivable of $1.4 million.

For the first two quarters of 2020:

	●	A positive adjustment to reconcile cash used in operations due to non-cash impairment charges in the amount of $3.2 million,

	●	A negative adjustment to reconcile cash used in operations due to an increase in accrued interest ~~income due~~receivable from ~~an affiliate~~affiliates in the amount of ~~$1,554,000~~$1.6 million,

	●	A positive adjustment to reconcile cash used in ~~2020 compared~~operations due to ~~$623,000~~a provision for bad debt in the ~~2019 period;~~amount of $1.1 million,
	●
	●	A negative adjustment to reconcile cash used in operations due to ~~a change~~the decrease in the fair value of ~~the~~a derivative liability ~~resulting from the conversion feature of preferred stock~~ in the amount of ~~$1,261,000. There was no comparable value in 2019;~~$1.3 million and
	●
	●	A negative adjustment to reconcile cash used in operations due to ~~a decrease~~an increase in ~~accrued interest payable~~deferred tax assets of ~~$462,000 compared to a decrease of $1,185,000 in 2019.~~$1.5 million.

Investing Activities

Net cash provided by investing activities was $0.2 million in the first half of 2021, compared to net cash used in investing activities ~~totaled $6,326,000 during~~of $6.3 million in the ~~twenty-six weeks ended June 28, 2020 compared~~first half of 2020. This was primarily due to a ~~cash used of $5,587,000 during~~decrease in the ~~same period of 2019. During 2020, we made~~ advances to ~~affiliates in the amount of $7,040,000 compared to advances of $4,091,000 during 2019. The Company invested cash of $2,332,000 in 2019 for the acquisition of Elevation Burger.~~non-consolidated affiliates.

Financing Activities

Net cash from financing activities ~~totaled $13,783,000 during~~was $51.5 million in the ~~twenty-six weeks ended June 28, 2020 compared~~first two quarters of 2021, primarily comprised of $140.8 million in net proceeds from the issuance of the 2021-1 Securitization Notes and $8.3 million in net proceeds from the issuance of Series B Preferred Shares, partially offset by the repayment of $92.6 million of prior debt, $4.4 million of common and preferred stock dividends and $1.1 million of cash payments to ~~$6,458,000 during~~repay acquisition purchase price payables.

Dividends

On April 20, 2021, the ~~same period of 2019. Proceeds from borrowings were $15,750,000 higher in 2020 than in 2019. Our repayments of borrowings were $7,807,000 higher in 2020 than in 2019.~~

~~Dividends~~

~~Our Board of Directors did not declare any dividends during the twenty-six weeks ended June 28, 2020.~~

~~On February 7, 2019, our~~ Board of Directors declared a ~~stock~~cash dividend ~~equal to 2.13% on its common stock, representing the number~~ of ~~shares equal to $0.12~~$0.13 per share of common stock, ~~based~~payable on ~~the closing price as of February 6, 2019. The stock dividend was paid on February 28, 2019~~May 7, 2021 to stockholders of record as of May 3, 2021. The amount of the ~~close~~dividend totaled $1.6 million.

On June 1, 2021, the Board of ~~business on February 19, 2019. The Company issued 245,376 shares~~Directors declared a cash dividend of $0.13 per share of common stock, atpayable on June 21, 2021 to stockholders of record as of June 14, 2021, for a ~~per share price~~total of $5.64 in satisfaction of the stock dividend. No fractional shares were issued, instead the Company paid stockholders cash totaling $1,670 for fractional interests based on the market value of the common stock on the record date.$1.6 million.

The declaration and payment of future dividends, as well as the amount thereof, are subject to the discretion of our Board of Directors. The amount and size of any future dividends will depend upon our future results of operations, financial condition, capital levels, cash requirements and other factors. There can be no assurance that we will declare and pay dividends in future periods.

Securitization

On ~~March 6, 2020, we completed a whole-business securitization~~April 26, 2021 (the ~~“Securitization”~~“Closing Date”) ~~through the creation of a bankruptcy-remote issuing entity,~~, FAT Brands Royalty I, LLC, a Delaware limited liability company (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT ~~Royalty”) in which FAT Royalty issued new~~Brands, completed the Offering of three tranches of fixed rate senior secured notes ~~(the “Securitization~~(collectively, the “2021 Securitization Notes”) ~~pursuant to an indenture and the supplement thereto (collectively, the “Indenture”).~~

~~The new notes consist of the following:~~as follows:

Note Public
Rating Seniority Issue
Amount Coupon First Call
Date Final Legal Maturity Date

A-2 BB Senior $ 20,000,000 6.50 % 4/27/2021 4/27/2026
B-2 B Senior Subordinated $ 20,000,000 9.00 % 4/27/2021 4/27/2026

Closing Date	Class	Seniority	Principal Balance		Coupon			Weighted Average Life (Years)		Non-Call Period (Months)		Anticipated Call Date	Final Legal Maturity Date
4/26/2021	A-2	Senior	$	97,104,000		4.75	%		2.25		6	7/25/2023	4/25/2051
4/26/2021	B-2	Senior Subordinated	$	32,368,000		8.00	%		2.25		6	7/25/2023	4/25/2051
4/26/2021	M-2	Subordinated	$	15,000,000		9.00	%		2.25		6	7/25/2023	4/25/2051

Net proceeds from the issuance of the 2021 Securitization Notes ~~were $37,314,000,~~totaled $140.8 million, which ~~consists~~consisted of the combined face amount of ~~$40,000,000, net~~$144.5 million (net of ~~discounts of $246,000 and~~ debt offering costs of ~~$2,440,000. The~~$3.0 million and original issue discount ~~and offering costs will be accreted as additional interest expense over the expected term~~ of ~~the Securitization Notes.~~

A portion of the proceeds from the Securitization was used to repay the remaining $26,771,000 in outstanding balance under the Loan and Security Agreement with Lion and to pay the Securitization debt offering costs. The remaining proceeds from the Securitization will be used for working capital.

In connection with the Securitization, FAT Royalty and each of the FAT Brands Franchising Entities (as defined in the Indenture) entered into a Management Agreement with the Company, dated as of the Closing Date, pursuant to which the Company agreed to act as manager of the Issuer and each of the FAT Brands Franchise Entities. The Management Agreement provides for a Management Fee payable monthly by FAT Royalty to the Company in the amount of $200,000, subject to three percent (3%) annual increases. The primary responsibilities of the manager are to perform certain franchising, distribution, intellectual property and operational functions on behalf of the FAT Brands Franchise Entities pursuant to the Management Agreement.

While the Securitization Notes are outstanding, scheduled payments of principal and interest are required to be made on a quarterly basis. It is expected that the Securitization Notes will be repaid prior to the Final Legal Maturity Date, with the anticipated repayment date occurring in January 2023 for the A-2 Notes and October 2023 for the B-2 Notes (the “Anticipated Repayment Dates”)$0.7 million). If the Company has not repaid or refinanced the Securitization Notes prior to the applicable Anticipated Repayment Date, additional interest expense will begin to accrue and all additional proceeds will be trapped for full amortization, as defined in the Indenture.

The 2021 Securitization Notes ~~are secured by substantially all of the assets of FAT Royalty, including the equity interests in the FAT Brands Franchising Entities. The restrictions placed on the Company’s subsidiaries~~ require that the ~~Company’s~~ principal and interest obligations have first priority ~~after the payment of the Management Fee and certain other FAT Royalty expenses (as defined in the Indenture),~~ and amounts are segregated ~~monthly~~weekly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of ~~monthly~~weekly cash flow that exceeds the required ~~monthly debt service~~weekly interest reserve is generally remitted to the Company. ~~Once the~~Interest payments are required ~~obligations are satisfied, there are no further restrictions, including payment of dividends,~~to be made on ~~the cash flows~~a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on each tranche. The material terms of the ~~subsidiaries.~~

~~The~~2021 Securitization Notes ~~have not been and will not be registered under~~also include, among other things, the Securities Act or the securities laws of any jurisdiction. No Notes or any interest or participation thereof may be reoffered, resold, pledged or otherwise transferred unless such Note meets certain requirements as described in the Indenture.

~~The Notes are subject to certain~~following financial ~~and non-financial covenants, including a~~covenants: (i) debt service coverage ratio, ~~calculation, as defined in the Indenture. In the event that certain covenants are not met, the Notes may become partially or fully due~~(ii) leverage ratio and ~~payable on an accelerated schedule. In addition, the Company may voluntarily prepay, in part or in full, the Notes in accordance with the provisions in the Indenture.~~

~~Capital Expenditures~~

(iii) senior leverage ratio. As of June ~~28,~~27, 2021, we were in compliance with these covenants.

The 2021 Securitization Notes are generally secured by a security interest in substantially all the assets of FB Royalty and its subsidiaries.

A portion of the proceeds of the 2021 Securitization Notes were used to repay and retire the following notes issued in 2020 under the Base Indenture:

Note

Public
Rating

Seniority

Issue Amount

Coupon

First Call Date

Final Legal Maturity Date

Series A-2

Senior

20,000,000

6.50

4/27/2021

4/27/2026

Series B-2

Senior Subordinated

20,000,000

9.00

4/27/2021

4/27/2026

Series M-2

N/A

Subordinated

40,000,000

9.75

4/27/2021

4/27/2026

Capital Expenditures

As of June 27, 2021, we do not have any material commitments for capital expenditures.

Critical Accounting Policies and Estimates

~~Franchise Fees:~~ The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires us to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The services provided by us are highly interrelated with the franchise license and are considered a single performance obligation. Franchise fee revenue from the sale of individual franchises is recognized over the term of the individual franchise agreement. Unamortized non-refundable deposits collected in relation to the sale of franchises are recorded as deferred franchise fees.

~~Store opening fees~~ – Prior to September 29, 2019, we recognized store opening fees in the amount of $35,000 to $60,000 per store from the up-front fees collected from franchisees upon store opening. The amount of the fee was dependent on brand and location (domestic versus international stores). The remaining balance of the up-front fees were then amortized as franchise fees over the life of the franchise agreement. If the fees collected were less than the respective store opening fee amounts, the full up-front fees were recognized at store opening. The store opening fees were based on our out-of-pocket costs for each store opening and are primarily comprised of labor expenses associated with training, store design, and supply chain setup. International fees recognized were higher due to the additional cost of travel.

During the fourth quarter of 2019, we performed a study of other public company restaurant franchisors’ application of ASC 606 and determined that a preferred, alternative industry application exists in which the store opening fee portion of the franchise fees is amortized over the life of the franchise agreement rather than at milestones of standalone performance obligations in the franchise agreements. In order to provide financial reporting consistent with other franchise industry peers, we applied this preferred, alternative application of ASC 606 during the fourth quarter of 2019 on a prospective basis. As a result of the adoption of this preferred accounting treatment under ASC 606, we discontinued the recognition of store opening fees upon store opening and began accounting for the entire up-front deposit received from franchisees as described above in ~~Franchise Fees.~~ ~~A cumulative adjustment to store opening fees and franchise fees was recorded in the fourth quarter of 2019 for store opening fees recognized during the first three quarters of 2019. (See “~~~~Immaterial Adjustments Related to Prior Periods”,~~ ~~in Note 2 of the accompanying financial statements.)~~

~~Royalties:~~ In addition to franchise fee revenue, we collect a royalty calculated as a percentage of net sales from our franchisees. Royalties range from 0.75% to 6% and are recognized as revenue when the related sales are made by the franchisees. Royalties collected in advance of sales are classified as deferred income until earned.

~~Advertising:~~ We require advertising payments based on a percent of net sales from franchisees. We also receive, from time to time, payments from vendors that are to be used for advertising. Advertising funds collected are required to be spent for specific advertising purposes. Advertising revenue and associated expense is recorded on the consolidated statement of operations. Assets and liabilities associated with the related advertising fees are reflected in the Company’s consolidated balance sheets.

●	~~Level 1 inputs are quoted prices in active markets for identical assets or liabilities.~~
●	~~Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities.~~
●	~~Level 3 inputs are unobservable and reflect the Company’s own assumptions.~~

~~Other than the derivative liability, the~~ Company does not have a material amount of financial assets or liabilities that are required to be measured at fair value on a recurring basis under U.S. GAAP (See Note 11). None of the Company’s non-financial assets or non-financial liabilities are required to be measured at fair value on a recurring basis. Assets recognized or disclosed at fair value in theOur condensed consolidated financial statements ~~on a nonrecurring basis include items such as property~~ and ~~equipment, operating lease assets, goodwill and other intangible assets, which~~accompanying notes are ~~measured at fair value if determined to be impaired.~~

~~Goodwill and other intangible assets:~~ ~~Goodwill and other intangible assets~~prepared in accordance with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually, or more frequently if indicators arise. The Company recorded impairment charges in the amount of $3,174,000 relating to goodwill and other intangible assets as of June 28, 2020.

~~Assets classified as held for sale –~~ Assets are classified as held for sale when we commit to a plan to sell the asset, the asset is available for immediate sale in its present condition and an active program to locate a buyer at a reasonable price has been initiated. The sale of these assets is generally expected to be completed within one year. The combined assets are valued at the lower of their carrying amount or fair value, net of costs to sell and included as current assets on the Company’s consolidated balance sheet. Assets classified as held for sale are not depreciated. However, interest attributable to the liabilities associated with assets classified as held for sale and other expenses continue to be recorded as expenses in the Company’s consolidated statement of operations.

~~Income taxes:~~ We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon the ultimate settlement.

~~Share-based compensation:~~ We have a stock option plan which provides for options to purchase shares of our common stock. For grants to employees and directors, we recognize an expense for the value of options granted at their fair value at the date of grant over the vesting period in which the options are earned. Cancellations or forfeitures are accounted for as they occur. Fair values are estimated using the Black-Scholes option-pricing model. For grants to non-employees for services, we revalue the options each reporting period while the services are being performed. The adjusted value of the options is recognized as an expense over the service period. See Note 14 in ourGAAP. Preparing consolidated financial statements ~~for more details on our share-based compensation.~~

~~Use of estimates:~~ ~~The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America~~ requires ~~management~~us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and ~~liabilities~~expenses. These estimates and ~~disclosures~~assumptions are affected by the application of ~~contingent assets~~our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 27, 2020. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and ~~liabilities at~~may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the ~~date of the~~circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and described in our annual consolidated financial statements ~~as well as~~and the ~~reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.~~

~~Recently Adopted Accounting Standards~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements~~related notes included in our Annual Report on Form 10-K for ~~Fair Value Measurement.~~” This ASU adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The Company adopted this ASU onour fiscal year ended December ~~30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.~~27, 2020.

~~The FASB issued ASU No. 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40).~~ The new guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

~~The FASB issued ASU 2019-12,~~ ~~Simplifying the Accounting for Income Taxes:~~ This standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance in certain areas, including the recognition of franchise taxes, recognition of deferred taxes for tax goodwill, allocation of taxes to members of a consolidated group, computation of annual effective tax rates related to enacted changes in tax laws, and minor improvements related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of June ~~28, 2020,~~27, 2021, have concluded that, in regard to the segregation of duties and the financial close process, our disclosure controls and procedures were ~~effective~~not effective.

Recognizing these deficiencies, we are continuing to review our compensating controls and ~~designed~~implement additional procedures in our efforts to ~~ensure~~remediate the above-mentioned weaknesses as well as identifying additional financial accounting staff and third-party consultants to help remedy the weaknesses outlined above.

Changes in internal control over financial reporting

There were no significant changes in our internal control over financial reporting in connection with an evaluation that ~~material information relating~~occurred during the twenty-six weeks ended June 27, 2021 that have materially affected or are reasonably likely to ~~us and~~materially affect our ~~combined subsidiaries is accumulated and communicated to our management to allow timely decisions regarding required disclosure.~~internal control over financial reporting.

Inherent Limitations Over Internal Controls

We do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. ~~We considered these limitations during~~Also, projections of any evaluation of effectiveness to future periods are subject to the ~~development~~risk that controls may become inadequate because of ~~its disclosure controls and procedures and will continually re-evaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.~~

~~Changes in internal control over financial reporting~~

~~There were no significant~~ changes in ~~our internal control over financial reporting in connection~~conditions or that the degree of compliance with ~~an evaluation that occurred during~~ the ~~thirteen weeks ended June 28, 2020 that have materially affected~~policies or ~~are reasonably likely to materially affect our internal control over financial reporting.~~procedures may deteriorate.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~Eric Rojany, et al.~~James Harris and Adam Vignola v. ~~FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC708539, and~~ ~~Daniel Alden, et al. v. FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC716017.~~

~~Adam Vignola, et al. v. FAT Brands Inc., et al.~~~~, United States District Court for the Central District of California, Case No. 2:18-cv-07469.~~

SBN FCCG LLC v FCCGI (Los Angeles Superior Court, Case No. BS172606)

SBN FCCG LLC (which we refer to as “SBN”) filed a complaint against Fog Cutter Capital Group, Inc. (which we refer to as “FCCG”) in New York state court for an indemnification claim (which we refer to as the “NY case”) stemming from an earlier lawsuit in Georgia regarding a certain lease portfolio formerly managed by a former FCCG subsidiary. In February 2018, SBN obtained a final judgment in the NY case for a total of $0.7 million, which included $0.2 million in interest dating back to March 2012. SBN then obtained a sister state judgment in Los Angeles Superior Court, Case No. BS172606 (which we refer to as the “California case”), which included the $0.7 million judgment from the NY case, plus additional statutory interest and fees, for a total judgment of $0.7 million. In May 2018, SBN filed a cost memo, requesting an additional $12,411 in interest to be added to the judgment in the California case, for a total of $0.7 million. In May 2019, the parties agreed to settle the matter for $0.6 million, which required the immediate payment of $0.1 million, and the balance to be paid in August 2019. FCCG wired $0.1 million to SBN in May 2019, but has not yet paid the remaining balance of $0.5 million. The parties have not entered into a formal settlement agreement, and they have not yet discussed the terms for the payment of the remaining balance.

ITEM 1A. RISK FACTORS

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” and elsewhere in our Annual Report on Form 10-K filed on ~~April 28, 2020,~~March 29, 2021, which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in such factors discussed in our Annual Report. The risks described in our Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Common Stock~~

On ~~May 12, 2020,~~June 21, 2021, the Company ~~issued a total of 18,236~~agreed to issue 62,500 shares of common stock ~~at a value of $3.29 per share to the non-employee members~~in partial satisfaction of the ~~board~~purchase price for the acquisition of ~~directors as consideration for accrued directors’ fees.~~

~~The~~Yalla Mediterranean. Such issuance of ~~these shares to the directors are~~securities was exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) ~~of the Securities Act~~thereunder and Rule 506 promulgated under Regulation D under the Securities Act as transactions by an issuer not involving a public offering. The directors acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof.thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit

Incorporated By Reference to

Filed

Incorporated By Reference to

Filed

Number

Description

Form

Exhibit

Filing Date

Herewith

Description

Form

Exhibit

Filing Date

Herewith

2.1

Stock Purchase Agreement, dated June 26, 2021, by and among FAT Brands Inc., LS GFG Holdings Inc., and LS Global Franchise L.P.

8-K

2.1

06/28/2021

3.1

Certificate of Elimination of Series A-1 Fixed Rate Cumulative Preferred Stock, filed with the Delaware Secretary of State on June 9, 2021

8-K

3.1

06/15/2021

3.2

Certificate of Increase of Series B Cumulative Preferred Stock, filed with the Delaware Secretary of State on June 9, 2021

8-K

3.2

06/15/2021

4.1

Base Indenture, dated March 6, 2020, and amended and restated as of April 26, 2021, by and between FAT Brands Royalty I, LLC and UMB Bank, N.A., as trustee and securities intermediary.

8-K

4.1

04/26/2021

4.2

Series 2021-1 Supplement to the Base Indenture, dated April 26, 2021, by and between FAT Brands Royalty I, LLC and UMB Bank, N.A., as trustee.

8-K

4.2

04/26/2021

10.1

Intercompany Revolving Credit Agreement, dated April 24, 2020, by and between FAT Brands Inc. and Fog Cutter Capital Group, Inc.

10-K

10.11

04/28/2020

Guarantee and Collateral Agreement, dated April 26, 2021, by and among each of the Securitization Entities, as Guarantors, in favor of UMB Bank, N.A., as Trustee.

8-K

10.1

04/26/2021

10.2

Management Agreement, dated March 6, 2020, and amended and restated as of April 26, 2021, by and among FAT Brands Inc., FAT Brands Royalty I, LLC, each of the Securitization Entities and UMB Bank, N.A., as Trustee.

8-K

10.2

04/26/2021

10.3

Separation Agreement, by and between FAT Brands Inc. and Rebecca D. Hershinger

8-K/A

99.1

06/30/2021

31.1

Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

X (Furnished)

Inline XBRL Instance Document

X (Furnished)

101.SCH

XBRL Taxonomy Extension Schema Document

X (Furnished)

Inline XBRL Taxonomy Extension Schema Document

X (Furnished)

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

X (Furnished)

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X (Furnished)

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

X (Furnished)

Inline XBRL Taxonomy Extension Definition Linkbase Document

X (Furnished)

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

X (Furnished)

Inline XBRL Taxonomy Extension Label Linkbase Document

X (Furnished)

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

X (Furnished)

Inline XBRL Taxonomy Extension Presentation Linkbase Document

X (Furnished)

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.

	FAT BRANDS INC.

August 6, ~~2020~~2021	By	/s/ ~~Andrew A. Wiederhorn~~Kenneth J. Kuick
		~~Andrew A. Wiederhorn~~Kenneth J. Kuick
		~~President and Chief Executive Officer~~
		~~(Principal Executive Officer)~~

~~August 6, 2020~~	By	~~/s/ Rebecca D. Hershinger~~
		~~Rebecca D. Hershinger~~
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

	Common Stock
					Additional
			Par		paid-in						Accumulated
	Shares		value		capital			Total			deficit			Total

Balance at December 29, 2019		11,860,299	$	1	$	11,413		$	11,414		$	(6,036	)	$	5,378
Net loss		-		-		-			-			(6,621	)		(6,621	)
Issuance of common stock in lieu of cash directors fees payable		34,596		-		135			135			-			135
Share-based compensation		-		-		16			16			-			16
Fair value of derivative liability		-		-		(2,406	)		(2,406	)					(2,406	)
Correction of recorded conversion rights associated with Series A-1 preferred shares		-		-		(90	)		(90	)		-			(90	)

Balance at June 28, 2020		11,894,895	$	1	$	9,068		$	9,069		$	(12,657	)	$	(3,588	)

	June 28, 2020			December 29, 2019
Deferred tax assets (liabilities)
Deferred income	$	1,508		$	1,353
Reserves and accruals		208			208
Intangibles		(154	)		(614	)
Deferred state income tax		(135	)		(91	)
Tax credits		477			244
Share-based compensation		192			192
Property and equipment		(137	)		(137	)
Net operating loss carryforwards		1,661			894
Other		(64	)		(17	)
Total	$	3,556		$	2,032

	Twenty-six Weeks Ended June 28, 2020			Twenty-six Weeks Ended June 30, 2019
Current
Federal	$	(118	)	$	318
State		22			262
Foreign		233			375
		137			955
Deferred
Federal		(1,312	)		(89	)
State		(211	)		(241	)
		(1,523	)		(330	)
Total income tax (benefit) expense	$	(1,386	)	$	625

	Twenty-six Weeks Ended			Twenty-six Weeks Ended
	June 28, 2020			June 30, 2019

Tax benefit at statutory rate	$	(1,681	)	$	(124	)
State and local income taxes		(150	)		14
Foreign taxes		233			375
Tax credits		(233	)		(375	)
Dividends on preferred stock		361			643
Other		84			92
Total income tax expense (benefit)	$	(1,386	)	$	625

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Stock options outstanding at December 29, 2019		722,481		$	8.45		8.0
Grants		-			-		-
Forfeited		(127,648	)		7.60		8.3
Expired		-			-		-
Stock options outstanding at June 28, 2020		594,833		$	8.64		7.9
Stock options exercisable at June 28, 2020		296,145		$	9.85		7.7