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 ~~March 28,~~June 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 ~~May 7,~~August 2, 2021, there were ~~12,229,479~~14,653,961 shares of common stock outstanding.

FAT BRANDS INC.

QUARTERLY REPORT ON FORM 10-Q

~~March 28,~~June 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	3128
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3834
Item 4.	Controls and Procedures	3934

PART II.	OTHER INFORMATION	4035
Item 1.	Legal Proceedings	4035
Item 1A.	Risk Factors	4036
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4036
Item 3.	Defaults Upon Senior Securities	4036
Item 4.	Mine Safety Disclosures	4036
Item 5.	Other Information	4036
Item 6.	Exhibits	4137

SIGNATURES		4238

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FAT BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

	March 28, 2021			December 27, 2020			June 27, 2021			December 27, 2020
					(Audited)		Unaudited
Assets
Current assets
Cash	$	1,163		$	3,944		$	48,124		$	3,944
Restricted cash		3,352			2,867			4,096			2,867
Accounts receivable, net of allowance for doubtful accounts of $762 and $739, as of March 28, 2021 and December 27, 2020, respectively		4,467			4,208
Trade and other notes receivable, net of allowance for doubtful accounts of $103 as of March 28, 2021 and December 27, 2020		210			208
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		10,570			10,831			7,735			10,831
Other current assets		1,968			2,365			2,486			2,365
Total current assets		21,730			24,423			68,241			24,423

Noncurrent restricted cash		400			400			1,800			400
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271, as of March 28, 2021 and December 27, 2020		1,640			1,622
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		31,546			30,551			33,555			30,551
Operating lease right of use assets		4,125			4,469			4,913			4,469
Goodwill		9,706			10,909			9,706			10,909
Other intangible assets, net		47,331			47,711			46,950			47,711
Other assets		1,615			1,059			2,420			1,059
Total assets	$	118,093		$	121,144		$	169,168		$	121,144

Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable	$	8,684		$	8,625		$	8,410		$	8,625
Accrued expenses and other liabilities		19,912			19,833			21,235			19,833
Deferred income, current portion		1,782			1,887			1,684			1,887
Accrued advertising		1,978			2,160			1,980			2,160
Accrued interest payable		1,876			1,847			1,473			1,847
Dividend payable on preferred shares		1,143			893			1,397			893
Liabilities related to assets classified as held for sale		9,656			9,892			7,131			9,892
Current portion of operating lease liability		777			748			929			748
Current portion of preferred shares, net		7,970			7,961			7,980			7,961
Current portion of long-term debt		22,104			19,314			913			19,314
Other		17			17			18			17
Total current liabilities		75,899			73,177			53,150			73,177

Deferred income – noncurrent		9,537			9,099			9,691			9,099
Acquisition purchase price payable		2,829			2,806			776			2,806
Operating lease liability, net of current portion		3,864			4,011			4,508			4,011
Long-term debt, net of current portion		71,464			73,852			146,140			73,852
Other liabilities		76			82			58			82
Total liabilities		163,669			163,027			214,323			163,027

Commitments and contingencies (Note 18)
Commitments and contingencies (Note 19)								-			-

Stockholders’ deficit
Preferred stock, $.0001 par value; 5,000,000 shares authorized; 1,183,272 shares issued and outstanding at March 28, 2021 and December 27, 2020; liquidation preference $25 per share		21,267			21,788
Common stock, $.0001 par value; 25,000,000 shares authorized; 12,029,264 and 11,926,264 shares issued and outstanding at March 28, 2021 and December 27, 2020, respectively		(43,515	)		(42,775	)
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		(23,328	)		(20,896	)		(29,254	)		(20,896	)
Stockholders’ deficit attributable to FAT Brands Inc.								(45,248	)		(41,883	)
Noncontrolling interests								93			-
Total stockholders’ deficit		(45,576	)		(41,883	)		(45,155	)		(41,883	)
Total liabilities and stockholders’ deficit	$	118,093		$	121,144		$	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 share data)

For the Thirteen and Twenty-six Weeks Ended ~~March 28,~~June 27, 2021 and ~~March 29,~~June 28, 2020 (Unaudited)

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

Revenue
Royalties	$	4,898		$	3,309		$	6,161		$	2,213		$	11,057		$	5,522
Franchise fees		540			175			482			273			1,022			449
Advertising fees		1,188			931			1,370			613			2,560			1,544
Other operating income		23			8
Restaurant sales								234			-			234			-
Management fees and other income								35			8			58			15
Total revenue		6,649			4,423			8,282			3,107			14,931			7,530

Costs and expenses
General and administrative expense		4,926			3,531			5,483			4,104			10,408			7,636
Refranchising loss		427			539
Advertising fees		1,192			931
Restaurant operating expenses								244			-			244			-
Impairment of assets								-			3,174			-			3,174
Refranchising (gain) loss								(856	)		1,006			(429	)		1,544
Advertising expense								1,367			613			2,560			1,544
Total costs and expenses		6,545			5,001			6,238			8,897			12,783			13,898

Income (loss) from operations		104			(578	)		2,044			(5,790	)		2,148			(6,368	)

Other income (expense), net
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								(264	)		(476	)		(552	)		(928	)
Net loss on extinguishment of debt								(6,405	)		-			(6,405	)		-
Change in fair value of derivative liability								-			1,264			-			1,264
Other expense, net								(892	)		(49	)		(809	)		(64	)
Interest expense, net of interest income of $0 and $718 due from affiliates during the thirteen weeks ended March 28, 2021 and March 29, 2020, respectively		(2,460	)		(1,622	)
Interest expense related to preferred shares		(288	)		(452	)
Other income (expense), net		83			(16	)
Total other expense, net		(2,665	)		(2,090	)
Total other (expense) income, net								(9,967	)		450			(12,632	)		(1,639	)

Loss before income tax benefit		(2,561	)		(2,668	)
Loss before income tax expense								(7,923	)		(5,340	)		(10,484	)		(8,007	)

Income tax benefit		(129	)		(298	)		(1,992	)		(1,089	)		(2,121	)		(1,386	)

Net loss	$	(2,432	)	$	(2,370	)		(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	$	(0.20	)	$	(0.20	)	$	(0.48	)	$	(0.36	)	$	(0.69	)	$	(0.56	)
Basic and diluted weighted average shares outstanding		11,970,505			11,868,842			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’ DEFICIT

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

For the 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 ~~March 28,~~June 27, 2021

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

Balance at December 27, 2020 11,926,264 $ 1 $ (42,776 ) $ (42,775 ) 1,183,272 $ - $ 21,788 $ 21,788 $ (20,896 ) $  (41,883 )
Net loss - - - - - - - - (2,432 ) (2,432 )
Issuance of common stock through exercise of warrants 103,000 - 426 426 - - 89 89 - 515
Share-based compensation - - 37 37 - - - - - 37
Measurement period adjustment in accordance with ASU 2015-16 - - (1,203 ) (1,203 ) - - - - - (1,203 )
Dividends declared on Series B preferred stock -
-
- - - - (610 ) (610 ) - (610 )

Balance at March 28, 2021 12,029,264 $ 1 $ (43,516 ) $ (43,515 ) 1,183,272 $ - $ 21,267 $ 21,267 $ 23,328 $ (45,576 )

	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 Thirteen Weeks Ended ~~March 29,~~June 28, 2020

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 - - - - (2,370 ) (2,370 )
Issuance of common stock in lieu of director fees payable 16,360 - 75 75 - 75
Share-based compensation - - 15 15 - 15
Correction of recorded conversion rights associated with Series A-1 preferred shares -
-
(90 ) (90 ) - (90 )

Balance at March 29, 2020 11,876,659 $ 1 $ 11,413 $ 11,414 $ (8,406 ) $ 3,008

	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	)

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

~~FAT BRANDS INC.~~

~~CONSOLIDATED STATEMENT OF CASH FLOWS~~

~~(dollars in thousands)~~

~~For the Thirteen Weeks Ended March 28, 2021 and March 29, 2020~~

2021 2020
Cash flows from operating activities
Net loss $ (2,432 ) $ (2,370 )
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes (995 ) (318 )
Depreciation and amortization 398 232
Share-based compensation 37 15
Change in operating right of use assets 605 183
Accretion of loan fees and interest 364 241
Accretion of preferred shares 10 7
Accretion of purchase price liability 24 130
Provision for bad debts - 162
Change in:
Accounts receivable (258 ) 44
Accrued interest receivable from affiliate - (718 )
Prepaid expenses 397 (33 )
Deferred income 332 339
Accounts payable 59 (71 )
Accrued expense 83 (599 )
Accrued advertising (187 ) (8 )
Accrued interest payable 47 (973 )
Dividend payable on preferred shares 278 444
Other (8 ) (78 )
Total adjustments 1,186 (1,001 )
Net cash used in operating activities (1,246 ) (3,371 )

Cash flows from investing activities
Change in due from affiliates - (5,091 )
Payments received on loans receivable - 46
Proceeds from sale of refranchised restaurants - 1,650
Purchases of property and equipment (573 ) (18 )
Net cash used in investing activities (573 ) (3,413 )

Cash flows from financing activities
Proceeds from borrowings and associated warrants, net of issuance costs - 37,271
Repayments of borrowings - (24,149 )
Change in operating lease liabilities (353 ) (149 )
Payments made on acquisition purchase price liability - (500 )
Exercise of warrants 515 -
Dividends paid in cash (639 ) -
Net cash (used in) provided by financing activities (477 ) 12,473

Net (decrease) increase in cash and restricted cash (2,296 ) 5,689
Cash and restricted cash at beginning of the period 7,211 25
Cash and restricted cash at end of the period $ 4,915 $ 5,714

Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,969 $ 1,571
Cash paid for income taxes $ 211 $ 13

Supplemental disclosure of non-cash financing and investing activities:
Director fees converted to common stock $ - $ 75
Income taxes (receivable) payable included in amounts due from affiliates $ - $ (121 )

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

FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands, unaudited)

For the Twenty-six Weeks Ended June 27, 2021 and June 28, 2020

	2021			2020
Cash flows from operating activities
Net loss	$	(8,363	)	$	(6,621	)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes		(3,003	)		(1,524	)
Net loss on extinguishment of debt		4,859			-
Depreciation and amortization		784			500
Share-based compensation		230			16
Change in operating right of use assets		1,065			399
Accretion of loan fees and interest		696			412
Accretion of preferred shares		47			38
Accretion of purchase price liability		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
Provision for bad debts		23			1,069
Change in:
Accounts receivable		(1,395	)		856
Accrued interest receivable from affiliate		-			(1,554	)
Tax Sharing Agreement liability		-			(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		(374	)		(462	)
Dividend payable on preferred shares		533			889
Other		21			45
Total adjustments		3,431			2,627
Net cash used in operating activities		(4,932	)		(3,994	)

Cash flows from investing activities
Change in due from affiliates		-			(7,040	)
Payments received on loans receivable		-			68
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, net of issuance costs		140,789			38,803
Repayments of borrowings		(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		(1,075	)		(500	)
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		51,520			13,783

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	$	4,619		$	2,526
Cash paid for income taxes	$	400		$	17

Supplemental disclosure of non-cash financing and investing activities:
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

NOTE 1. ORGANIZATION AND RELATIONSHIPS

Organization and Nature of Business

FAT Brands Inc. (the “Company or FAT”) 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 2017 as a wholly owned subsidiary of Fog Cutter Capital Group, Inc. (“FCCG”), the Company completed an initial public offering on October 20, 2017 and issued additional shares of common stock representing 20 percent of its ownership. During the fourth quarter of 2020, the Company completed a transaction in which FCCG merged into a wholly owned subsidiary of FAT (the “Merger”), and FAT became the indirect parent company of FCCG.

As of ~~March 28,~~June 27, 2021, the Company owns and franchises ~~nine~~9 restaurant 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, these brands have approximately 700 locations, including units under construction, and more than 200 under development.

Each franchising subsidiary licenses the right to use its brand 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.

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 ~~may~~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 temporarily closed some retail locations, modified store operating hours, adopted a “to-go” only operating model or a combination of these actions. These actions 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 ~~$104,000~~$2.1 million during the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 compared to a loss from operations of ~~$578,000~~$6.4 million for the ~~thirteen~~twenty-six weeks ended ~~March 29,~~June 28, 2020. The Company recognized a net loss of ~~$2,432,000~~$8.4 million during the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 compared to a net loss of ~~$2,370,000~~$6.6million during the ~~thirteen~~twenty-six weeks ended ~~March 29,~~June 28, 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 totaled ~~$1,246,000~~$4.9 million for the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 compared to ~~$3,371,000~~$4.0 million for ~~thirteen~~twenty-six weeks ended ~~March 29,~~June 28, 2020. As of ~~March 28,~~June 27, 2021, the Company’s total liabilities exceeded total assets by ~~$45,576,000~~$45.2 million compared to ~~$41,883,000~~$41.9 million as of December 27, 2020. The change in the Company’s financial position reflects operating improvements as the effects of COVID-19 began to stabilize offset by the assumption of certain liabilities related to the Merger in December 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 the Company’s financial position as of December 27, 2020 raised substantial doubt about the Company’s ability to continue as a going concern as assessed under the framework of FASB’s Accounting Standard Codification (“ASC”) 205 for the twelve months following the date of the issuance of the 2020 Form 10-K.

~~Subsequent to the reporting period ended March 28, 2021, o~~nOn April 26, 2021, the Company completed the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured ~~notes (see Note 21).~~notes. Proceeds of the Offering were used to repay in full its 2020 Securitization Notes as well as fees and expenses related to the Offering, resulting in net proceeds to the Company of approximately ~~$57~~$57 million (see Note 11). ~~The Offering alleviated the substantial doubt about the Company’s ability to continue as a going concern that was disclosed in the 2020 Form 10-K.~~

The Company utilized a portion of the net proceeds from the Offering to repay ~~a portion~~approximately $12.5 million of indebtedness assumed as a result of the Merger (see ~~Notes 11 and 21)~~Note 11).

The change in 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 has experienced ~~significant~~ improvement in its 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 of the markets where its franchisees operate. ~~As a result,~~Management believes that the Company ~~believes that~~will be in compliance with its debt covenants and has sufficient sources of cash to meet its liquidity ~~position will be sufficient~~needs for the next twelve ~~months of operations following the issuance of this Form 10-Q.~~months.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Nature~~Basis of 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.

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. ~~The first reporting period for each of fiscal years 2020 and 2021 were 13 weeks.~~

~~Principles of consolidation~~ – The accompanying 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. 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 intangibles for which there is no active market, the allocation of basis between assets acquired, sold or retained, valuation allowances for notes and accounts receivable, and deferred tax assets. 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 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 ~~quarter~~half of 2021, adjustments were made to provisional amounts reclassifying ~~$1,203,000~~$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 ~~period~~ or ~~during~~ prior periods.

~~Credit and Depository Risks~~ – Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. Management reviews each of its franchisee’s financial condition prior to entry into a franchise or other agreement, as well as periodically through the term of the agreement, and believes that it has adequately provided for exposures to potential credit losses. As of March 28, 2021 and December 27, 2020, accounts receivable, net of allowance for doubtful accounts, totaled $4,466,000 and $4,208,000, with no franchisee representing more than 10% of that amount at either date.

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 March 28, 2021 and December 27, 2020, the Company had uninsured deposits in the amount of $3,931,238 and $6,047,299, respectively.

~~Restricted Cash –~~ The Company has restricted cash consisting of funds required to be held in trust in connection with the Company’s securitized debt. The current portion of restricted cash as of March 28, 2021 and December 27, 2020 consisted of $3,353,000 and $2,867,000, respectively. Non-current restricted cash of $400,000 as of March 28, 2021 and December 27, 2020, represents interest reserves required to be set aside for the duration of the securitized debt.

~~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 March 28, 2021 and December 27, 2020, accounts receivable was stated net of an allowance for doubtful accounts of $762,000 and $739,000, respectively.

~~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.~~9

Other than a derivative liability that existed during part of 2020 and the contingent consideration payable liabilities incurred in connection with the acquisition of certain of our brands, 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 12). None of the Company’s non-financial assets or non-financial liabilities are required to be measured at fair value on a recurring basis.

~~Income taxes~~ – Effective October 20, 2017, the Company entered into a Tax Sharing Agreement with FCCG that provides that FCCG would, 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 would pay FCCG the amount that its tax liability would have been had it filed a separate return. As such, prior to the Merger, the Company accounted for income taxes as if it filed separately from FCCG. The Tax Sharing Agreement was cancelled in connection with the Merger.

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 includes 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 on a straight-line basis. 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 between franchisees. 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, at which point the franchise fee revenue is recognized for non-refundable deposits.

~~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 is recorded on the Company’s consolidated statement of operations. Assets and liabilities associated 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 15 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 the inclusion of all potentially dilutive securities would be anti-dilutive. As of March 28, 2021 and March 29, 2020, there were no potentially dilutive securities considered in the calculation of diluted loss per common share due to losses for each period.

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 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 reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on 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 ~~is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements but~~ does not expect ~~that~~ 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 (the “Merger”). Upon closing of 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 Merger) and ~~will receive~~received certain limited registration rights with respect to the shares received in the Merger. As a result of the Merger, ~~FCCG’s~~FCCG and certain of 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 ~~only~~ 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 805-50-30-6, which ~~indicates~~provides that when there is a transfer of assets or exchange of shares between entities under common control, the receiving entity shall recognize those assets and liabilities at their net carrying amounts at the date of transfer. As such, on the date of the Merger, all of the transferred assets and assumed liabilities of ~~FCCG and~~ the Merged Entities ~~are~~were recorded on the Company’s books at ~~FCCG’s~~the Merged Entities’ book value. The consolidation of the operations of ~~FCCG and~~ the Merged Entities with the Company is presented on a prospective basis from the date of ~~transfer as there has not been a change in the reporting entity.~~transfer.

The Merger resulted in the following assets and liabilities being included in the condensed consolidated financial statements of the Company as of the Merger date (in thousands):

SCHEDULE OF ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS ACQUIRED

					Dec 10, 2020
Prepaid assets	$	33		$	33
Cash
Accounts receivable
Assets held for sale
Goodwill
Other intangible assets
Deferred tax assets		20,402			20,402
Other assets		100			100
Accounts payable		(926	)		(926	)
Accrued expense		(6,846	)		(7,094	)
Current portion of debt		(12,486	)		(12,486	)
Litigation reserve		(3,980	)		(3,980	)
Due to affiliates		(43,653	)		(43,653	)
Deferred franchise fees
Operating lease liability
Other liabilities
Total net identifiable liabilities (net deficit)	$	(47,356	)	$	(47,604	)

A net loss of $432,000 attributed to the Merged Entities is included in the accompanying consolidated statements of operations for the thirteen weeks ended March 28, 2021. There were no revenues attributed to the Merged Entities during the period.

Proforma Information

The table below presents the proforma revenue and net loss of the Company for the thirteen and twenty-six weeks ended ~~March 29,~~June 28, 2020, assuming the Merger 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 Merger occurred on that date, nor does it purport to predict the results of operations for future periods.

Thirteen Weeks Ended
March 28, 2021 March 29, 2020
(Actual) (Proforma)

Revenues $ 6,649 $ 4,423
Net loss $ (2,432 ) $ (4,612 )

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 proforma information above reflects the combination of the Company’s results as disclosed in the accompanying condensed consolidated statements of operations for the thirteen and twenty-six weeks ended ~~March 29,~~June 28, 2020, together with the results of the Merged Entities for the thirteen and twenty-six weeks ended ~~March 29,~~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 ~~31, 2018~~30, 2019 (the beginning of the Company’s ~~2019~~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.

Acquisition of Johnny Rockets

On September 21, 2020, the Company completed the acquisition of Johnny Rockets Holding Co., a Delaware corporation (“Johnny Rockets”) for a cash purchase price of approximately ~~$24.7~~$24.7 million. The transaction was funded with proceeds from an increase in the Company’s securitization facility (See Note 11).

Immediately following the closing of the acquisition of Johnny Rockets, the Company contributed the franchising subsidiaries of Johnny Rockets to FAT Royalty I, LLC pursuant to a Contribution Agreement. (See Note 11).

The preliminary assessment of the fair value of the net assets and liabilities acquired by the Company through the acquisition of Johnny Rockets was estimated at ~~$24,730,000.~~$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):

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

Revenues of $2,257,000 and net loss of $26,000 attributed to Johnny Rockets are included in the accompanying consolidated statements of operations for the thirteen weeks ended March 28, 2021. The net loss attributed to Johnny Rockets includes allocations of corporate overhead in accordance with the Company’s allocation methodology.

The values of goodwill and other intangible assets were initially considered as of the acquisition date. Descriptions of the Company’s subsequent assessments of impairment of the goodwill and other intangible assets acquired in this acquisition related to COVID-19 are 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 ~~March 29,~~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
March 28, 2021 March 29, 2020
(Actual) (Proforma)

Revenues $ 6,649 $ 7,674
Net (loss) income $ (2,432 ) $ (2,357 )

	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 ~~March 29,~~ended June 28, 2020, together with the unaudited results of Johnny Rockets for the thirteen and twenty-six weeks ended ~~March 29,~~June 28, 2020, with the following adjustments:

	●	Revenue – The unaudited proforma ~~revenues~~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 ~~March 29,~~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 ~~also~~ 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.

The Company meets all of the criteria requiring that 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 sheets as of ~~March 28,~~June 27, 2021 and December 27, 2020 (in thousands):

SCHEDULE OF REMAINING ASSETS CLASSIFIED AS HELD FOR SALE

	March 28, 2021		December 27, 2020
	(Unaudited)		(Audited)		June 27, 2021		December 27, 2020

Property, plant and equipment	$	1,355	$	1,352	$	1,025	$	1,352
Operating lease right of use assets		9,215		9,479		6,710		9,479
Total	$	10,570	$	10,831	$	7,735	$	10,831

Operating lease liabilities related to the assets classified as held for sale in the amount of ~~$9,656,000~~$7.1 million and ~~$9,892,000,~~$9.9 million have been classified as current liabilities on the accompanying condensed consolidated balance ~~sheet~~sheets as of ~~March 28,~~June 27, 2021 and December 27, 2020, respectively.

~~Restaurant~~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, ~~totaled $427,000 and $539,000 for~~less $0.2 million in net gains related to refranchised restaurants.

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

During the thirteen weeks ended ~~March 28,~~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 ~~March 29, 2020, respectively.~~operating results of the restaurant are included in the Company’s condensed consolidated financial statements, subject to the noncontrolling interests of the non-affiliated investor.

Note 5. ~~NOTES~~NOTE RECEIVABLE

The Elevation Buyer Note was funded in connection with the purchase of Elevation Burger 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.~~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 (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 ~~March 28,~~June 27, 2021 and December 27, 2020, the balance of the Elevation Note was ~~$1,850,000 and $1,830,000, respectively,~~$1.8 million, which was net of discounts of ~~$247,000~~$0.2 million and ~~$267,000,~~$0.3 million, respectively. During the thirteen and twenty-six weeks ended ~~March 28,~~June 27, 2021, ~~and March 29, 2020,~~ the Company recognized ~~$52,000~~ $50,000 and ~~$53,000~~ $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 and $106,000, respectively, in interest income on the Elevation Buyer Note.

Note 6. GOODWILL

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

SCHEDULE OF GOODWILL

	March 28, 2021		December 27, 2020		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
Yalla		261		261		261		261
Elevation Burger		521		521		521		521
Johnny Rockets		258		1,461		258		1,461
Total goodwill	$	9,706	$	10,909	$	9,706	$	10,909

~~The Company reviewed the carrying value of its goodwill as of December 27, 2020 and recognized impairment charges as deemed necessary at that time.~~ A ~~subsequent~~ review of the carrying value of goodwill as of ~~March 28,~~June 27, 2021 did not result in ~~additional~~any impairment charges for the ~~thirteen~~twenty-six weeks ended as of that date. ~~There were also no~~When considering the available facts, assessments and judgments, as of June 28, 2020, the Company recorded goodwill impairment charges ~~during~~of $1.5 million relating to the ~~thirteen~~Ponderosa and Bonanza brands for the twenty-six weeks ended ~~March 29, 2020.~~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.

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

	March 28, 2021			December 27, 2020			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		300			300			300			300
Yalla		776			776			776			776
Elevation Burger		4,690			4,690			4,690			4,690
Johnny Rockets		20,300			20,300			20,300			20,300
Total trademarks		35,068			35,068			35,068			35,068

Franchise agreements:
Hurricane – cost		4,180			4,180			4,180			4,180
Hurricane – accumulated amortization		(884	)		(804	)		(965	)		(804	)
Ponderosa – cost		1,477			1,477			1,477			1,477
Ponderosa – accumulated amortization		(362	)		(337	)		(388	)		(337	)
Elevation Burger – cost		2,450			2,450			2,450			2,450
Elevation Burger – accumulated amortization		(886	)		(761	)		(1,010	)		(761	)
Johnny Rockets – cost		6,600			6,600			6,600			6,600
Johnny Rockets – accumulated amortization		(312	)		(162	)		(462	)		(162	)
Total franchise agreements		12,263			12,643			11,882			12,643
Total Other Intangible Assets	$	47,331		$	47,711		$	46,950		$	47,711

The Company reviewed the carrying value of its other intangible assets as of ~~December~~June 27, ~~2020~~2021 and ~~recognized impairment charges as deemed necessary at that time. A subsequent review of~~June 28, 2020. During the ~~carrying value as of March 28,~~twenty-six weeks ended June 27, 2021, ~~did not result in additional~~no impairment charges for other intangible assets were deemed necessary. When considering the ~~thirteen~~available facts, assessments and judgments as of June 28, 2020, the Company recorded non-cash tradename impairment charges of $1.7 million relating to the Ponderosa and Bonanza brands for the twenty-six weeks ended as of that date. ~~There were also no~~

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

SCHEDULE OF FUTURE AMORTIZATION

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

Fiscal year:
2021 $ 1,141
2022 1,522
2023 1,522
2024 1,217
2025 1,023
Thereafter 5,838
Total $ 12,263

Note 8. DEFERRED INCOME

Deferred income iswas as follows (in thousands):

SCHEDULE OF DEFERRED INCOME

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

Deferred franchise fees	$	10,742	$	10,003	$	10,548	$	10,003
Deferred royalties		262		291		189		291
Deferred vendor incentives		315		692		638		692
Total	$	11,319	$	10,986	$	11,375	$	10,986

Note 9. ~~Income Taxes~~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).

Effective October 20, 2017, the Company entered into a Tax Sharing Agreement with FCCG that provided that FCCG would, 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. Under the Tax Sharing Agreement, the Company would pay FCCG the amount that its current tax liability would have been had it filed a separate return. An inter-company receivable due from FCCG and its affiliates was applied first to reduce excess income tax payment obligations to FCCG under the Tax Sharing Agreement. The Tax Sharing Agreement was terminated in connection with the Merger during the fourth quarter of 2020.NOTE 10. LEASES

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. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. As of ~~March 28, 2021 and December~~June 27, ~~2020, the Company recorded a valuation allowance against its deferred tax assets in the amount of $678,000 and $513,000, respectively, as it determined that these amounts would not likely be realized.~~

~~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):~~

Thirteen Weeks Ended Thirteen Weeks Ended
March 28, 2021 March 29, 2020

Tax benefit at statutory rate $ (538 ) $ (590 )
State and local income taxes (5 ) (38 )
Foreign taxes 826 121
Tax credits (826 ) (121 )
Dividends on preferred stock 237 280
Valuation allowance
165 -
Other 12 50
Total income tax (benefit) expense $ (129 ) $ (298 )

As of March 28, 2021, the Company’s and its subsidiaries’ annual tax filings for the prior three years are open for audit by Federal and generally, for the prior four years for state tax agencies, based on the filing date for each return. 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 March 28, 2021.

~~NOTE 10. LEASES~~

~~As of March 28,~~ 2021, the Company has ~~thirteen~~ 12operating leases for corporate offices, two Company owned stores and for certain restaurant properties that are in the process of being refranchised. The leases have remaining terms ranging from ~~2.6~~ 2.3 to ~~17.8~~ 7.9 years. The Company recognized lease expense of ~~$810,000~~$0.7million and ~~$347,000~~$0.4million for the thirteen ~~months~~weeks ended ~~March 28,~~June 27, 2021 and ~~March 29,~~June 28, 2020, respectively. For the twenty-six weeks ended June 27, 2021 and June 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 as of ~~March 28,~~June 27, 2021 was ~~7.4~~ 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 27, 2021		December 27, 2020

Right of use assets	$	11,623	$	13,948
Lease liabilities	$	12,568	$	14,651

March 28,
2021

December 27,
2020

Right of use assets $ 13,340 $ 13,948
Lease liabilities $ 14,297 $ 14,651

The weighted average discount rate used to calculate the carrying value of the right of use assets and lease liabilities was ~~9.4%~~9.3% which is based on the Company’s incremental borrowing rate at the time the lease is acquired.

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

SCHEDULE OF CONTRACTUAL FUTURE MATURITIES OF OPERATING LEASE LIABILITIES

Fiscal year:
2021	$	2,321	$	1,491
2022		3,182		3,059
2023		3,275		3,148
2024		3,137		3,007
2025		2,791		2,656
Thereafter		4,855		2,693
Total lease payments		19,561		16,054
Less imputed interest		5,264		3,486
Total	$	14,297	$	12,568

Supplemental cash flow information for the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 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	$	810	$	1,296
Operating lease right of use assets obtained in exchange for new lease obligations:
Operating lease liabilities			$	-

Note 11. DEBT

Securitization

On ~~March 6, 2020, the Company 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 (“~~FAT~~FB Royalty”), ~~in which~~a special purpose, wholly-owned subsidiary of FAT ~~Royalty issued $20 million~~Brands, completed the Offering of ~~Series 2020-1 Fixed Rates Senior Secured Notes, Class A-2 and $20 million~~three tranches of ~~Series 2020-1 Fixed Rate Senior Subordinated Notes, Class B-2~~fixed rate senior secured notes (collectively, the ~~“Series A-2 and B-2~~“2021 Securitization Notes”) ~~pursuant to an indenture and the supplement thereto, each dated March 6, 2020 (collectively, the “Indenture”).~~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

~~The Series A-2 and B-2 Notes have the following terms:~~

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

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

Net proceeds from the issuance of the ~~Series A-2 and B-2~~2021 Securitization Notes ~~were $37,389,000,~~totaled $140.8 million, which 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 ~~$2,365,000. The~~$3.0 million and original issue discount ~~and offering costs are accreted as additional interest expense over~~of $0.7 million). As of June 27, 2021, the ~~expected term~~carrying value of the ~~Series A-2 and B-2 Notes.~~

~~On September 21, 2020, FAT Royalty completed the sale~~2021 Securitization Notes was $140.9 million (net of ~~an additional $40 million of Series 2020-2 Fixed Rate Asset-Backed Notes (the “Series M-2 Notes”), pursuant to the Indenture as amended by the Series 2020-2 Supplement.~~

~~The Series M-2 Notes consist of the following:~~

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

M-2 Subordinated $ 40,000,000 9.75 % 4/27/2021 4/27/2026

~~Net proceeds from the issuance of the Series M-2 Notes were $35,371,000, which consists of the face amount of $40,000,000, net of discounts of $3,200,000 and~~ debt offering costs of ~~$1,429,000.~~$2.9 million and original issue discount of $0.7 million). The ~~discount~~Company recognized interest expense on the 2021 Securitization Notes of $1.6 million for the thirteen and twenty-six weeks ended June 27, 2021, which includes $0.1 million for amortization of debt offering costs ~~are accreted as additional interest expense over the expected term~~and $34,000 for amortization of the ~~Series M-2 Notes.~~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 Series M-2 Notes are subordinate to the Series A-2 and B-2 Notes. The Series A-2 and B-2 Notes and the Series M-2 Notes (collectively, the “2020 Securitization Notes”) issued under the Indenture, as amended, are secured by an interest in substantially all of the assets of FAT Royalty, including the Johnny Rockets companies, that have been contributed to FAT Royalty and are obligations only of FAT Royalty under the Indenture and not obligations of the Company.

~~While the 2020~~2021 Securitization Notes are outstanding, scheduled payments of principal and interest are required to be made on a quarterly basis, with the scheduled principal payments of $1,000,000 per quarter on each of the Series A-2 and Series B-2 Notes and $200,000 per quarter on the Series M-2 Notes beginning the second quarter of 2021.

In connection with the Securitization, FAT Royalty and each of the Franchise 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 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 Franchise Entities pursuant to the Management Agreement.

The 2020 Securitization Notes are secured by substantially all of the assets of FAT Royalty, including the equity interests in the Franchise Entities. The restrictions placed on the Company’s subsidiaries require that ~~FAT Royalty’s~~the 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 2020~~2021 Securitization Notes ~~have not been and will not be registered under~~also include, among other things, the ~~Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any jurisdiction.~~

~~The 2020 Securitization 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. If certain covenants are not met, the 2020 Securitization Notes may become partially or fully due~~(ii) leverage ratio and ~~payable on an accelerated schedule. In addition, FAT Royalty may voluntarily prepay, in part or in full, the 2020 Securitization Notes in accordance with the provisions in the Indenture.~~(iii) senior leverage ratio. As of ~~March 28,~~June 27, 2021, ~~FAT Royalty was~~we were in compliance with these covenants.

AsThe 2021 Securitization Notes are generally secured by a security interest in substantially all the assets of ~~March 28, 2021, the recorded balance~~FB Royalty and its subsidiaries.

A portion of the ~~2020~~proceeds of the 2021 Securitization Notes ~~was $73,682,000,~~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 ~~is net~~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 ~~offering costs~~ of ~~$3,216,000 and original issue discount of $3,102,000. As of December 27, 2020,~~$7.8 million in connection with the ~~recorded balance of the 2020 Securitization Notes was $73,369,000, which was net of debt offering costs of $3,374,000 and original issue discount of $3,257,000.~~ refinance.

The Company recognized interest expense on the 2020 Securitization Notes of ~~$2,063,000~~$0.5 million and $0.9 million for the thirteen weeks ended ~~March~~June 27, 2021 and June 28, ~~2021, which includes $158,000 for amortization of debt offering costs and $155,000 for amortization of the original issue discount. The average effective interest rate of the~~ 2020, ~~Securitization Notes, including the amortization of debt offering costs and original issue discount, was 11.2% for the thirteen weeks ended March 28, 2021.~~

~~The 2020 Securitization Notes were repaid in full in April 2021 (see Note 21)~~.

~~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 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 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 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.

respectively. The Company recognized interest expense onrelated to the ~~Loan~~2020 Securitization Notes of $2.6 million and ~~Security Agreement of $1,783,000~~$1.2 million for the ~~thirteen~~twenty-six weeks ended ~~March 29,~~June 27, 2021 and June 28, 2020, ~~which includes $212,000 for amortization of all unaccreted debt offering costs at the time of the repayment and $650,000 in penalties and fees.~~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 ~~$7,510,000,~~$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 ~~March 28,~~June 27, 2021, the carrying value of the Elevation Note was ~~$5,987,000 which is net~~$5.9 million (net of the loan discount of ~~$807,000~~$0.7 million and debt offering costs of ~~$53,000.~~$51,000). As of December 27, 2020, the carrying value of the Elevation Note was ~~$5,919,000 which is net~~$5.9 million (net of the loan discount of ~~$872,000~~$0.9 million and debt offering costs of ~~$56,000.~~$56,000). The Company recognized interest expense relating to the Elevation Note during the thirteen ~~months~~and twenty-six weeks ended ~~March 28,~~June 27, 2021 in the amount of ~~$171,000,~~$169,000 and $340,000, respectively, which included amortization of the loan discount of ~~$65,000~~$64,000 and $130,000, and amortization of ~~$3,000~~$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 ~~March 29,~~June 28, 2020 in the amount of ~~$189,000,~~$175,000 and $364,000, respectively, which included amortization of the loan discount of ~~$71,000~~$70,000 and $141,000, and amortization of ~~$3,000~~$2,000 and $5,000 in debt offering ~~costs.~~ costs, respectively.

The annualized effective interest rate for the Elevation Note during the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 was ~~11.5%~~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~~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 ~~party that evidences indebtedness~~total payment of approximately $26.8 million. This consisted of $24.0 million in principle, approximately $2.1 million in accrued interest and $0.7 million in penalties and fees.

The Company recognized interest expense on the Loan and Security Agreement of $1.8 million for ~~borrowed money that is senior~~the twenty-six weeks ended June 28, 2020, which includes $0.2 million for amortization of all unaccreted debt offering costs at the time of the repayment and $0.7 million in ~~right of payment.~~penalties and fees.

Paycheck Protection Program Loans

During 2020, the Company received loan proceeds in the amount of approximately ~~$1,532,000~~$1.5 million under the ~~Paycheck Protection Program (the “PPP Loans”)~~PPP Loans and Economic Injury Disaster Loan Program (the “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.

At inception, the PPP Loans and EIDL Loans related to FAT Brands Inc. ~~as well as~~and five restaurant locations that were part of the Company’s refranchising program. While 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 loans, in whole or in part. Any unforgiven portion of the PPP Loans is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. As of ~~March 28, 2021 and~~ December 27, 2020, the balance remaining on the PPP Loans and EIDL Loans ~~was $1,186,000 and $1,183,000 related~~had been reduced to ~~FAT Brands Inc., as~~$1.2 million due to the closure or refranchising of the five restaurant locations ~~were closed or refranchised~~ during the second and third quarters of 2020.

~~Subsequent~~ During the thirteen weeks ended June 27, 2021, the Company received confirmation that the entire balance remaining on the PPP Loans, plus accrued interest, had been forgiven under the terms of the program. The Company recognized interest expense of $4,000 and a gain on extinguishment of debt in the amount of $1.2 million relating to ~~March 28, 2021,~~ the PPP Loans and EIDL Loans ~~were forgiven (see Note 21).~~during the twenty-six weeks ended June 27, 2021.

~~Assumed Debt from Merger~~

~~The following debt of FCCG (the “FCCG Debt”) was assumed by Fog Cutter Acquisition LLC, a subsidiary of the Company, as part of the Merger (in thousands):~~

March 28, 2021
Note payable to a private lender. The note bears interest at a fixed rate of 12% and is unsecured. Interest is due monthly in arrears. The note matures on May 21, 2021. $ 1,978

Note payable to a private lender. The note bears interest at a fixed rate of 12% and is unsecured. Interest is due monthly in arrears. The note matures on May 21, 2021. 2,871

Note payable to a private lender. The note bears interest at a fixed rate of 15%. The note matures May 21, 2021. 17

Note payable to a private lender. The note bears interest at a fixed rate of 12%. Interest is due monthly in arrears. The note matures May 21, 2021. 779

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

Total $ 12,509

~~Subsequent to March 28, 2021,~~ ~~the~~ ~~FCCG Debt was repaid in full (see Note 21)~~.

Note 12. PREFERRED STOCK

Series B Cumulative Preferred Stock

On July 13, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) to issue and sell 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 to purchase common stock at $5.00 per share, plus 99,000 additional warrants pursuant to the underwriter’s overallotment option (the “2020 Series B Offering Warrants”), to purchase common stock at $5.00 per share. 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 number of Series B Preferred Stock shares and the number of 2020 Series B Offering Warrants sold in the Offering..

In connection with the Offering, 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, designating a total of 850,000 shares of Series B Preferred Stock (the “Certificate of Designation”), and on July 16, 2020 entered into a Warrant Agency Agreement with VStock Transfer, LLC, to act as the Warrant Agent for the Series B Offering Warrants (the “Warrant Agency Agreement”).

The Certificate of Designation amends and restates the terms of the Series B Cumulative Preferred Stock issued in October 2019 (the “Original Series B Preferred”). At the time of the Offering, there were 57,140 shares of the Original Series B Preferred outstanding, together with warrants to purchase 34,284 shares of the Company’s common stock at an exercise price of $8.50 per share (the “Series B Warrants”).

The Offering closed on July 16, 2020 with net proceeds to the Company of ~~$8,122,000, which was net~~$8.1 million (net of ~~$878,000~~$0.9 million in underwriting and offering ~~costs.~~costs).

~~Holders of Series B Cumulative Preferred Stock shall be entitled~~

In addition to ~~receive, when, as and if declared by~~ the ~~FAT Board or a duly authorized committee thereof,~~shares issued in ~~its sole discretion, out of funds of~~the Offering, the Company legally available for the payment of distributions, cumulative preferential cash dividends at a rate per annum equal to the 8.25% multiplied by $25.00 per share stated liquidation preference of the Series B Preferred Stock. The dividends shall accrue without interest and accumulate, whether or not earned or declared, on each issued and outstanding share of the Series B Preferred Stock from (and including) the original date of issuance of such share and shall be payable monthlyconcurrently engaged in ~~arrears on a date selected by the Company each calendar month that is no later than twenty (20) days following the end of each calendar month.~~

If the Company fails to pay dividends on the Series B Preferred Stock in full for any twelve accumulated, accrued and unpaid dividend periods, the dividend rate shall increase to 10% until the Company has paid all accumulated accrued and unpaid dividends on the Series B Preferred Stock in full and has paid accrued dividends during the two most recently completed dividend periods in full, at which time the 8.25% dividend rate shall be reinstated.

~~The Company may redeem the Series B Preferred Stock, in whole or in part, at the option of the Company, for cash, at~~ the following ~~redemption price per share, plus any unpaid dividends:~~transactions:

	~~(i)~~●	~~After July 16, 2020~~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 ~~on or prior to July 16, 2021: $27.50 per share.~~received an additional 3,537 shares of Series B Preferred stock in payment of previously accrued dividends.
	~~(ii)~~	~~After July 16, 2021 and on or prior to July 16, 2022: $27.00 per share.~~
	~~(iii)~~●	~~After July 16, 2022 and on or prior~~The Company entered into an agreement to ~~July 16, 2023: $26.50 per share.~~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.
	~~(iv)~~	~~After July 16, 2023 and on or prior to July 16, 2024: $26.00 per share.~~
	~~(v)~~●	~~After July 16, 2024 and on or prior to July 16, 2025: $25.50 per share.~~
	~~(vi)~~	~~After July 16, 2025: $25.00 per share.~~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.

~~As a result of the amended and restated terms of the Series B Cumulative Preferred Stock, the Company classified the Series B Preferred Stock as equity as of July 15, 2020.~~

Concurrent with the Offering, the holders of the outstanding 57,140 shares of Original Series B Preferred became subject to the new terms of the Certificate of Designation. As a result, the recorded value of the new Series B Stock was $1,136,000 with $292,000 allocated to theIn December 2020, ~~Series B Offering Warrants. The original holders were also issued 3,537 shares of new Series B Preferred Shares~~ in ~~payment of $88,000 accrued and outstanding dividends relating to the Original Series B Preferred at a price of $25 per share.~~

The Company entered into an agreement to exchange 15,000 shares of Series A Fixed Rate Cumulative Preferred Stock owned by FCCG for 60,000 shares of Series B Preferred Stock valued at $1,500,000, pursuant to a Settlement, Redemption and Release Agreement. The Company also agreed to issue 14,449 shares of Series B Preferred Stock valued at $361,224 as consideration for accrued dividends due to FCCG.

The Company entered into an agreement to exchange all of the outstanding shares of Series A-1 Fixed Rate Cumulative Preferred Stock for 168,001 shares of Series B Preferred Stock valued at $4,200,000, pursuant to a Settlement, Redemption and Release Agreement with the holders of such shares.

In connection with the acquisition of FCCG by the Company, ~~in December 2020~~ the Company declared a special stock dividend (the “Special Dividend”) payable only to holders of ~~our~~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 Special Dividend was paid on December 23, 2020 and resulted in the issuance of 520,145 additional shares of Series B Preferred Stock with a market value on the payment date of approximately ~~$8,885,000.~~$8.9 million.

On June 22, 2021, the Company 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 net proceeds to the Company totaled $8.3 million (net of $0.9 million in underwriting discounts and other offering expenses).

As of ~~March 28,~~June 27, 2021, the Series B Preferred Stock consisted of ~~1,183,272~~ 1,643,272 shares outstanding with a balance of ~~$21,267,000.~~$29.1 million. The Company ~~declared~~paid preferred dividends to the holders of the Series B Preferred Stock totaling ~~$610,000~~$0.6 million and $1.2 million during the thirteen weeks and twenty-six weeks ended ~~March 28,~~June 27, 2021.

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 Company issued 100,000 shares of Series A Preferred stock in the following two transactions:

(i)

On June 7, 2018, the Company entered into a Subscription Agreement for the issuance and sale (the “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”)~~; and~~.

●

$7,272,053 of the Note Balance was exchanged for 1,010,420 shares of common stock 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.

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$2 million tranches every six months, with the final payment due by December 31, 2021.

	2.	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 Offering.

	3.	The Company exchanged 15,000 outstanding shares of Series A Preferred Stock, plus accrued dividends thereon, held by FCCG at face value for shares of Series B Preferred ~~Stock valued at $25.00 per share.~~Stock.

The Company classifies the Series A Preferred Stock as debt.

As of ~~March 28,~~June 27, 2021, there were 80,000 shares of Series A Preferred Stock outstanding, with a balance of ~~$7,970,000 which is net of debt offering costs and discounts of $30,000.~~$8.0 million.

The Company recognized interest expense on the Series A Preferred Stock of ~~$288,000~~$264,000 and $354,000 for the thirteen weeks ended ~~March~~June 27, 2021 and June 28, ~~2021, which includes accretion expense of $9,000 as well as $1,000 for the amortization of debt offering costs.~~2020, respectively. The Company recognized interest expense on the Series A Preferred Stock of ~~$355,000~~$552,000 and $708,000 for the ~~thirteen~~twenty-six weeks ended ~~March 29, 2020, which includes accretion expense of $6,000~~June 27, 2021 and ~~$1,000 for the amortization of debt offering costs.~~June 28, 2020. The year-to-date effective interest rate for the Series A Preferred Stock for 2021 was ~~14.5%~~13.9%.

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

Holders of Series A Preferred Stock 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 per share plus any accrued and unpaid dividends, which amount could be settled in cash or common stock of the Company, at the option of the holder (the “Conversion Option”). If a holder elected to receive common stock, the shares 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 $2.4 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 $1.1 million and adjusted the carrying value of the derivative liability accordingly and recognized 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.

NOTE 13. ACQUISITION PURCHASE PRICE PAYABLE

On June 21, 2021, the Company settled in full, the acquisition purchase price payable relating to the acquisition of Yalla Mediterranean. At the time of the settlement, the payable had a book value of $2.1 million. The Company paid cash of $1.1 million and agreed to issue 62,500 shares of its common stock, with a market value of $0.8 million ($13.05 per share) in satisfaction of the obligation. The Company recognized a gain on the extinguishment of the debt in the amount of $0.2 million during the thirteen weeks ended June 27, 2021.

Note ~~13. Related Party Transactions~~14. RELATED PARTY TRANSACTIONS

During the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021, there were no reportable related party transactions. For the ~~thirteen~~twenty-six weeks ended ~~March 29,~~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 in the aggregate amount of $10,523,000.~~advances. Pursuant to the Intercompany Agreement, the revolving credit facility ~~bore~~bears interest at a rate of 10% per annum, ~~had~~has a five-year term with no prepayment penalties, and ~~had~~has a maximum capacity of ~~$35,000,000.~~$35.0 million. All additional borrowings under the Intercompany Agreement ~~were~~are subject to the approval of the Board of Directors, in advance, on a quarterly basis and may ~~have been~~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 ~~March 29,~~June 28, 2020, the balance receivable under the Intercompany Agreement was ~~$26,854,000.~~$29.5 million.

During the ~~thirteen~~twenty-six weeks ended ~~March 29,~~June 28, 2020, the Company recorded a receivable from FCCG in the amount of ~~$121,000~~$0.2 million under the Tax Sharing Agreement, which was added to the intercompany receivable.

~~Series B Cumulative Preferred Stock~~

~~On October 3 and October 4, 2019,~~Effective July 5, 2018, the Company ~~completed~~made a preferred capital investment in Homestyle Dining LLC, a Delaware limited liability corporation (“HSD”) in the ~~initial closing~~amount of ~~its continuous public offering~~$4.0 million (the ~~“Series B Preferred Offering”~~“Preferred Interest”). FCCG owns all 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 purchasethe common ~~stock at $8.50 per share, exercisable for five years. At the initial closing~~interests in HSD. The holder of the Preferred ~~Offering,~~Interest is entitled to a 15% per annum priority return on the ~~Company completed~~outstanding balance of the ~~sale~~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 ~~43,080 Series B Units for gross proceeds~~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 ~~$1,077,000.~~

the Preferred Interest in the event HSD fails to do so. As of ~~March 29,~~June 28, 2020, the ~~following reportable related persons participated in~~balance receivable, including accrued and unpaid interest income, under the ~~initial closing of the Company’s~~ Preferred ~~Offering:~~Interest was $5.2 million.

	●	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 15. STOCKHOLDERS’ EQUITY

~~Note 14. SHAREHOLDERS’ EQUITY~~

As of ~~March 28,~~June 27, 2021 and December 27, 2020, the total number of authorized shares of common stock was 25,000,000, and there were ~~12,029,264~~12,491,528 and 11,926,264 shares of common stock issued and outstanding, respectively.

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

	●	~~The Company issued 103,000~~Warrants to purchase 289,227 shares of common stock ~~between February 10, 2021 and February 17, 2021 in satisfaction of~~were exercised during the ~~exercise of certain 2020 Series B Offering Warrants.~~twenty-six weeks ended June 27, 2021. The proceeds to the Company from the exercise of the ~~options~~warrants totaled ~~$515,000.~~$1.1 million.

	●	Between April 6, 2021 and May 18, 2021, the Company granted 300,000 restricted shares of common stock to certain senior executives of the Company. The shares vest over three yearsin equal installments at the anniversary date of grant. The value of 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 Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on June 21, 2021 to stockholders of record as of June 14, 2021, for a total of $1.6 million.

Note ~~15.~~ 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~~options outstanding with a weighted average exercise price of $9.34 per share.

During the thirteen weeks ended ~~March 28,~~June 27, 2021 ~~is summarized~~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 ~~follows:~~of the date of grant. The related compensation expense will be recognized over the vesting period.

Number of Shares Weighted
Average
Exercise
Price Weighted Average Remaining Contractual
Life (Years)
Stock options outstanding at December 27, 2020 656,105 $ 8.21 7.5
Grants - $ - -
Forfeited - $ - -
Expired - $ - -
Stock options outstanding at March 28, 2021 656,105 $ 8.21 7.5
Stock options exercisable at March 28,2021 453,566 $ 9.34 7.1

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

	~~Including~~ ~~Non-Employee~~ ~~Options~~
~~Expected dividend yield~~	~~0% - 10.43~~	%
~~Expected volatility~~	~~30.23% - 31.73~~	%
~~Risk-free interest rate~~	~~0.32% - 2.85~~	%
~~Expected term (in years)~~	~~5.50 – 5.75~~

The Company recognized share-based compensation expense in the amount of ~~$37,000~~$0.2 million and ~~$15,000, respectively,~~$1,000, during the thirteen weeks ended ~~March 28,~~June 27, 2021 and ~~March 29, 2020.~~June 28, 2020, respectively. The Company recognized share-based compensation expense in the amount of $0.2 million and $16,000, during the twenty-six weeks ended June 27, 2021 and June 28, 2020, respectively. As of ~~March 28,~~June 27, 2021, there remains ~~$124,000~~$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 16. WARRANTS~~

~~Outstanding Warrants~~

~~As of March 28, 2021, the Company had 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 common 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 12). 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.

	●	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 12). 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 40,904 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 11). The remaining Placement Agent Warrants had been valued at $48,000 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. 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, to purchase 60 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. These warrants have not yet been presented by the holders for exchange with 2020 Series B Offering Warrants (See Note 12).

	●	Warrants issued on July 16, 2020, in connection with Series B Preferred Stock Offering (See Note 12), to purchase 1,796,910 shares of the Company’s common stock at an exercise price of $5.00 per share (the “2020 Series B Offering Warrants”), exercisable beginning on December 24 ,2020, and will expire on July 16, 2025. The Series B Offering Warrants were valued at $1,926,000 at the date of grant. Subsequent to March 28, 2021, on May 3, 2021, the exercise price of the 2020 Series B Offering Warrants decreased from $5.00 per share to $4.8867 per share based on the cash dividend payable to holders of the Company’s common stock as of such date (See Note 17).

	●	Warrants issued on July 16, 2020, to purchase 2020 Series B Offering Warrants (the “Series B Underwriter Warrants”), which would grant the holder the right to purchase 18,990 shares of the Company’s common stock at an exercise price of $5.00 per share, exercisable beginning on December 24, 2020 and expiring on July 16, 2025. The exercise price to purchase the 2020 Series B Offering Warrant is $0.01 per underlying share of common stock. These warrants were valued at $64,000 at the date of grant.

Note 17. WARRANTS

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

SUMMARY OF WARRANT ACTIVITY

Number of
Shares Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual
Life (Years)
Warrants outstanding at December 27, 2020 2,273,533 $ 5.68 4.1
Grants - $ - -
Exercised (103,000 ) $ (5.00 ) (4.3 )
Warrants outstanding at March 28, 2021 2,170,533 $ 5.71 4.0
Warrants exercisable at March 28, 2021 2,170,533 $ 5.71 4.0

~~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~~

In addition to the warrants to purchase common stock described above, the Company has also granted the following warrants on other securities to the underwriters in connection with the Series B Preferred Stock Offering (See Note 12):

●

Warrants issued on July 16, 2020, to purchase 3,600 shares of the Company’s Series B Preferred Stock at an exercise price of $24.95 per share (the “Series B Preferred Warrants”), 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, FCCG, and will expire on July 16, 2025. The Series B Preferred Warrants were valued at $2,000 at the date of grant.

	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 ~~17.~~ 18. DIVIDENDS ON COMMON STOCK

~~During the thirteen weeks ended March 28, 2021, there were no dividends declared or paid on the Company’s common stock. Subsequent to the end of that period, on~~On April 20, 2021, the Board of Directors declared a cash dividend of ~~$0.13~~ $0.13 per share of common stock, payable on May 7, 2021to ~~shareholders~~stockholders of record as of May 3, 2021, for a total of ~~$1,590,000.~~$1.6 million.

On June 1, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on June 21, 2021to stockholders of record as of June 14, 2021, for a total of $1.6 million.

Note ~~18. Commitments~~19. COMMITMENTS AND CONTINGENCIES

Litigation

James Harris and ~~Contingencies~~Adam Vignola v. Squire Junger, James Neuhauser, Edward Rensi, Andrew Wiederhorn, Fog Cutter Holdings, LLC, and Fog Cutter Capital Group, Inc., and FAT Brands Inc., nominal defendant (Delaware Chancery Court, Case No. 2021-0511)

~~Litigation~~On June 10, 2021, plaintiffs James Harris and Adam Vignola, putative stockholders of the 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 breach of fiduciary duty, unjust enrichment and waste arising out of the Company’s December 2020 merger with Fog Cutter Capital Group, Inc. Mr. Vignola was previously involved in litigation against the Company, having filed a 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.

Stratford Holding LLC v. Foot Locker Retail Inc. (U.S. District Court for the Western District of Oklahoma, Case No. 5:12-cv-00772-HE)

In 2012 and 2013, two property owners in Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and our subsidiary Fog Cutter Capital Group Inc. (now known as Fog Cutter Acquisition, LLC), for alleged environmental contamination on their properties, stemming from dry cleaning operations on one of the properties. The property owners seek damages in the range of ~~$12~~$12 million to ~~$22~~$22 million. From 2002 to 2008, a former Fog Cutter subsidiary managed a lease portfolio, which included the subject property. Fog Cutter denies any liability, although it did not timely respond to one of the property owners’ complaints and several of the defendants’ cross-complaints and thus is in default. The parties are currently conducting discovery, and the matter is scheduled for trial for November 2021. The Company is unable to predict the ultimate outcome of 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 ~~(“SBN”~~(which we refer to as “SBN”) filed a complaint against Fog Cutter Capital Group, Inc. ~~(“FCCG”~~(which we refer to as “FCCG”) in New York state court for an indemnification claim ~~(the~~(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 ~~$651,290,~~$0.7 million, which included ~~$225,030~~$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 ~~(the~~(which we refer to as the “California case”), which included the ~~$651,290~~$0.7 million judgment from the NY case, plus additional statutory interest and fees, for a total judgment of ~~$656,543.~~$0.7 million. In May 2018, SBN filed a cost memo, requesting an additional ~~$12,411~~$12,411 in interest to be added to the judgment in the California case, for a total of ~~$668,954.~~$0.7 million. In May 2019, the parties agreed to settle the matter for ~~$580,000,~~$0.6 million, which required the immediate payment of ~~$100,000,~~$0.1 million, and the balance to be paid in August 2019. FCCG wired ~~$100,000~~$0.1 million to SBN in May 2019, but has not yet paid the remaining balance of ~~$480,000.~~$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, including those involving the Company’s franchisees.~~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.~~As of March 28,2021, the Company had accrued an aggregate of $5.68 million for the specific matters mentioned above and claims and legal proceedings involving franchisees as of that date.~~

~~Operating Leases~~

The Company leases corporate headquarters located in Beverly Hills, California comprising 12,281 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 is operating ten restaurant locations which are now being marketed as part of its refranchising efforts. Each location is subject to a real estate lease.~~

The Company believes that all existing facilities are in good operating condition and adequate to meet current and foreseeable needs. Additional information related to the Company’s operating leases are disclosed in Note 10.

Note ~~19. 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 March 28, 2021		Thirteen Weeks Ended March 29, 2020		June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
United States	$	4,830	$	3,709	$	6,316	$	2,564	$	11,146	$	6,273
Other countries		1,819		714		1,966		543		3,785		1,257
Total revenues	$	6,649	$	4,423
Total revenue					$	8,282	$	3,107	$	14,931	$	7,530

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

During the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 and ~~March 29,~~June 28, 2020, no individual franchisee accounted for more than 10% of the Company’s ~~revenues.~~revenue.

~~NOTE 20. OPERATING SEGMENTS~~

With minor exceptions, the Company’s operations are comprised exclusively of franchising a growing portfolio of restaurant brands. The Company’s 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. While each brand could be considered an individual business segment, the nature of the Company’s business is consistent across our portfolio. Consequently, while management assesses the progress of its operations by brand, these operations may be aggregated into one reportable segment in the Company’s financial statements.

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 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 reportable segment.

NOTE 21. SUBSEQUENT EVENTS

Management has evaluated all events and transactions that occurred subsequent to ~~March 28,~~June 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, except as follows:

~~Securitization~~Acquisition of Global Franchise Group

On ~~April 26,~~July 22, 2021, ~~(the “Closing Date”~~the Company completed the acquisition of LS GFG Holdings Inc. (“GFG”), FBa franchisor and 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 cash, $67.5 million in shares of the Company’s Series B Cumulative Preferred Stock and $25.0 million in shares of the Company’s Common Stock, subject to certain customary adjustments, including with respect to working capital, to be finalized no later than 90 days after closing.

In connection with the acquisition of GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC, a Delaware limited liability company (“GFG Royalty”), a special purpose, wholly-owned subsidiary of the Company, completed the issuance and sale in a private offering (the ~~“Offering” as defined in Note 1)~~“GFG Offering”) of three tranches of fixed rate senior secured notes as follows: (i) 4.75% Series 2021-1 Fixed Rate Senior Secured Notes, Class A-2, in an initial principal amount of $97,104,000; (ii) 8.00% Series 2021-1 Fixed Rate Senior Subordinated Secured Notes, Class B-2, in an initial principal amount of $32,368,000; and (iii) 9.00% Series 2021-1 Fixed Rate Subordinated Secured Notes, Class M-2, in an initial principal amount of $15,000,000 (collectively, the “2021 Securitization Notes”).

notes. The ~~2021 Securitization Notes~~GFG notes were issued in a securitization transaction ~~pursuant to~~in which substantially all of the franchising and operating assets ~~held by the Issuer and its subsidiaries, including the Company, were~~of GFG are pledged as collateral to secure the ~~2021 Securitization Notes. On~~GFG Notes and have the ~~Closing Date, FAT used a portion~~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 acquisition of ~~the net proceeds of the Offering to repay in full the 2020 Securitization Notes (see Note 11).~~

~~The restrictions placed~~GFG, on the Company and other FB Royalty subsidiaries require that the 2021 Securitization Notes 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 FAT.

~~Common stock dividend~~

~~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 shareholders of record as of May 3, 2021, totaling $1,590,000.~~

~~Retirement of Fog Cutter debt~~

~~In April 2021, obligations totaling approximately $12,509,000 owed by Fog Cutter Capital Group to various lenders and beneficiaries were paid in full (see Note 11).~~

~~Forgiveness of PPP Loans~~

~~On April 26,~~July 22, 2021, the Company ~~received confirmation that~~issued 3,089,245 and 1,964,865 shares of Series B Cumulative Preferred Stock and Common Stock, respectively. Additionally, on July 22, 2021, the ~~entire balance remaining on~~Company entered into a put/call agreement with the ~~PPP Loans,~~GFG sellers, pursuant to which the Company may purchase or the GFG Sellers may require the Company to purchase 3,089,245 shares of Series B Cumulative Preferred Stock for $67.5 million plus accrued ~~interest, had been forgiven under the terms of the program.~~but unpaid dividends on or before April 22, 2022.

3027

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~~twenty-six weeks ended ~~March 28,~~June 27, 2021 and ~~March 29,~~June 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 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”) as a pandemic, which continues to spread throughout the United States and other countries. As a result, Company franchisees temporarily closed some retail locations, reduced or modified store operating hours, adopted a “to-go” only operating model, or a combination these actions. These actions 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. 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 adjustment to the recorded value of trademarks, goodwill and other intangible assets may be necessary.

Executive Overview

Business overview

FAT Brands Inc. 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”), we completed our initial public offering on October 20, 2017 and issued additional shares of common stock representing 20 percent of our ownership upon completion of the 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.

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 ~~March 28,~~June 27, 2021, the Company owns 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 have~~Mediterranean. Combined, these brands franchise approximately 700 restaurant locations, 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 corporate accounting services. While each of our brands could be considered an individual business segment, the nature of our business is consistent across our portfolio. Consequently, while our management assesses the progress of our operations by brand, these operations may be aggregated into one reportable segment in the Company’s financial statements.

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 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.

Results of Operations of FAT Brands Inc.

The following table summarize key components of our condensed consolidated results of operations for the thirteen and twenty-six weeks ended ~~March 28,~~June 27, 2021 and ~~March 29,~~June 28, 2020. ~~Certain account balances from the prior period have been reclassified to conform to current period presentation.~~

(In thousands)

~~For the Thirteen Weeks Ended~~

	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	)

March 28, 2021 March 29, 2020

Consolidated statement of operations data:

Revenues
Royalties $ 4,898 $ 3,309
Franchise fees 540 175
Advertising fees 1,188 931
Other operating income 23 8
Total revenues 6,649 4,423

Costs and expenses
General and administrative expenses 4,926 3,531
Advertising expenses 1,192 931
Refranchising loss 427 539
Total costs and expenses 6,545 5,001

Income (loss) from operations 104 (578 )

Other expense, net (2,665 ) (2,090 )

Loss before income tax benefit (2,561 ) (2,668 )

Income tax benefit (129 ) (298 )

Net loss $ (2,432 ) $ (2,370 )

3229

For the ~~thirteen~~twenty-six weeks ended ~~March~~June 27, 2021 and June 28, ~~20210 and March 29,~~ 2020:

~~Net Loss~~- Net loss for the thirteen weeks ended March 28, 2021 totaled $2,432,000 consisting of revenues of $6,649,000 less costs and expenses of $6,545,000, other expense of $2,665,000 and income tax benefit of $129,000. Net loss for the thirteen weeks ended March 29, 2020 totaled $2,370,000 consisting of revenues of $4,423,000 less costs and expenses of $5,001,000, other expense of $2,090,000 and income tax benefit of 298,000.

~~Revenues~~Revenue - ~~Revenues consist~~Revenue consists of royalties, franchise fees, advertising fees, restaurant sales and ~~management fees. We had revenues~~other revenue. Total revenue increased $7.4 million, or 98.3%, in the first two quarters of ~~$6,649,000 for the thirteen weeks ended March 28,~~ 2021, to $14.9 million compared to ~~$4,423,000 for~~$7.5 million in the ~~thirteen weeks ended March 29,~~same period of 2020. The increase ~~of $2,226,000~~ reflects ~~the inclusion of revenues~~revenue from ~~the acquisition of~~ Johnny Rockets, which ~~occurred in September 2020.~~was acquired during the third quarter of 2020, and the recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales.

Costs and Expenses – Costs and expenses consist primarily of general and administrative costs, advertising expense impairment charges and refranchising restaurant losses. 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 $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 2021 compared to the prior year. These expenses vary in relation to the advertising revenue and have been affected by the acquisition of Johnny Rockets and the increase in customer activity as the recovery from COVID continues.

We recorded non-cash goodwill and tradename impairment charges of $1.5 million and $1.7 million, respectively, relating to the Ponderosa and Bonanza brands during the first half of 2020. There were no impairment charges recorded during the first half of 2021.

Refranchising gains in the first half of 2021 were comprised of $1.1 million in net gains related to refranchised restaurants, partially offset by restaurant operating costs, net of ~~associated sales. Our costs and expenses increased from $5,001,000~~food sales, of $0.7 million. Refranchising losses in the first ~~quarter~~half of 2020 ~~to $6,545,000 in the first quarter~~were comprised of ~~2021.~~

For the thirteen weeks ended March 28, 2021, our general and administrative expenses totaled $4,926,000. For the thirteen weeks ended March 29, 2020, our general and administrative expenses totaled $3,531,000. The increase in the amount of $1,395,000 was primarily the result of an increase in compensation expense for the quarter of $587,000 and higher legal fees in the amount of $489,000.

~~During the first quarter of 2021, our refranchising efforts resulted in~~ restaurant operating costs, ~~and expenses,~~ net of ~~associated~~food sales, of $1.7 million, net of $0.2 million in ~~the amount of $427,000 compared~~net gains related to ~~$539,000 during the comparable period of 2020.~~refranchised restaurants.

Advertising expenses totaled $1,192,000 during the thirteen weeks ended March 28, 2021 compared to $931,000 during the first quarter of 2020. These expenses generally correspond to the advertising fees recorded as revenue.

Other ~~Expense~~(Expense) Income – Other expense for the ~~thirteen weeks ended March 28,~~first half of 2021 ~~totaled $2,665,000 compared to $2,090,000~~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 debt. Other expense for the ~~period ended March 29, 2020. These expenses~~first two quarters of 2020 was $1.6 million and consisted primarily of $2.8 million of net interest expense, partially offset by a $1.3 million change in fair value of ~~$2,748,000 and $2,074,000 for~~ the ~~2021 and 2020 periods, respectively.~~derivative liability relating to the conversion feature of the Series A Preferred Stock.

Income Tax Benefit – ~~We recorded an income tax benefit~~The effective rate was 20.2% for the first two quarters of ~~$129,000~~2021 compared to 17.3% for the comparable period in 2020.

For the thirteen weeks ended ~~March~~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 the recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales.

Costs and Expenses – Costs and expenses decreased $2.7 million, or 30.0%, to $6.2 million in the second quarter of 2021 compared to ~~an income tax benefit~~the prior year period.

General and administrative expenses increased $1.4 million, or 33.6%, in the ~~amount~~second quarter of ~~$298,000~~2021 compared to the prior year period, primarily due to higher compensation as we filled out the management team and increased professional fees.

Advertising expenses increased $0.8 million, or 123.0%, in the second quarter of 2021 compared to the prior year. These expenses vary in relation to the advertising revenue and have been affected by the acquisition of Johnny Rockets and the increase in customer activity as the recovery from COVID continues.

Refranchising gains in the second quarter of 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 were comprised of restaurant operating costs, net of food sales.

Other (Expense) Income – Other expense for the ~~thirteen weeks ended March 29, 2020. These tax results were based on~~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 ~~before taxes~~on the extinguishment of ~~2,561,000 and $2,668,000~~debt. Other income for the ~~thirteen weeks ended March 28, 2021~~second quarter of 2020 was $0.5 million and ~~March 29, 2020, respectively. Non-deductible~~consisted primarily of a $1.3 million change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock, partially offset by net interest expense ~~and valuation allowances accounted for the variance between the~~of $0.8 million.

Income Tax Benefit – The effective tax rate ~~and~~was 25.1% for the ~~statutory rate.~~second quarter of 2021 compared to 20.4% for the 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. Our primary sources of funds for liquidity during the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 consisted of ~~cash on hand at the beginning of the period.~~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 likely would be negatively impacted.

On April 26, 2021, ~~the Company~~we completed the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured ~~notes (see Note 21 of the Financial Statements).~~notes. Proceeds of the Offering were used to repay in full its 2020 Securitization Notes as well as fees and expenses related to the 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 net proceeds to the Company totaled $8.3 million, ~~(see Note 11 of the Financial Statements).~~after deducting $0.9 million in underwriting discounts and other offering expenses.

In addition to the liquidity provided by ~~the Offering,~~these capital market transactions, we have seen ~~significant~~ 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. ~~As a result, we~~We believe that we will be in compliance with our debt covenants and have sufficient sources of cash to meet our liquidity ~~position will be sufficient~~needs for the next twelve ~~months of operations following the issuance of this Form 10-Q.~~months.

Comparison of Cash Flows

Our cash and restricted cash balance was ~~$4,915,000~~$54.0 million as of ~~March 28,~~June 27, 2021, compared to ~~$7,211,000~~$7.2 million as of December 27, 2020.

The following table summarize key components of our condensed consolidated cash flows for the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 and ~~March 29,~~June 28, 2020:

For the Twenty-six Weeks Ended

(In thousands)

~~For the Thirteen Weeks 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

March 28, 2021 March 29, 2020

Net cash used in operating activities $ (1,246 ) $ (3,371 )
Net cash used in investing activities (573 ) (3,413 )
Net cash (used in) provided by financing activities (477 ) 12,473
(Decrease) Increase in cash flows $ (2,296 ) $ 5,689

Operating Activities

Net cash ~~from~~used in operating activities ~~decreased $13,078,000~~increased $1.0 million in ~~2020~~the first half of 2021 compared to ~~2019.~~2020. There were variations in the components of the cash from operations between the two periods. Our net loss in ~~2020~~2021 was ~~$14,860,000,~~$10.5 million compared to ~~a net loss~~$6.6 million in ~~2019 of $1,018,000.~~2020. The net positive adjustments to reconcile these net losses to net cash ~~provided by (or~~ used ~~in)~~in operations were ~~$3,376,000~~$3.3 million in ~~2020~~2021 compared to ~~$2,612,000~~$2.6 million in ~~2019.~~2020. The primary components of the adjustments to reconcile the net loss to net cash ~~from~~used in operations for each year were as follows:

For the ~~thirteen weeks ended March 28,~~first two quarters of 2021:


	●	A positive adjustment to reconcile cash used in operations due to a ~~decrease~~net loss on extinguishment of debt in ~~operating lease right~~the amount of ~~use assets of $605,000.~~$4.9 million,

	●	A ~~positive~~negative adjustment to reconcile cash used in operations due to ~~depreciation and amortization~~an increase in deferred income taxes of ~~$398,000.~~$3.0 million,

	●	A positive adjustment to reconcile cash used in operations due to an increase in ~~deferred income~~accrued expense of ~~$332,000.~~$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 ~~thirteen weeks ended March 29,~~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 receivable from affiliates in the amount of ~~$718,000.~~$1.6 million,

	●	A positive adjustment to reconcile cash used in operations due to a provision for bad debt in the amount of $1.1 million,

	●	A negative adjustment to reconcile cash used in operations due to athe decrease in ~~accrued interest payable~~the fair value of ~~$973,000.~~a derivative liability in the amount of $1.3 million and

	●	A negative adjustment to reconcile cash used in operations due to an increase in deferred tax assets of $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 ~~decreased by $2,840,000~~of $6.3 million in the ~~thirteen weeks ended March 28, 2021 compared to the prior year~~first half of 2020. This was primarily due to a decrease in the advances to non-consolidated affiliates.

Financing Activities

Net cash from financing activities ~~decreased by $12,950,000~~was $51.5 million in the ~~thirteen weeks ended March 28,~~first two quarters of 2021, ~~compared to~~primarily comprised of $140.8 million in net proceeds from the ~~prior year. Proceeds from borrowings were $37,271,000 higher in 2020 due to the sale~~issuance of the 2021-1 Securitization Notes and $8.3 million in net proceeds from the issuance of Series ~~A-2 and B-2 Notes. That increase was~~B Preferred Shares, partially offset by the ~~payoff~~repayment of $92.6 million of prior debt, ~~in the amount~~$4.4 million of ~~$24,149,000 during the first quarter~~common and preferred stock dividends and $1.1 million of ~~2020.~~cash payments to repay acquisition purchase price payables.

Dividends

~~Our Board of Directors did not declare any dividends on our common stock during the thirteen weeks ended March 28, 2021. Subsequent to the end of the quarter, on~~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 ~~shareholders~~stockholders of record as of May 3, 2021. The amount of the dividend totaled ~~$1,590,000.~~$1.6 million.

On June 1, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on June 21, 2021 to stockholders of record as of June 14, 2021, for a total of $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 (the “Securitization”) through the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”) in which FAT Royalty issued $20 million of Series 2020-1 Fixed Rates Senior Secured Notes, Class A-2 and $20 million of Series 2020-1 Fixed Rate Senior Subordinated Notes, Class B-2 (collectively the “Series A-2 and B-2 Notes”) pursuant to an indenture and the supplement thereto each dated March 6, 2020, as amended, (collectively, the “Indenture”).

~~The Series A-2 and B-2 Notes have the following terms:~~

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

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

Net proceeds from the issuance of the Series A-2 and B-2 Notes were $37,389,000, which consists of the combined face amount of $40,000,000, net of discounts of $246,000 and debt offering costs of $2,365,000. The discount and offering costs will be accreted as additional interest expense over the expected term of the Series A-2 and B-2 Notes.

A portion of the proceeds from the Series A-2 and B-2 Notes were used to repay the remaining $26,771,000 in outstanding balance under the Loan and Security Agreement (the “Loan and Security Agreement��) with The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, “Lion”) and to pay Securitization debt offering costs. The remaining proceeds from the Securitization were available for working capital.

On September 21, 2020, FAT Royalty completed the sale of an additional $40 million of Series 2020-2 Fixed Rate Asset-Backed Notes (the “Series M-2 Notes”), pursuant to the Indenture as amended by the Series 2020-2 Supplement.

~~The Series M-2 Notes consist of the following:~~

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

M-2 Subordinated $ 40,000,000 9.75 % 4/27/2021 4/27/2026

Net proceeds from the issuance of the Series M-2 Notes were $35,371,000, which consists of the face amount of $40,000,000, net of discounts of $3,200,000 and debt offering costs of $1,429,000. The discount and offering costs will be accreted as additional interest expense over the expected term of the Series M-2 Notes. We used approximately $24,730,000 to acquire Johnny Rockets and the balance of the proceeds were available as working capital.

The Series M-2 Notes are subordinate to the Series A-2 and B-2 Notes. The Series A-2 and B-2 Notes and the Series M-2 Notes (collectively, the “2020 Securitization Notes”) issued under the Indenture, as amended, are secured by an interest in substantially all of the assets of FAT Royalty, including the Johnny Rockets companies, contributed to FAT Royalty and are obligations only of FAT Royalty under the Indenture and not obligations of the Company.

While the 2020 Securitization Notes are outstanding, scheduled payments of principal and interest are required to be made on a quarterly basis, with the scheduled principal payments of $1,000,000 per quarter on each of the Series A-2 and B-2 Notes and $200,000 per quarter on the Series M-2 Notes beginning the second quarter of 2021. 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, October 2023 for the B-2 Notes and April 2026 for the Series M-2 Notes (the “Anticipated Repayment Dates”). If FAT Royalty 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 Franchise 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 we agreed to act as manager of FAT Royalty and each of the 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 Franchise Entities pursuant to the Management Agreement.

The 2020 Securitization Notes are secured by substantially all of the assets of FAT Royalty, including the equity interests in the Franchise Entities. The restrictions placed on the FAT Royalty subsidiaries require that the Securitization 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 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.

~~The 2020 Securitization Notes have not been and will not be registered under the Securities Act or the securities laws of any jurisdiction.~~

The 2020 Securitization 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 2020 Securitization Notes may become partially or fully due and payable on an accelerated schedule. In addition, FAT Royalty may voluntarily prepay, in part or in full, the Notes in accordance with the provisions in the Indenture. As of March 28, 2021, FAT Royalty was in compliance with these covenants.

On April 26, 2021 (the “Closing Date”), FAT Brands Royalty I, LLC, a Delaware limited liability company (“FB ~~Royalty~~Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the ~~issuance and sale in a private offering (the “Offering”)~~Offering of three tranches of fixed rate senior secured notes as follows: (i) 4.75% Series 2021-1 Fixed Rate Senior Secured Notes, Class A-2, in an initial principal amount of $97,104,000; (ii) 8.00% Series 2021-1 Fixed Rate Senior Subordinated Secured Notes, Class B-2, in an initial principal amount of $32,368,000; and (iii) 9.00% Series 2021-1 Fixed Rate Subordinated Secured Notes, Class M-2, in an initial principal amount of $15,000,000 (collectively, the “2021 Securitization Notes”) as follows:

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 totaled $140.8 million, which consisted of the combined face amount of $144.5 million (net of debt offering costs of $3.0 million and original issue discount of $0.7 million).

The 2021 Notes were issued in a securitization transaction pursuant to which substantially all of the assets held by the Issuer and its subsidiaries, including the Company, were pledged as collateral to secure the 2021 Notes. On the Closing Date, FAT used a portion of the net proceeds of the Offering to repay in full the Securitization Notes ~~(see Note 11 of the Financial Statements).~~

~~The restrictions placed on the Company and other FB Royalty subsidiaries~~ require that the ~~2021 Securitization Notes~~ 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 ~~FAT.~~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 2021 Securitization Notes also include, among other things, the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and (iii) senior leverage ratio. As of June 27, 2021, we were in compliance with these covenants.

~~Capital Expenditures~~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 ~~March 28,~~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 includes 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 on a straight-line basis. Unamortized non-refundable deposits collected in relation to the sale of franchises are recorded as deferred franchise fees.

~~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.

~~Goodwill and other intangible assets:~~ 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. During the thirteen weeks ended March 28, 2021, there were no identified impairments of assets.

~~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 15 in ourOur condensed consolidated financial statements ~~for more details on our share-based compensation.~~

~~Use of estimates:~~ ~~The preparation of~~and accompanying notes are prepared in accordance with GAAP. Preparing consolidated 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 financial statements, as well as the reported amounts of revenues and expenses during the reported periods. Actual~~circumstances, actual results could ~~differ~~vary from ~~those estimates.~~

~~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~~ these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and ~~later amended the ASU~~described 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 reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on 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. Smaller Reporting Companies are permitted to defer adoption of ASU 2016-13, and its related amendments, until 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 is currently evaluating the impact of the adoption of ASU 2016-13 on itsour annual consolidated financial statements ~~but does not expect that~~and the ~~adoption of this standard will have a material impact~~related notes included in our Annual Report on ~~its consolidated financial statements.~~Form 10-K for our fiscal year ended December 27, 2020.

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 ~~March 28,~~June 27, 2021, have concluded that, in regard to the segregation of duties and the financial close process, our disclosure controls and procedures were not effective.

Recognizing these deficiencies, we are continuing to review our compensating controls and implement additional procedures in our efforts to 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 occurred during the ~~thirteen~~twenty-six weeks ended ~~March 28,~~June 27, 2021 that have materially affected or are reasonably likely to materially affect our 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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

James Harris and Adam Vignola v. Squire Junger, James Neuhauser, Edward Rensi, Andrew Wiederhorn, Fog Cutter Holdings, LLC, and Fog Cutter Capital Group, Inc., and FAT Brands Inc., nominal defendant (Delaware Chancery Court, Case No. 2021-0511)

On June 10, 2021, plaintiffs James Harris and Adam Vignola, putative stockholders of the 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 breach of fiduciary duty, unjust enrichment and waste arising out of the Company’s December 2020 merger with Fog Cutter Capital Group, Inc. Mr. Vignola was previously involved in litigation against the Company, having filed a 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.

Stratford Holding LLC v. Foot Locker Retail Inc. (U.S. District Court for the Western District of Oklahoma, Case No. 5:12-cv-00772-HE)

In 2012 and 2013, two property owners in Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and our subsidiary Fog Cutter Capital Group Inc. (now known as Fog Cutter Acquisition, LLC), for alleged environmental contamination on their properties, stemming from dry cleaning operations on one of the properties. The property owners seek damages in the range of $12 million to $22 million. From 2002 to 2008, a former Fog Cutter subsidiary managed a lease portfolio, which included the subject property. Fog Cutter denies any liability, although it did not timely respond to one of the property owners’ complaints and several of the defendants’ cross-complaints and thus is in default. The parties are currently conducting discovery, and the matter is scheduled for trial for November 2021. The Company is unable to predict the ultimate outcome of 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 ~~(“SBN”~~(which we refer to as “SBN”) filed a complaint against Fog Cutter Capital Group, Inc. ~~(“FCCG”~~(which we refer to as “FCCG”) in New York state court for an indemnification claim ~~(the~~(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 ~~$651,290,~~$0.7 million, which included ~~$225,030~~$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 ~~(the~~(which we refer to as the “California case”), which included the ~~$651,290~~$0.7 million judgment from the NY case, plus additional statutory interest and fees, for a total judgment of ~~$656,543.~~$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 ~~$668,954.~~$0.7 million. In May 2019, the parties agreed to settle the matter for ~~$580,000,~~$0.6 million, which required the immediate payment of ~~$100,000,~~$0.1 million, and the balance to be paid in August 2019. FCCG wired ~~$100,000~~$0.1 million to SBN in May 2019, but has not yet paid the remaining balance of ~~$480,000.~~$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 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

~~None.~~On June 21, 2021, the Company agreed to issue 62,500 shares of common stock in partial satisfaction of the purchase price for the acquisition of Yalla Mediterranean. Such issuance of securities was exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereunder and Rule 506 promulgated under Regulation D thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Subsequent to March 28, 2021, on May 3, 2021, the exercise price of the 2020 Series B Offering Warrants decreased from $5.00 per share to $4.8867 per share based on the cash dividend payable to holders of the Company’s common stock as of such date (See Notes 16 and 17 of the Financial Statements).None.

ITEM 6. EXHIBITS

Exhibit		Incorporated By Reference to			Filed
Number	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	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				X
31.2	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
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				X
101.INS	Inline XBRL Instance Document				X (Furnished)
101.SCH	Inline XBRL Taxonomy Extension Schema Document				X (Furnished)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				X (Furnished)
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				X (Furnished)
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				X (Furnished)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				X (Furnished)

Exhibit Incorporated By Reference to Filed
Number Description Form Exhibit Filing Date Herewith

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 4/26/2021
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 4/26/2021
10.1 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 4/26/2021
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 4/26/2021
31.1
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X
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
X
101.INS XBRL Instance Document X (Furnished)
101.SCH XBRL Taxonomy Extension Schema Document X (Furnished)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X (Furnished)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document X (Furnished)
101.LAB XBRL Taxonomy Extension Label Linkbase Document X (Furnished)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X (Furnished)

SIGNATURES

~~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.

~~May 12,~~August 6, 2021	By	/s/ ~~Andrew A. Wiederhorn~~Kenneth J. Kuick
		~~Andrew A. Wiederhorn~~Kenneth J. Kuick
		~~President and Chief Executive Officer~~
		~~(Principal Executive Officer)~~

~~May 12, 2021~~	By	~~/s/ Rebecca D. Hershinger~~
		~~Rebecca D. Hershinger~~
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

4238

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

Balance at December 27, 2020		11,926,264	$	1	$	(42,776	)	$	(42,775	)		1,183,272	$	-	$	21,788		$	21,788		$	(20,896	)	$	(41,883	)
Net loss		-		-		-			-			-		-		-			-			(2,432	)		(2,432	)
Issuance of common stock through exercise of warrants		103,000		-		426			426			-		-		89			89			-			515
Share-based compensation		-		-		37			37			-		-		-			-			-			37
Measurement period adjustment in accordance with ASU 2015-16		-		-		(1,203	)		(1,203	)		-		-		-			-			-			(1,203	)
Dividends declared on Series B preferred stock		-		-		-			-			-		-		(610	)		(610	)		-			(610	)

Balance at March 28, 2021		12,029,264	$	1	$	(43,516	)	$	(43,515	)		1,183,272	$	-	$	21,267		$	21,267		$	23,328		$	(45,576	)

	Thirteen Weeks Ended
	March 28, 2021			March 29, 2020
	(Actual)			(Proforma)

Revenues	$	6,649		$	4,423
Net loss	$	(2,432	)	$	(4,612	)

Fiscal year:
2021	$	1,141
2022		1,522
2023		1,522
2024		1,217
2025		1,023
Thereafter		5,838
Total	$	12,263

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Stock options outstanding at December 27, 2020		656,105	$	8.21		7.5
Grants		-	$	-		-
Forfeited		-	$	-		-
Expired		-	$	-		-
Stock options outstanding at March 28, 2021		656,105	$	8.21		7.5
Stock options exercisable at March 28,2021		453,566	$	9.34		7.1

	March 28, 2021			March 29, 2020

Consolidated statement of operations data:

Revenues
Royalties	$	4,898		$	3,309
Franchise fees		540			175
Advertising fees		1,188			931
Other operating income		23			8
Total revenues		6,649			4,423

Costs and expenses
General and administrative expenses		4,926			3,531
Advertising expenses		1,192			931
Refranchising loss		427			539
Total costs and expenses		6,545			5,001

Income (loss) from operations		104			(578	)

Other expense, net		(2,665	)		(2,090	)

Loss before income tax benefit		(2,561	)		(2,668	)

Income tax benefit		(129	)		(298	)

Net loss	$	(2,432	)	$	(2,370	)