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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28,September 26, 2021

OR

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

Commission file number 001-38250

 

fat-20210926_g1.jpg
FAT Brands Inc.

(Exact name of registrant as specified in its charter)

Delaware82-1302696

Delaware

82-1302696
(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)

9720 Wilshire Blvd., Suite 500

Beverly Hills, CA 90212

(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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareFATThe Nasdaq Stock Market LLC
Class B Common Stock, par value $0.0001 per shareFATBBThe Nasdaq Stock Market LLC
Series B Cumulative Preferred Stock, par value $0.0001 per shareFATBPThe Nasdaq Stock Market LLC
Warrants to purchase Common StockFATBWThe 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]x No [  ]

o

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]x No [  ]

o

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[  ]oAccelerated filer[  ]o
Non-accelerated filer[X]xSmaller reporting company[X]x
Emerging growth company[X]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]

x

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

x

As of May 7,November 3, 2021, there were 12,229,47915,077,498 shares of Class A common stock and 1,270,805 shares of Class B common stock outstanding.


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FAT BRANDS INC.

QUARTERLY REPORT ON FORM 10-Q

March 28,

September 26, 2021

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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 
       (Audited) 
Assets        
Current assets        
Cash $1,163  $3,944 
Restricted cash  3,352   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 
Assets classified as held for sale  10,570   10,831 
Other current assets  1,968   2,365 
Total current assets  21,730   24,423 
         
Noncurrent restricted cash  400   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 
Deferred income tax asset, net  31,546   30,551 
Operating lease right of use assets  4,125   4,469 
Goodwill  9,706   10,909 
Other intangible assets, net  47,331   47,711 
Other assets  1,615   1,059 
Total assets $118,093  $121,144 
         
Liabilities and Stockholders’ Deficit        
Liabilities        
Current liabilities        
Accounts payable $8,684  $8,625 
Accrued expenses and other liabilities  19,912   19,833 
Deferred income, current portion  1,782   1,887 
Accrued advertising  1,978   2,160 
Accrued interest payable  1,876   1,847 
Dividend payable on preferred shares  1,143   893 
Liabilities related to assets classified as held for sale  9,656   9,892 
Current portion of operating lease liability  777   748 
Current portion of preferred shares, net  7,970   7,961 
Current portion of long-term debt  22,104   19,314 
Other  17   17 
Total current liabilities  75,899   73,177 
         
Deferred income – noncurrent  9,537   9,099 
Acquisition purchase price payable  2,829   2,806 
Operating lease liability, net of current portion  3,864   4,011 
Long-term debt, net of current portion  71,464   73,852 
Other liabilities  76   82 
Total liabilities  163,669   163,027 
         
Commitments and contingencies (Note 18)        
         
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)
Accumulated deficit  (23,328)  (20,896)
Total stockholders’ deficit  (45,576)  (41,883)
Total liabilities and stockholders’ deficit $118,093  $121,144 

September 26, 2021December 27, 2020
Unaudited 
Assets  
Current assets  
Cash$23,565 $3,944 
Restricted cash13,557 2,867 
Accounts receivable, net of allowance for doubtful accounts of $2,208 and $739, as of September 26, 2021 and December 27, 2020, respectively14,255 4,208 
Trade and other notes receivable, net of allowance for doubtful accounts of $103 as of September 26, 2021 and December 27, 2020224 208 
Assets classified as held for sale5,591 10,831 
Other current assets6,290 2,365 
Total current assets63,482 24,423 
Noncurrent restricted cash6,406 400 
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271, as of September 26, 2021 and December 27, 20202,054 1,622 
Deferred income tax asset, net15,069 30,551 
Operating lease right of use assets12,604 4,469 
Goodwill185,861 10,909 
Other intangible assets, net322,688 47,711 
Property and equipment, net10,227 483 
Other assets1,417 576 
Total assets$619,808 $121,144 
Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable$12,859 $8,625 
Accrued expenses and other liabilities25,646 19,833 
Deferred income, current portion1,746 1,887 
Accrued advertising6,012 2,160 
Accrued interest payable5,644 1,847 
Dividend payable on preferred shares16 893 
Liabilities related to assets classified as held for sale4,906 9,892 
Current portion of operating lease liability4,784 748 
Current portion of preferred shares, net— 7,961 
Current portion of long-term debt605 19,314 
Other— 17 
Total current liabilities62,218 73,177 
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Deferred income – noncurrent11,354 9,099 
Acquisition purchase price payable800 2,806 
Operating lease liability, net of current portion10,858 4,011 
Long-term debt, net of current portion485,470 73,852 
Other liabilities1,117 82 
Total liabilities571,817 163,027 
Commitments and contingencies (Note 19)00
Redeemable preferred stock66,810 — 
Stockholders’ deficit
Preferred stock, $0.0001 par value; 15,000,000 and 5,000,000 shares authorized; 1,643,272 and 1,183,272 shares issued and outstanding at September 26, 2021 and December 27, 2020, respectively; liquidation preference $25 per share37,908 21,788 
Class A and Class B common stock and additional paid-in capital as of September 26, 2021: $0.0001 par value per share: 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,283,684 shares issued and outstanding (Class A 15,013,001, Class B 1,270,683). Common stock and additional paid-in capital as of December 27, 2020: $0.0001 par value; 25,000,000 shares authorized; 11,926,264 shares issued and outstanding.(23,931)(42,775)
Accumulated deficit(32,875)(20,896)
Stockholders’ deficit attributable to FAT Brands Inc.(18,898)(41,883)
Noncontrolling interests79 — 
Total stockholders’ deficit(18,819)(41,883)
Total liabilities and stockholders’ deficit$619,808 $121,144 

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

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FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share data)


For the Thirteen and Thirty-nine Weeks Ended March 28,September 26, 2021 and March 29,September 27, 2020

  2021  2020 
       
Revenue        
Royalties $4,898  $3,309 
Franchise fees  540   175 
Advertising fees  1,188   931 
Other operating income  23   8 
Total revenue  6,649   4,423 
         
Costs and expenses        
General and administrative expense  4,926   3,531 
Refranchising loss  427   539 
Advertising fees  1,192   931 
Total costs and expenses  6,545   5,001 
         
Income (loss) from operations  104   (578)
         
Other expense, net        
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)
         
Loss before income tax benefit  (2,561)  (2,668)
         
Income tax benefit  (129)  (298)
         
Net loss $(2,432) $(2,370)
         
Basic and diluted loss per common share $(0.20) $(0.20)
Basic and diluted weighted average shares outstanding  11,970,505   11,868,842 

(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
September 26, 2021September 27, 2020September 26, 2021September 27, 2020
Revenue
Royalties$13,742 $3,156 $24,800 $8,678 
Franchise fees1,087 122 2,109 571 
Advertising fees5,483 803 8,043 2,347 
Restaurant sales3,879 — 4,113 — 
Factory revenue5,480 — 5,480 — 
Management fees and other income90 8 148 23 
Total revenue29,761 4,089 44,693 11,619 
Costs and expenses
General and administrative expense12,966 2,990 23,375 10,626 
Restaurant operating expenses3,660 — 3,904 — 
Factory operating expenses3,473 — 3,473 — 
Impairment of assets— 753 — 3,927 
Refranchising (gain) loss(250)325 (679)1,869 
Acquisition costs2,053 503 2,985 633 
Advertising expense5,483 814 8,043 2,358 
Total costs and expenses27,385 5,385 41,101 19,413 
Income (loss) from operations2,376 (1,296)3,592 (7,794)
Other income (expense), net
Interest expense, net of interest income of $836 and $1,554 due from affiliates during the thirteen and thirty-nine weeks ended September 27, 2020, respectively. There was no interest income earned from affiliates in 2021.(7,072)(123)(11,939)(2,034)
Interest expense related to preferred shares(173)(323)(725)(1,251)
Net loss on extinguishment of debt(13)(88)(6,418)(88)
Change in fair value of derivative liability— (374)— 887 
Gain on contingent consideration payable adjustment— 1,680 — 1,680 
Other income (expense), net64 (63)189 6 
Total other (expense) income, net(7,194)709 (18,893)(800)
Loss before income tax expense(4,818)(587)(15,301)(8,594)
Income tax benefit(1,183)(19)(3,303)(1,405)
Net loss(3,635)(568)(11,998)(7,189)
Less: Net loss attributable to noncontrolling interest(14)— (19)— 
Net loss attributable to FAT Brands Inc.$(3,621)$(568)$(11,979)$(7,189)
Basic and diluted loss per common share$(0.26)$(0.04)$(0.85)$(0.55)
Basic and diluted weighted average shares outstanding14,144,857 13,101,791 14,094,772 13,077,480 
Cash dividends declared per common share$0.13 $— $0.39 $— 

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

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FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(dollars in thousands, except share data)

data, unaudited)

For the Thirty-nine Weeks Ended September 26, 2021
Common StockPreferred Stock
Class A SharesClass B SharesClass A par valueClass B par valueAdditional
paid-in
capital		Total
Common
Stock		SharesPar
value		Additional
paid-in
capital		Total
Preferred
Stock		Non-
controlling
interest		Accum-
 ulated
deficit		Total
Balance at December 27, 2020– audited11,926,264 — $1 $— $(42,776)$(42,775)1,183,272 $— $21,788 $21,788 $— $(20,896)$(41,883)
Net loss— — ———— — ———(19)(11,979)(11,998)
Issuance of common stock through exercise of warrants464,643 — ——1,7991,799 — —394394——2,193 
Issuance of preferred stock— — ———— 460,000 —8,2468246——8,246 
Share-based compensation300,000 — ——488488 — —————488 
Measurement period adjustment in accordance with ASU 2015-16— — ——(1,381)(1,381)— —————(1,381)
Stock contracted for issue in payment of debt62,500 — ——816816 — —————816 
Sale of interest in operating restaurant— — — —651651 ————98—749 
Dividends declared on common stock— — ——(5,313)(5,313)— —————(5,313)
Dividends declared on Series B preferred stock— — ———— — —(2,084)(2084)——(2,084)
Issuance of common stock in connection with acquisition of LS GFG Holdings Inc. (1)1,964,865 — ——21,809 21,809 — —0———21,809 
Stock dividend of Class B Shares294,729 1,270,683 1—(26)(25)— —0———(25)
Series A Preferred shares retired through issuance of Series B Preferred shares— — ———— — —9,5649564——9,564 
Balance at September 26, 202115,013,001 1,270,683 $2 $— $(23,933)$(23,931)1,643,272 $— $37,908 $37,908 $79 $(32,875)$(18,819)
(1)Excludes 3,089,245 shares of preferred stock classified as redeemable preferred stock as of September 26, 2021. (See Note 15)

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For the Thirty-nine Weeks Ended September 27, 2020
Common StockPreferred Stock
Class A SharesClass B SharesClass A par valueClass B par valueAdditional
paid-in
capital		Total
Common
Stock		SharesPar
value		Additional
paid-in
capital		Total
Preferred
Stock		Non-
controlling
interest		Accum-
 ulated
deficit		Total
Balance at December 29, 2019- audited11,860,299 — $1 $— $11,413 $11,414 — $— $— $— $— $(6,036)$5,378 
Net loss— — — — — — — — — — — (7,189)(7,189)
Issuance of common stock in lieu of cash directors’ fees payable65,965 — — — 240 240 — — — — — — 240 
Issuance of Series B preferred stock— — — — — — 360,000 — 6,033 6,033 — — 6,033 
Exchange of original Series B preferred stock for newly issued Series B preferred stock— — — — — — 60,677 — 1,224 1,224 — — 1,224 
Exchange of Series A preferred stock for newly issued Series B preferred stock— — — — — — 74,449 — 1,861 1,861 — — 1,861 
Exchange of Series A-1 preferred stock for newly issued Series B preferred stock— — — — — — 168,001 — 4,200 4,200 — — 4,200 
Share-based compensation— — — — 61 61 — — — — — — 61 
Extinguishment of derivative liability— — — — (887)(887)— — — — — — (887)
Grant of warrants to purchase stock— — — — 2,258 2,258 — — — — — — 2,258 
Repurchase of warrants— — — — (330)(330)— — — — — — (330)
Dividends declared on Series B preferred stock— — — — — — — — (277)(277)— — (277)
Correction of recorded conversion rights associated with Series A-1 preferred shares— — — — (90)(90)— — — — — — (90)
Balance at September 27, 202011,926,264$— $1 $— $12,665 $12,666 663,127 $— $13,041 $13,041 $— $(13,225)$12,482 


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For the Thirteen Weeks Ended March 28,September 26, 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      
 Class A SharesClass B SharesClass A par valueClass B par valueAdditional
paid-in
capital		 Total
Common
Stock		 SharesPar
value		 Additional
paid-in
capital		 Total
Preferred
Stock		 Non-
controlling
 interest		 Accum-
ulated
deficit		  Total
Balance at June 27, 202112,491,528 — $1 $— $(45,087)$(45,086)1,643,272 $— $29,092 $29,092 $93 $(29,254)$(45,155)
Net loss— — — — — $— — — — — (14)(3,621)(3,635)
Issuance of common stock through exercise of warrants199,379 — — — 659 659 — — 151 151 — — 810 
Issuance of preferred stock— — — — — — — (35)(35)— — (35)
Share-based compensation— — — — 258 258 — — — — — — 258 
Measurement period adjustment in accordance with ASU 2015-16— — — — 70 70 — — — — — — 70 
Stock contracted for issue in payment of debt62,500 — — — — — — — — — — — — 
Sale of interest in operating restaurant— — — — 500 500 — — — — — — 500 
Dividends declared on common stock— — — — (2,116)(2,116)— — — — — — (2,116)
Dividends declared on Series B preferred stock— — — — — — — — (864)(864)— — (864)
Issuance of common stock in connection with acquisition of LS GFG Holdings Inc. (1)1,964,865 — — — 21,809 21,809 — — — — — — 21,809 
Stock dividend of Class B Shares294,729 1,270,683 1 — (26)(25)— — — — — — (25)
Series A Preferred shares retired through issuance of Series B Preferred shares— — — — — — — — 9,564 9,564 — — 9,564 
Balance at September 26, 202115,013,001 1,270,683 $2 $— $(23,933)$(23,931)1,643,272 $— $37,908 $37,908 $79 $(32,875)$(18,819)
(1)Excludes 3,089,245 shares of preferred stock classified as redeemable preferred stock as of September 26, 2021. (See Note 15)
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For the Thirteen Weeks Ended March 29,September 27, 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 StockPreferred Stock
Class A SharesClass B SharesClass A par valueClass B par valueAdditional
paid-in
capital		Total
Common
Stock		SharesPar
value		Additional
paid-in
capital		Total
Preferred
Stock		Non-
controlling
interest		Accum-
 ulated
deficit		Total
Balance at June 28, 202011,894,895 — $1 $— $9,068 $9,069 — $— $— $— $— $(12,657)$(3,588)
Net loss— — — — — — — ——— —(568)(568)
Issuance of common stock in lieu of cash directors’ fees payable31,369 — — — 105 105 — ——— —— 105 
Issuance of Series B preferred stock— — — — — — 360,000 —6,0336,033 —— 6,033 
Exchange of original Series B preferred stock for newly issued Series B preferred stock— — — — — — 60,677 —1,2241,224 —— 1,224 
Exchange of Series A preferred stock for newly issued Series B preferred stock— — — — — — 74,449 —1,8611,861 —— 1,861 
Exchange of Series A-1 preferred stock for newly issued Series B preferred stock— — — — — — 168,001 —4,2004,200 —— 4,200 
Share-based compensation— — — — 45 45 — ——— —— 45 
Extinguishment of derivative liability— — — — 1,516 1,516 — ——— —— 1,516 
Grant of warrants to purchase stock— — — — 2,261 2,261 — ——— —— 2,261 
Repurchase of warrants— — — — (330)(330)— ——— —— (330)
Dividends declared on Series B preferred stock— — — — — — — —(277)(277)—— (277)
Balance at September 27, 202011,926,264 — $1 $— $12,665 $12,666 663,127 $— $13,041 $13,041 $— $(13,225)$12,482 

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

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FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands)

thousands, unaudited)

For the ThirteenThirty-nine Weeks Ended March 28,September 26, 2021 and March 29,September 27, 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)

20212020
Cash flows from operating activities  
Net loss$(11,998)$(7,189)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes(3,384)(1,633)
Net loss on extinguishment of debt4,872 88 
Depreciation and amortization3,161 763 
Share-based compensation488 61 
Change in operating right of use assets1,662 750 
Accretion of loan fees and interest1,249 589 
Accretion of preferred shares26 47 
Accretion of purchase price liability72 381 
Gain on sale of refranchised assets(869)55 
Change in fair value of derivative liability— (887)
Impairment of assets— 3,927 
Provision for bad debts225 900 
Gain on adjustment of contingent consideration payable— (1,680)
Change in:
Accounts receivable(3,023)130 
Accrued interest receivable from affiliate— (2,613)
Tax Sharing Agreement liability— (158)
Other current assets(768)(295)
Deferred income1,244 (446)
Accounts payable1,646 312 
Accrued expense(3,672)(87)
Accrued advertising646 (382)
Accrued interest payable3,797 (404)
Dividend payable on preferred shares699 (809)
Other(79)74 
Total adjustments7,992 (1,317)
Net cash used in operating activities(4,006)(8,506)
Cash flows from investing activities
Change in due from affiliates— (10,103)
Acquisition of subsidiary, net of cash acquired(346,484)(23,944)
Payments received on loans receivable140 69 
Net proceeds from sale of refranchised restaurants1,942 1,093 
Purchases of property and equipment(1,661)(239)
Other(87)— 
Net cash provided by (used in) investing activities(346,150)(33,124)
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Cash flows from financing activities
Proceeds from borrowings, net of issuance costs479,721 74,045 
Repayments of borrowings(93,046)(24,224)
Issuance of preferred shares, net8,246 8,021 
Change in operating lease liabilities(1,441)(464)
Payments made on acquisition purchase price liability(1,075)(500)
Exercise of warrants2,192 — 
Repurchase of warrants— (330)
Redemption of preferred stock— (500)
Dividends paid on redeemable preferred stock(690)— 
Dividends paid on common shares(5,337)— 
Dividends paid on preferred shares(2,097)(175)
Net cash provided by financing activities386,473 55,873 
Net increase in cash and restricted cash36,317 14,243 
Cash and restricted cash at beginning of the period7,211 25 
Cash and restricted cash at end of the period$43,528 $14,268 
Supplemental disclosures of cash flow information:
Cash paid for interest$5,874 $5,420 
Cash paid for income taxes$639 $84 
Supplemental disclosure of non-cash financing and investing activities:
Director fees converted to common stock$— $240 
Issuance of preferred stock in lieu of cash preferred dividends payable$— $450 
Income taxes receivable included in amounts due from affiliates$— $(158)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND RELATIONSHIPS

Organization and Nature of Business

FAT Brands Inc. (the “Company"Company" or FAT”"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,September 26, 2021, the Company owns and franchises nine14 restaurant brands through various wholly owned subsidiaries: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe Buffalo’s& Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Yalla Mediterranean, Ponderosa Steakhouses,and Bonanza Steakhouses Yalla Mediterranean and Elevation Burger.. Combined, these brands have approximately 7002,000 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 maywill 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$3.6 million during the thirteenthirty-nine weeks ended March 28,September 26, 2021 compared to a loss from operations of $578,000$7.8 million for the thirteenthirty-nine weeks ended March 29,September 27, 2020. The Company recognized a net loss of $2,432,000$12.0 million during the thirteenthirty-nine weeks ended March 28,September 26, 2021 compared to a net loss of $2,370,000$7.2 million during the thirteenthirty-nine weeks ended March 29,September 27, 2020. A one-time net charge of $6.4 million 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$4.0 million for the thirteenthirty-nine weeks ended March 28,September 26, 2021 compared to $3,371,000$8.5 million for thirteenthirty-nine weeks ended March 29,September 27, 2020. As of March 28,September 26, 2021, the Company’s total liabilities exceeded total assets by $45,576,000$18.8 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
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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, on

On April 26, 2021, the Company completed the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured notes (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$57.0 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 portionapproximately $12.5 million of indebtedness assumed as a result of the Merger (see Note 11). The Company has successfully completed other subsequent debt and equity transactions which demonstrate its ability to raise capital for acquisitions and working capital. (See Notes 3, 11 and 21).

12)

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 thatwill be in compliance with its debt covenants and has sufficient sources of cash to meet its liquidity position will be sufficientneeds 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; the operations of FCCG have been included since the merger on December 24, 2020; and the operations of LS GFG Holdings, Inc. (See Note 3) have been included since its acquisition on July 22, 2021. 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 53rd53rd 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 of 2021, adjustments were made to provisional amounts reclassifying $1,203,000$1.4 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.

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
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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


Acquisition of GFG Holdings Inc.

On July 22, 2021, the Company completed the acquisition of LS GFG Holdings Inc. (“GFG”), for a total purchase price of $444.5 million paid by the Company in the form of $355.2 million in cash, 3,089,245 shares of the Company’s Series B Cumulative Preferred Stock and 1,964,865 shares of the Company’s Common Stock. (the “GFG Acquisition”). Additionally, on July 22, 2021, the Company entered into a put/call agreement with the 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 any accrued but unpaid dividends on or before April 22, 2022. (See Note 15)
GFG is a franchisor of 5 franchised brands. GFG’s brands (Great American Cookies, Marble Slab Creamery, Pretzelmaker, Hot Dog on a Stick and Round Table Pizza) are in the quick service restaurant (QSR) industry. The franchise network, across all of the Company’s brands, consists of approximately 1,450 retail stores in 10 countries.

The preliminary assessment of the fair value of the net assets and liabilities acquired by the Company through the acquisition of GFG was estimated at $444.5 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 GFG 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 net tangible and intangible assets acquired is presented in the table below (in thousands):

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Cash$8,693 
Accounts receivable7,246 
Prepaid and other current assets3,818 
Other intangible assets, net277,700 
Goodwill176,155 
Right of use assets6,514 
Fixed assets8,380 
Other assets1,229 
Accounts payable(2,408)
Accrued expenses(10,168)
Accrued Advertising(3,207)
Deferred income(869)
Operating lease liability(8,744)
Deferred tax liability(18,867)
Other liabilities(985)
Total net identifiable assets$444,487 

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 and Note 7.
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 on December 24, 2020, 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 receivereceived certain limited registration rights with respect to the shares received in the Merger. As a result of the Merger, FCCG’sFCCG 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
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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 indicatesprovides 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 arewere recorded on the Company’s books at FCCG’sthe 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):

Prepaid assets $33 
Deferred tax assets  20,402 
Other assets  100 
Accounts payable  (926)
Accrued expense  (6,846)
Current portion of debt  (12,486)
Litigation reserve  (3,980)
Due to affiliates  (43,653)
Total net identifiable liabilities (net deficit) $(47,356)

A

Prepaid assets$33 
Deferred tax assets20,402
Other assets100
Accounts payable(926)
Accrued expense(6,973)
Current portion of debt(12,486)
Litigation reserve(3,980)
Due to affiliates(43,653)
Total net identifiable liabilities (net deficit)$(47,483)
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 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 assessment of the fair value of the net lossassets and liabilities acquired by the Company through the acquisition of $432,000 attributedJohnny Rockets was $24.7 million. The allocation of the consideration to the Merged Entitiesvaluation of net tangible and intangible assets acquired is includedpresented in the accompanying consolidated statementstable below (in thousands):
Cash$812 
Accounts receivable1,452
Assets held for sale10,765
Goodwill258
Other intangible assets26,900
Deferred tax assets4,039
Other assets438
Accounts payable(1,113)
Accrued expenses(3,740)
Deferred franchise fees(4,988)
Operating lease liability(10,028)
Other liabilities(65)
Total net identifiable assets$24,730 
The values of operations forgoodwill and other intangible assets were initially considered as of the thirteen weeks ended March 28, 2021. There were no revenues attributedacquisition date. Descriptions of the Company’s subsequent assessments of impairment of the goodwill and other intangible assets acquired in this acquisition related to the Merged Entities during the period.

COVID-19 are in Note 6 and Note 7.

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Proforma Information


The table below presents the combined proforma revenue and net loss of the Company and GFG, FCCG and Johnny Rockets (the "Acquired Entities"), for the thirteen and thirty-nine weeks ended March 29,September 26, 2021 and September 27, 2020, assuming the Mergeracquisition of the Acquired Entities had occurred on December 30, 2019 (the beginning of the Company’s 2020 fiscal year), pursuant to ASC 805-10-50 (in thousands). Actual consolidated results are presented in the proforma information for any period in which an Acquired Entity was actually a consolidated subsidiary of the Company. This proforma information does not purport to represent what the actual results of operations of the Company would have been had the Mergeracquisition of the Acquired Entities occurred on thatthis 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)


Thirteen Weeks Ended
September 26, 2021		Thirty-nine Weeks Ended
September 26, 2021		Thirteen Weeks Ended
September 27, 2020		Thirty-nine Weeks Ended
September 27, 2020
Revenue$36,517 $109,997 $36,563 $113,942 
Net loss$(3,839)$(8,439)$(5,550)$(23,578)

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 thirty-nine weeks ended March 29,September 26, 2021 and September 27, 2020, together with the unaudited results of each of the MergedAcquired Entities for the thirteen and thirty-nine weeks ended March 29,September 26, 2021 and September 27, 2020, with the following adjustment:

adjustments:

For the acquisition of GFG:
●Amortization of intangible assets has been adjusted to reflect the preliminary fair value at the assumed acquisition date.
●The proforma interest expense has been adjusted to exclude actual GFG 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.
●Income tax effect is based on an assumed statutory income tax rate of 26%.
For the merger with FCCG:
●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, 201830, 2019 (the beginning of the Company’s 20192020 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 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. This preliminary assessment of fair value of the net assets and liabilities as well as the final purchase price were estimated at closing and are subject to change. Under Sections 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”, as defined, there are annual limitations on the amount of the NOLs and certain other deductions and credits which are available to the Company (the “Section 382 and 383 Limitations”). The portion of the NOLs and other tax benefits accumulated by Johnny Rockets prior to the Acquisition are subject to these Section 382 and 382 Limitations. Analysis of these Section 382 and 383 Limitations are ongoing. The preliminary allocation of the consideration to the preliminary valuation of net tangible and intangible assets acquired is presented in the table below (in thousands):

Cash $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 weeks ended March 29, 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.

  Thirteen Weeks Ended 
  March 28, 2021  March 29, 2020 
  (Actual)  (Proforma) 
       
Revenues $6,649  $7,674 
Net (loss) income $(2,432) $(2,357)

The proforma information above reflects the combination of the Company’s unaudited results as disclosed in the accompanying consolidated statements of operations for the thirteen weeks March 29, 2020, together with the unaudited results of Johnny Rockets for the thirteen weeks ended March 29, 2020, with the following adjustments:

For the acquisition of Johnny Rockets:
●Revenue – The unaudited proforma revenuesrevenue 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 weeks ended March 29, 2020.allocated.
●Former parent company management fees have been eliminated from the proforma.
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●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


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,September 26, 2021 and December 27, 2020 (in thousands):

  March 28, 2021  December 27, 2020 
  (Unaudited)  (Audited) 
       
Property, plant and equipment $1,355  $1,352 
Operating lease right of use assets  9,215   9,479 
Total $10,570  $10,831 

September 26,
2021		 December 27,
2020
Property, plant and equipment$776 $1,352 
Operating lease right of use assets$4,815 $9,479 
Total$5,591 $10,831 
Operating lease liabilities related to the assets classified as held for sale in the amount of $9,656,000$4.9 million and $9,892,000,$9.9 million have been classified as current liabilities on the accompanying condensed consolidated balance sheetsheets as of March 28,September 26, 2021 and December 27, 2020, respectively.

Restaurant

Refranchising gains in the thirty-nine weeks ended September 26, 2021 were comprised of $1.6 million in net gains related to refranchised restaurants, partially offset by $0.9 million of restaurant operating costs, net of food sales. Refranchising losses in the thirty-nine weeks ended September 27, 2020 were comprised of $1.1 million of restaurant operating costs, net of food sales, totaled $427,000 and $539,000plus $0.8 million in net losses related to the sale or closure of refranchised restaurants.
Refranchising gains for the thirteen weeks ended March 28,September 26, 2021 were comprised of $0.5 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 thirteen weeks ended September 27, 2020 were comprised of $0.3 million of restaurant operating costs, net of food sales.
During the thirty-nine weeks ended September 26, 2021, 2 restaurant locations were sold to 2 entities which are 49% owned by a subsidiary of the Company. The 51% owners of these entities are not affiliated with the Company. In addition to its significant equity interests in the 2 restaurants, the Company provides virtually all of the management functions associated with the operation of the businesses. As a result, the assets, liabilities and March 29, 2020, respectively.

Noteoperating results of the restaurants are included in the Company’s condensed consolidated financial statements, subject to the noncontrolling interests of the non-affiliated investors.

NOTE 5. NOTESNOTE 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% 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
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discount of $397,000.$0.4 million. As of March 28,September 26, 2021 and December 27, 2020, the balance of the Elevation Note was $1,850,000$1.7 million and $1,830,000,$1.8 million, respectively, which waswere net of discounts of $247,000$0.2 million and $267,000,$0.3 million, respectively. During the thirteen and thirty-nine weeks ended March 28,September 26, 2021, and March 29, 2020, the Company recognized $52,000$49,000 and $53,000$151,000 in interest income on the Elevation Buyer Note, respectively.

Note During the thirteen and thirty-nine weeks ended September 27, 2020, the Company recognized $52,000 and $158,000, respectively, in interest income on the Elevation Buyer Note.

NOTE 6. GOODWILL

Goodwill consistsconsisted of the following (in thousands):

  

March 28,

2021

  

December 27,

2020

 
Goodwill:        
Fatburger $529  $529 
Buffalo’s  5,365   5,365 
Hurricane  2,772   2,772 
Yalla  261   261 
Elevation Burger  521   521 
Johnny Rockets  258   1,461 
Total goodwill $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.

September 26,
2021		December 27,
2020
Goodwill:
Fatburger$529 $529 
Global Franchise Group176,155— 
Buffalo’s5,3655,365
Hurricane2,7722,772
Yalla261261
Elevation Burger521521
Johnny Rockets2581,461
Total goodwill$185,861 $10,909 
A subsequent review of the carrying value of goodwill as of March 28,September 26, 2021 did not result in additionalany impairment charges for the thirteenthirty-nine weeks ended as of that date. There were also noWhen considering the available facts, assessments and judgments, as of September 27, 2020, the Company recorded goodwill impairment charges duringof $1.5 million relating to the thirteenPonderosa and Bonanza brands for the thirty-nine 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.
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Note

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):

  March 28,
2021		  December 27,
2020		 
Trademarks:        
Fatburger $2,135  $2,135 
Buffalo’s  27   27 
Hurricane  6,840   6,840 
Ponderosa  300   300 
Yalla  776   776 
Elevation Burger  4,690   4,690 
Johnny Rockets  20,300   20,300 
Total trademarks  35,068   35,068 
         
Franchise agreements:        
Hurricane – cost  4,180   4,180 
Hurricane – accumulated amortization  (884)  (804)
Ponderosa – cost  1,477   1,477 
Ponderosa – accumulated amortization  (362)  (337)
Elevation Burger – cost  2,450   2,450 
Elevation Burger – accumulated amortization  (886)  (761)
Johnny Rockets – cost  6,600   6,600 
Johnny Rockets – accumulated amortization  (312)  (162)
Total franchise agreements  12,263   12,643 
Total Other Intangible Assets $47,331  $47,711 

September 26,
2021		December 27,
2020
Trademarks:
Fatburger$2,135 $2,135 
Global Franchise Group149,800 — 
Buffalo’s27 27 
Hurricane6,840 6,840 
Ponderosa300 300 
Yalla776 776 
Elevation Burger4,690 4,690 
Johnny Rockets20,300 20,300 
Total trademarks184,868 35,068 
Franchise agreements:
Hurricane – cost4,180 4,180 
Hurricane – accumulated amortization(1,045)(804)
Global Franchise Group - cost43,300 — 
Global Franchise Group - accumulated amortization(601)— 
Ponderosa – cost1,477 1,477 
Ponderosa – accumulated amortization(414)(337)
Elevation Burger – cost2,450 2,450 
Elevation Burger – accumulated amortization(1,135)(761)
Johnny Rockets – cost6,600 6,600 
Johnny Rockets – accumulated amortization(507)(162)
Total franchise agreements54,305 12,643 
Customer relationships:
Global Franchise Group - cost84,600 — 
Global Franchise Group - accumulated amortization(1,085)— 
Total customer relationships83,515 — 
Total Other Intangible Assets$322,688 $47,711 

The Company reviewed the carrying value of its other intangible assets as of DecemberSeptember 26, 2021 and September 27, 2020 and recognized impairment charges as deemed necessary at that time. A subsequent review of2020. During the carrying value as of March 28,thirty-nine weeks ended September 26, 2021, did not result in additionalno impairment charges for other intangible assets were deemed necessary. As a result of these analyses, when considering the thirteenavailable facts, assessments and judgments, during the thirty-nine weeks ended as of that date. There were also noSeptember 27, 2020, the Company recorded goodwill impairment charges duringof $1.5 million and tradename impairment charges of $2.5 million relating to the thirteen weeks ended March 29, 2020.

Ponderosa, Yalla and Bonanza brands.

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 other intangible asset impairment charges in future periods.
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The expected future amortization of the Company’s franchise agreements and customer relationships as of September 26, 2021 is as follows (in thousands):

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

Note

Fiscal year: 
Remaining 2021$2,909 
202211,638 
202311,638 
202411,333 
202511,139 
Thereafter89,163 
Total$137,820 
NOTE 8. DEFERRED INCOME

Deferred income iswas as follows (in thousands):

  

March 28,

2021

  

December 27,

2020

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

Note

September 26,
2021		 December 27,
2020
Deferred franchise fees$12,328 $10,003 
Deferred royalties160 291 
Deferred vendor incentives611 692 
Total$13,099 $10,986 
NOTE 9. Income Taxes

Effective October 20, 2017,INCOME TAXES

The following table presents the Company entered into a Tax Sharing Agreement with FCCG that provided that FCCG would,Company’s benefit for income taxes (in thousands):
Thirteen Weeks EndedThirty-nine Weeks Ended
September 26, 2021September 27, 2020September 26, 2021September 27, 2020
Benefit for income taxes$(1,183)$(19)$(3,303)$(1,405)
Effective tax rate24.6 %3.2 %21.6 %16.3 %
The difference between the statutory tax rate of 21% and the effective tax rate in the thirty-nine weeks ended September 26, 2021 was primarily due 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)impact of state income taxes.
The Company's net deferred 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 Mergerasset decreased $15.5 million during the fourth quarterthirty-nine weeks ended September 26, 2021 primarily due to the acquisition and consolidation of 2020.

Deferred taxes reflectGFG. The preliminary assessment of the net effectfair value of temporary differences between the carrying amount ofnet assets and liabilities for financial reporting purposes andacquired in the amounts used for calculating taxes payable. DeferredGFG transaction included a net deferred tax assets are reduced by a valuation allowance if, based on the weightliability of available evidence, it is more likely than not (a likelihood$18.9 million. This preliminary assessment of more than 50 percent) that some portion or allfair value of the deferred taxnet assets will not be realized. Asand liabilities of March 28, 2021GFG was estimated at closing and December 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 relatedis subject 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.

change (See Note 3).

NOTE 10. LEASES

As of March 28,September 26, 2021, the Company has thirteenNaN operating leases for corporate offices, NaN Company owned stores and for certain restaurant properties that are in the process of being refranchised. The leases have remaining terms ranging from 2.60.5 to 17.87.7 years. The Company recognized lease expense of $810,000$1.4 million and $347,000$0.4 million for the thirteen monthsweeks ended March 28,September 26, 2021 and March 29,September 27, 2020, respectively. For the thirty-nine weeks ended September 26, 2021 and September 27, 2020, the Company recognized lease expense of $2.8 million and $1.1 million, respectively. The weighted average remaining lease term of the operating leases as of March 28,September 26, 2021 was 7.44.8 years.

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

  

March 28,

2021

  

December 27,

2020

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

September 26,
2021		 December 27,
2020
Right of use assets$17,419 $13,948 
Lease liabilities$20,548 $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% in each case, which iswas based on the Company’s incremental borrowing rate at the time the lease iswas acquired.

The contractual future maturities of the Company’s operating lease liabilities as of March 28,September 26, 2021, including anticipated lease extensions, are as follows (in thousands):

Fiscal year:   
2021 $2,321 
2022  3,182 
2023  3,275 
2024  3,137 
2025  2,791 
Thereafter  4,855 
Total lease payments  19,561 
Less imputed interest  5,264 
Total $14,297 

Fiscal year:
2021$3,943 
20225,119 
20234,212 
20243,975 
20253,262 
Thereafter3,901 
Total lease payments24,412 
Less imputed interest3,864 
Total$20,548 

The current portion of the operating lease liability as of September 26, 2021 was $4.8 million.
Supplemental cash flow information for the thirteenthirty-nine weeks ended March 28,September 26, 2021 related to leases iswas as follows (in thousands):

Cash paid for amounts included in the measurement of operating lease liabilities:   
Operating cash flows from operating leases $810 

Note

Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases$2,282 
Operating lease right of use assets obtained in exchange for new lease obligations:
Operating lease liabilities$— 
NOTE 11. DEBT

2021 GFG Royalty Securitization

On March 6, 2020,

In connection with the acquisition of GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC (“GFG Royalty”), a special purpose, wholly-owned subsidiary of the Company, completed the issuance and sale in a whole-businessprivate offering (the “GFG Offering”)
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of three tranches of fixed rate senior secured notes (the "GFG Securitization Notes"). The GFG Securitization Notes were issued in a 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-2transaction 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 (collectively, the “Indenture”).

The Series A-2 and B-2 Notes havehad 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

Closing
Date		 ClassSeniorityPrincipal
Balance		CouponWeighted
Average
Life
(Years)		Non-Call
Period
(Months)		Anticipated
Call Date		Final Legal
Maturity
Date
7/22/2021A-2Senior$209,000,000 6.00 %2.0167/25/20237/25/2051
7/22/2021B-2Senior Subordinated$84,000,000 7.00 %2.0167/25/20237/25/2051
7/22/2021M-2Subordinated$57,000,000 9.50 %2.0167/25/20237/25/2051
Net proceeds from the issuance of the Series A-2 and B-2GFG Securitization Notes were $37,389,000,totaled $338.9 million, which consisted of the combined face amount of $40,000,000,$350.0 million, net of discounts of $246,000 and debt offering costs of $2,365,000. The$6.0 million and original issue discount and offering costs are accreted as additional interest expense over the expected termof $5.1 million. Substantially all of the Series A-2 and B-2 Notes.

Onproceeds were used to acquire GFG.

As of September 21, 2020, FAT Royalty completed26, 2021, 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 consistcarrying value 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 issuanceGFG Securitization Notes was $339.3 million (net 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.$5.8 million and original issue discount of $4.9 million). The discountCompany recognized interest expense on the GFG Securitization Notes of $4.6 million for the thirteen and thirty-nine weeks ended September 26, 2021, which includes $0.2 million for amortization of debt offering costs are accreted as additional interest expense over the expected termand $0.2 million for amortization of the Series M-2 Notes.

original issue discount. The Series M-2average annualized effective interest rate of the GFG Securitization Notes, including the amortization of debt offering costs and original issue discount, was 7.5% for the time the debt was outstanding during the thirty-nine weeks ended September 26, 2021.

The GFG Securitization Notes require that the principal (if any) and interest obligations be segregated to ensure appropriate funds are subordinatereserved to pay the quarterly principal and interest amounts due. The amount of monthly cash flow that exceeds the required monthly interest reserve is generally remitted 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 Securitization Notes are outstanding, scheduled Interest payments of principal and interest are required to be made on a quarterly basis with the scheduled principal payments of $1,000,000and, unless repaid on or before July 25, 2023 additional interest equal to 1.0% per quarterannum will accrue on each tranche. The material terms of the Series A-2GFG Securitization Notes also include, among other things, the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and Series B-2 Notes and $200,000 per quarter on(iii) senior leverage ratio. As of September 26, 2021, the Series M-2 Notes beginningCompany was in compliance with these covenants.

Immediately following the second quarter of 2021.

In connection with the Securitization, FAT Royalty and eachclosing of the Franchise Entities (as defined in the Indenture) entered into a Management Agreement withacquisition of GFG, the Company dated ascontributed the franchising subsidiaries of the Closing Date (the “Management Agreement”),GFG to GFG Royalty, pursuant to which the Company agreed to act as manager of FAT Royalty and each of the Franchise Entities.a Contribution Agreement. 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 2020GFG Securitization Notes are generally secured by a security interest in substantially all of the assets of GFG Royalty and its subsidiaries.

2021 FB Royalty Securitization
On April 26, 2021, FAT Brands Royalty I, LLC (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the Offering of three tranches of fixed rate senior secured notes (collectively, the “2021 Securitization Notes”) as follows:
Closing
Date		ClassSeniorityPrincipal
Balance		CouponWeighted
Average
Life
(Years)		Non-Call
Period
(Months)		Anticipated
Call Date		Final Legal
Maturity
Date
4/26/2021A-2Senior$97,104,000 4.75 %2.2567/25/20234/25/2051
4/26/2021B-2Senior Subordinated$32,368,000 8.00 %2.2567/25/20234/25/2051
4/26/2021M-2Subordinated$15,000,000 9.00 %2.2567/25/20234/25/2051
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. As of September 26, 2021, the carrying value of the 2021 Securitization Notes was $141.1 million (net of debt offering costs of $2.7 million and original issue discount of $0.7 million). The Company recognized interest expense on the 2021 Securitization Notes of $2.3 million and $3.9 million for the thirteen and thirty-nine weeks ended September 26, 2021, respectively, which includes $0.1 million and $0.2 million for amortization of debt offering costs, respectively, and $35,000 and $69,000 for amortization of the original issue discount, respectively. The average annualized effective interest rate of the 2021 Securitization Notes,
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including the equity interests inamortization of debt offering costs and original issue discount, was 6.6% for the Franchise Entities. time the debt was outstanding during the thirty-nine weeks ended September 26, 2021.
The restrictions placed on the Company’s subsidiaries2021 Securitization Notes require that FAT Royalty’sthe principal (if any) 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 arebe 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 serviceinterest reserve is generally remitted to the Company. Once theInterest payments are required obligations are satisfied, there are no further restrictions, including payment of dividends,to be made on the cash flowsa 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 20202021 Securitization Notes have not been and will not be registered underalso 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 certainfollowing financial and non-financial covenants, including acovenants: (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,September 26, 2021, FAT Royaltythe Company was in compliance with these covenants.

As

The 2021 Securitization Notes are generally secured by a security interest in substantially all the assets of March 28, 2021, the recorded balanceFB Royalty and its subsidiaries.
A portion of the 2020proceeds 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:
NotePublic
Rating		SeniorityIssue Amount Coupon First Call DateFinal Legal Maturity
Date
Series A-2BBSenior$20,000,000 6.50 %4/27/20214/27/2026
Series B-2BSenior Subordinated$20,000,000 9.00 %4/27/20214/27/2026
Series M-2N/ASubordinated$40,000,000 9.75 %4/27/20214/27/2026
The payoff amount totaled $83.7 million, which is netincluded principal 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 and $0.9 million for the thirteen weeks ended March 28,September 26, 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 theSeptember 27, 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 Loan2020 Securitization Notes of $2.6 million and Security Agreement of $1,783,000$2.1 million for the thirteenthirty-nine weeks ended March 29,September 26, 2021 and September 27, 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% per year and maturing in July 2026. The Elevation Note is convertible under certain circumstances into shares of the Company’s common stock at $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,September 26, 2021, the carrying value of the Elevation Note was $5,987,000 which is net$5.8 million (net of the loan discount of $807,000$0.7 million and debt offering costs of $53,000.$48,000). 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 monthsand thirty-nine weeks ended March 28,September 26, 2021 in the amount of $171,000,$165,000 and $504,000, respectively, which included amortization of the loan discount of $65,000$62,000 and $192,000, and amortization of $3,000 and $8,000 in debt offering costs.costs, respectively. The Company recognized interest expense relating to the Elevation Note during the thirteen and thirty-nine weeks ended March 29,September 27, 2020 in the amount of $189,000,$153,000 and $517,000, respectively, which included amortization of the loan discount of $71,000$69,000 and $210,000, and amortization of $3,000 and $8,000 in debt offering costs. costs, respectively.
The annualized effective interest rate for the Elevation Note during the thirteenthirty-nine weeks ended March 28,September 26, 2021 was 11.5%11.4%.

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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 June 2021, the FCCG Debt was paid in full in the amount of $12.5 million, including accrued interest. The Company arising under any agreement or instrumentrecognized interest expense relating to which Company or anythe FCCG Debt of its Affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment.

$241,000 during the thirty-nine weeks ended September 26, 2021.

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 asand 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 relatedhad 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 thirty-nine weeks ended September 26, 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).

Assumed Debt from Merger

The following debt of FCCG (the “FCCG Debt”) was assumed by Fog Cutter Acquisition LLC, a subsidiary ofduring 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).

Notethirty-nine weeks ended September 26, 2021.

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.

Holders of Series B Cumulative Preferred Stock shall be entitledcosts).

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 ofthe 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:

(i)After July 16, 2020 and on or prior to July 16, 2021: $27.50 per share.
(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 to July 16, 2023: $26.50 per share.
(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.

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, thetransactions:

•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 the 2020 Series B Offering Warrants. The original holders were also issuedDesignation and received an additional 3,537 shares of new Series B Preferred Sharesstock in payment of $88,000previously accrued and outstanding dividends relating to the Original Series B Preferred at a price of $25 per share.

dividends.

•The Company entered into an agreement to exchange 15,000 shares of Series A Fixed Rate Cumulative Preferred Stock owned by FCCG, including accrued dividends thereon, for 60,00074,449 shares of Series B Preferred Stock valued at $1,500,000, pursuant to a Settlement, Redemption and Release Agreement. Stock.
•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 exchangeexchanged 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.

Stock.

In December 2020, 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 ourthe 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.

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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).

On July 22, 2021, the Company completed the acquisition of GFG, for a total purchase price of $444.5 million. A portion of the consideration paid included 3,089,245 newly issued shares of the Company’s Series B Preferred Stock (the "GFG Preferred Stock Consideration"). Additionally, on July 22, 2021, the Company entered into a put/call agreement with the GFG sellers, pursuant to which the Company may purchase, or the GFG Sellers may require the Company to purchase the GFG Preferred Stock Consideration for $67.5 million plus any accrued but unpaid dividends on or before April 22, 2022. As a result of the effect of the put/call agreement, which may require the Company to pay the counterparty in cash, which may require the Company to pay the counterparty in cash,the GFG Preferred Stock Consideration has been classified as redeemable preferred stock on the Company's condensed consolidated balance sheet. (See Note 15)

On August 25, 2021, the Company redeemed 80,000 outstanding Series A Preferred Stock, with a redemption value of $8.0 million, plus accrued dividends thereon in the amount of $1.6 million, held by Trojan Investments, LLC in exchange for 478,199 shares of Series B Preferred Stock valued at $20 per share. The Company recognized a loss on extinguishment of debt in the amount of $13,000 resulting from the redemption of the Series A Preferred Stock.
As of March 28,September 26, 2021, the Series B Preferred Stock consisted of 1,183,2721,643,272 shares outstanding with a balancebook value of $21,267,000.$37.9 million and 3,089,245 redeemable shares outstanding with a book value of $66.8 million. The Company declaredpaid preferred dividends to the holders of the Series B Preferred Stock totaling $610,000$0.9 million and $2.1 million during the thirteen and thirty-nine weeks ended March 28,September 26, 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 per share. The sales price of each Unit was $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)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 per share and Series A Warrants to purchase 25,530 of the Company’s common stock at an exercise price of $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.

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The Company classified the Series A Preferred Stock as debt in the condensed consolidated balance sheets.
On July 13, 2020, the Company entered into the following transactions pertaining to the outstanding Series A Preferred Stock:

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

On August 25, 2021, the Company redeemed the remaining 80,000 outstanding Series A Preferred Stock, with a redemption value of $8.0 million, plus accrued dividends thereon in the amount of $1.6 million, held by Trojan Investments, LLC in exchange for 478,199 shares of Series B Preferred Stock valued at $20 per share. The Company classifiesrecognized a loss on extinguishment of debt in the amount of $13,000 resulting from the redemption of the Series A Preferred Stock as debt.

Stock.

As of March 28,September 26, 2021, there were 80,000no remaining 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.

outstanding. The Company recognized interest expense on the Series A Preferred Stock of $288,000$0.2 million and $0.4 million for the thirteen weeks ended March 28,September 26, 2021 which includes accretion expense of $9,000 as well as $1,000 for the amortization of debt offering costs.and September 27, 2020, respectively. The Company recognized interest expense on the Series A Preferred Stock of $355,000$0.7 million and $1.1 million for the thirteenthirty-nine weeks ended March 29, 2020, which includes accretion expenseSeptember 26, 2021 and September 27, 2020.

Derivative Liability Relating to the Conversion Feature of $6,000 and $1,000 for the amortization of debt offering costs. The year-to-date effective interest rate for 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 described above, 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 periodic cash payments. FCCG, 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 for all holders as of July 13, 2020. Immediately prior to the termination, the fair value of the Conversion Option was determined to be $1.5 million and resulted in the recognition of $0.9 million in income from the decrease in the value of the derivative liability. With the termination of the Conversion Option, the $1.5 million remaining balance in derivative liability was written off with an offsetting credit to Additional Paid-in Capital.
NOTE 13. ACQUISITION PURCHASE PRICE PAYABLE
On June 21, 2021, was 14.5%.

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 thirty-nine weeks ended September 26, 2021.

Note 13. Related Party Transactions

NOTE 14. RELATED PARTY TRANSACTIONS
During the thirteenthirty-nine weeks ended March 28,September 26, 2021, there were no reportable related party transactions. For the thirteenthirty-nine weeks ended March 29,September 27, 2020, the Company reported the following:

27

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. 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 borebears interest at a rate of 10% per annum, hadhas a five-year term with no prepayment penalties, and hadhas a maximum capacity of $35,000,000. All additional borrowings under the Intercompany Agreement wereare subject to the approval of the Board of Directors, in advance, on a quarterly basis and may have beenbe subject to other conditions as set forth by the Company. The initial balance under the Intercompany Agreement totaled $21,067,000 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,September 27, 2020, the balance receivable under the Intercompany Agreement was $26,854,000.

$33,382,000.


Effective July 5, 2018, the Company made a preferred capital investment in Homestyle Dining LLC, a Delaware limited liability corporation (“HSD”) in the amount of $4.0 million (the “Preferred Interest”). FCCG owns all of the common interests in HSD. The holder of the Preferred Interest is entitled to a 15% priority return on the outstanding balance of the investment (the “Preferred Return”). Any available cash flows from HSD on a quarterly basis are to be distributed to pay the accrued Preferred Return and repay the Preferred Interest until fully retired. On or before the five-year anniversary of the investment, the Preferred Interest is to be fully repaid, together with all previously accrued but unpaid Preferred Return. FCCG has unconditionally guaranteed repayment of the Preferred Interest in the event HSD fails to do so. As of September 27, 2020, the balance receivable, including accrued and unpaid interest income, under the Preferred Interest was $5,350,000.

During the thirteenthirty-nine weeks ended March 29,September 27, 2020, the Company recorded a receivablereceivables from FCCG in the amount of $121,000$158,000 under the Tax Sharing Agreement, which was added to the intercompany receivable.

Series B Cumulative Preferred Stock

On October 3 and October 4, 2019,


NOTE 15. REDEEMABLE PREFERRED STOCK

In satisfaction of a portion of the purchase price in connection with the acquisition of GFG, the Company completed the initial closingissued 3,089,245 shares of its continuous public offering (the “Series B Preferred Offering”) of up to $30,000,000 of units (the “Series B Units”) at $25.00 per Series B Unit, with each Series B Unit comprised of one share of 8.25% Series B Cumulative Preferred Stock (“Series B Preferred Stock”) and 0.60 warrantsStock (the “Series B Warrants”"GFG Preferred Stock Consideration"). Additionally, on July 22, 2021, the Company entered into a put/call agreement with the GFG sellers, pursuant to which the Company may purchase, or the GFG Sellers may require the Company to purchase commonin cash, the GFG Preferred Stock Consideration for $67.5 million, plus any accrued but unpaid dividends, on or before April 22, 2022. The parties valued the GFG Preferred Stock Consideration and the put/call agreement at $67.5 million and the Company has classified them as redeemable preferred stock at $8.50 per share, exercisable for five years. Atin its condensed consolidated balance sheets.

As of September 26, 2021, the initial closingcarrying value of the redeemable preferred stock was $66.8 million. The Company declared dividends in the amount of $0.7 million relating to the GFG Preferred Offering,Stock Consideration for the thirteen and thirty-nine weeks ended September 26, 2021.
NOTE 16. STOCKHOLDERS’ EQUITY

On August 16, 2021, the Company completedfiled its Second Amended and Restated Certificate of Incorporation (the “Amended Certificate”) with the saleSecretary of 43,080 SeriesState of the State of Delaware, which among other things, (i) authorized 50,000,000 shares of Class A Common Stock and 1,600,000 shares of Class B UnitsCommon Stock, and (ii) reclassified the Company’s outstanding shares of Common Stock as Class A Common Stock as of such date (the "Recapitalization"). Prior to the Recapitalization, the Company’s authorized common shares totaled 25,000,000 in a single class.

The terms of the Amended Certificate require equal or better treatment for gross proceedsthe Class A Common Stock to the Class B Common Stock in transactions such as distributions, mergers, dissolution or recapitalization. Generally, each holder of $1,077,000.

Asshares of March 29, 2020,Class A Common Stock shall be entitled to 1 vote for each share of Class A Common Stock held as of the following reportable related persons participatedapplicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Corporation, while each holder of shares of Class B Common Stock shall be entitled to 2000 votes for each share of Class B Common Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Corporation. The foregoing is qualified in its entirety by reference to the initial closingfull text of the Amended Certificate, which is filed as Exhibit 3.1 on the Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 19, 2021 and incorporated by reference herein.


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Table of Contents
On October 15, 2021, the Board of Directors of the Company approved an amendment and restatement (the “Amendment”) of the Company’s Preferred Offering:

●Andrew Wiederhorn, the Company’s Chief Executive Officer, acquired 20,000 Series B Units for $500,000 comprised of 20,000 shares of Series B Preferred Stock and 12,000 Series B Warrants to purchase 12,000 shares of the Company’s Common Stock at $8.50 per share, and
●Squire Junger, a member of the Company’s Board of Directors, acquired 5,000 Series B Units for $125,000 comprised of 5,000 shares of Series B Preferred Stock and 3,000 Series B Warrants to purchase 3,000 shares of the Company’s Common Stock at $8.50 per share.
●In aggregate, Mr. Wiederhorn, Mr. Junger, and other related parties acquired 33,000 Series B Units for $825,000 comprised of 33,000 shares of Series B Preferred Stock and 19,800 Series B Warrants to purchase 19,800 shares of the Company’s Common Stock at $8.50 per share.

Note 14. SHAREHOLDERS’ EQUITY

Bylaws, effective as of the same date. The Amendment revised the stockholder voting provisions of the Bylaws to reflect the dual class common stock structure adopted by the Company in August 2021. In addition, the Amendment revised the provisions in the Bylaws for stockholder voting by written consent and the procedure for fixing the size of the Board of Directors and made certain other conforming changes.

As of March 28,September 26, 2021 and December 27, 2020, the total number of authorized shares of common stock was 51,600,000 and 25,000,000, respectively. There were 15,013,001 shares of Class A common stock and there were 12,029,2641,270,683 shares of Class B common stock outstanding at September 26, 2021 and 11,926,264 shares of Class A common stock issued and outstanding respectively.

at December 27, 2020.

Below are the changes to the Company’s common stock during the thirteenthirty-nine weeks ended March 28,September 26, 2021:

●The
●Upon the effective date of the Recapitalization, each share of Common Stock outstanding as of June 29, 2021 was reclassified as Class A Common Stock, and on August 23, 2021, the Company issued 103,000distributed a dividend of 0.10 shares of Class B Common Stock for each outstanding share to holders of Class A Common Stock. This resulted in the issuance of 1,270,683 shares of Class B Common Stock.
●Warrants to purchase 464,643 shares of common stock between February 10, 2021 and February 17, 2021 in satisfaction ofwere exercised during the exercise of certain 2020 Series B Offering Warrants.thirty-nine weeks ended September 26, 2021. The proceeds to the Company from the exercise of the optionswarrants totaled $515,000.$2.2 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 years in equal installments at the anniversary date of grant. The value of the restricted stock grant was $2.8 million and will be amortized as compensation 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).
●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.
●On July 22, 2021, the Company completed the acquisition of GFG and issued 1,964,865 shares of the Company’s Common Stock with a value of $21.8 million.
●On August 24, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on September 15, 2021 to stockholders of record as of September 6, 2021, for a total of $2.1 million.

Note 15.

NOTE 17. 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’sAs of September 26, 2021, there were 658,605 stock option activityoptions outstanding with a weighted average exercise price of $7.47 per share (adjusted for thirteenthe effect of the Class B common stock dividend (See Note 16)).
During the thirty-nine weeks ended March 28,September 26, 2021 is summarizedthe 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:

  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 

of the date of grant. The rangerelated compensation expense will be recognized over the vesting period.

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

Including

Non-Employee

Options

Expected dividend yield0% - 10.43%
Expected volatility30.23% - 31.73%
Risk-free interest rate0.32% - 2.85%
Expected term (in years)5.50 – 5.75

Contents

The Company recognized share-based compensation expense in the amount of $37,000$0.3 million and $15,000, respectively,$45,000, during the thirteen weeks ended March 28,September 26, 2021 and March 29, 2020.September 27, 2020, respectively. The Company recognized share-based compensation expense in the amount of $0.5 million and $0.1 million, during the thirty-nine weeks ended September 26, 2021 and September 27, 2020, respectively. As of March 28,September 26, 2021, there remains $124,000$2.4 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.

NOTE 18. 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.

The Company’s warrant activity for the thirteenthirty-nine weeks ended March 28,September 26, 2021 iswas as follows:

  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:

 Number of
Shares		Weighted
Average
Exercise Price (1)		Weighted
Average
Remaining
Contractual
Life (Years)
Warrants outstanding at December 27, 20202,273,533 $4.60 3.5
Grants8,184 $3.88 3.8
Exercised(475,853)$3.88 3.7
Cancelled(2,849)$3.88 3.8
Warrants outstanding at September 26, 20211,803,015 $4.76 3.5
Warrants exercisable at September 26, 20211,803,015 $4.76 3.5
Warrants
Expected dividend yield(1)4.00% - 6.63%
Expected volatility30.23% - 31.73%
Risk-free interest rate0.99% - 1.91%
Expected term (in years)3.80 - 5.00Pricing adjusted for dividends and Class B stock dividend.

In addition

During the thirty-nine weeks ended September 26, 2021, 475,853 warrants were exercised in exchange for 464,643 shares of common stock with net proceeds 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.
of $2.2 million.

Note 17.

NOTE 19. 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 per share of common stock, payable on May 7, 2021 to shareholdersstockholders 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, 2021 to stockholders of record as of June 14, 2021, for a total of $1.6 million.
On August 24, 2021, the Board of Directors declared a cash dividend of 0.13 per share of common stock, payable on September 15, 2021 to stockholders of record as of September 6, 2021, for a total of $2.1 million.

Note 18. Commitments

NOTE 20. COMMITMENTS AND CONTINGENCIES
Litigation
James Harris and Contingencies

Litigation

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.
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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.

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

NOTE 21. GEOGRAPHIC INFORMATION AND MAJOR FRANCHISEES

Revenues

Revenue by geographic area arewas as follows (in thousands):

  

Thirteen Weeks Ended

March 28, 2021

  

Thirteen Weeks Ended

March 29, 2020

 
United States $4,830  $3,709 
Other countries  1,819   714 
Total revenues $6,649  $4,423 

Revenues are

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 26, 2021September 27, 2020September 26, 2021September 27, 2020
United States$26,264 $3,500 $37,411 $9,773 
Other countries3,497 589 7,282 1,846 
Total revenue$29,761 $4,089 $44,693 $11,619 
Revenue is shown based on the geographic location of our licenseefranchisees’ restaurants. All Company assets are located in the United States.

During the thirteenthirty-nine weeks ended March 28,September 26, 2021 and March 29,September 27, 2020, no individual franchisee accounted for more than 10% of the Company’s revenues.

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.

revenue.

NOTE 21.22. SUBSEQUENT EVENTS

Management has evaluated all events and transactions that occurred subsequent to March 28,September 26, 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 Twin Peaks

On April 26,October 1, 2021, the Company completed the acquisition of Twin Peaks Buyer, LLC (“Twin Peaks”) from TwinPeaksHoldings,LLC(the“Seller”). Twin Peaks is the franchisor and operator of a chain of sports lodge themed restaurants. The
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Table of Contents
purchase price totaled $300.0 million, comprised of $222.1 million in cash, a note payable in the amount of $10.4 million and 2,847,393 shares of the Company’s Series B Cumulative Preferred Stock (the “Closing Date”"Preferred Stock Consideration") valued at $67.5 million. The final purchase price is subject to certain customary adjustments, including with respect to working capital, to be finalized no later than 90 days after closing.

The Company agreed to register the Preferred Stock Consideration for resale and maintain the effectiveness of the registration for up to six years. The Seller has agreed to a lock-up period with respect to the Preferred Stock Consideration, during which time the Seller may not offer, sell or transfer any interest in such shares. The lock-up provisions restrict sales until March 31, 2022 for 1,793,858 shares (the “Initial Put/Call Shares”) and September 30, 2022 for the remaining 1,053,535 shares (the “Secondary Put/Call Shares”), subject to certain exceptions set forth in the Put/Call Agreement (as defined below).

On October 1, 2021, the Company and the Seller entered into a Put/Call Agreement (the “Put/Call Agreement”) pursuant to which the Company was granted the right to call from the Seller, and the Seller was granted the right to put to the Company, the Initial Put/Call Shares at any time until March 31, 2022 for a cash payment of $42.5 million, and the Secondary Put/Call Shares at any time until September 30, 2022 for a cash payment of $25.0 million, plus any accrued but unpaid dividends on such shares. If the Company does not deliver the applicable cash proceeds to the Seller when due, the amounts then due will accrue interest at the rate of 10.0% per annum. On October 7, 2021, the Company received a put notice on the Initial Put/Call Shares and the Secondary Put/Call Shares.
2021 Twin Peaks Securitization
In connection with the acquisition of Twin Peaks on October 1, 2021, FAT Brands Twin Peaks I, LLC (“FB RoyaltyTwin Peaks”), 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)“Twin Peaks 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;(the Twin Peaks Securitization Notes") 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,have the “2021 Securitization Notes”).

following terms:

Closing
Date		 ClassSeniorityPrincipal
Balance		CouponWeighted
Average
Life
(Years)		Non-Call
Period
(Months)		Anticipated
Call Date		Final Legal
Maturity
Date
10/1/2021A-2Senior$150,000,000 7.00 %1.8267/25/20237/25/2051
10/1/2021B-2Senior Subordinated$50,000,000 9.00 %1.8267/25/20237/25/2051
10/1/2021M-2Subordinated$50,000,000 10.00 %1.8267/25/20237/25/2051
The 2021Twin Peaks Securitization Notes were issued in a securitization transaction pursuant toin which substantially all of the franchising and operating assets held by the Issuer and its subsidiaries, including the Company, wereof Twin Peaks are pledged as collateral to secure the 2021 SecuritizationTwin Peak Notes.
Acquisition of Fazoli's
On the Closing Date, FAT used a portion of the net proceeds of the Offering to repay in full the 2020 Securitization Notes (see Note 11).

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.

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,November 1, 2021, the Company received confirmation thatentered into a merger agreement with Fazoli Holdings, LLC ("Fazoli's"), pursuant to which the entire balance remainingCompany agreed to acquire Fazoli's, a quick-service Italian chain, for $130.0 million, payable by the Company in cash at the closing, which is expected to occur on or about December 15, 2021.

Issuance of Series B Preferred Stock
On November 1, 2021, the PPP Loans, plus accrued interest, had been forgiven underCompany closed an underwritten offering of 1.0 million shares of 8.25% Series B Cumulative Preferred Stock in an underwritten offering. The net proceeds to the termsCompany totaled $16.5 million (net of the program.

30
$1.5 million in underwriting discounts and other offering expenses).

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the thirteenthirty-nine weeks ended March 28,September 26, 2021 and March 29,September 27, 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.

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As of March 28,September 26, 2021, the Company owns nine14 restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe Buffalo’s& Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Yalla Mediterranean, Ponderosa and Bonanza Steakhouses, Elevation Burger and Yalla Mediterranean, that haveSteakhouses. Combined, these brands franchise approximately 7002,000 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.

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Results of Operations of FAT Brands Inc.

The following table summarize key components of our condensed consolidated results of operations for the thirteen and thirty-nine weeks ended March 28,September 26, 2021 and March 29, 2020. Certain account balances from the prior period have been reclassified to conform to current period presentation.

September 27, 2020.

(In thousands)

Thirteen Weeks Ended Thirty Nine Weeks Ended
September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020
Statements of operations data:
Revenue
Royalties$13,742 $3,156 $24,800 $8,678 
Franchise fees1,087 122 2,109 571 
Advertising fees5,483 803 8,043 2,347 
Restaurant sales3,879 — 4,113 — 
Factory revenue5,480 — 5,480 — 
Management fees and other income90 8 148 23 
Total revenue29,761 4,089 44,693 11,619 
Costs and expenses    
General and administrative expense12,966 2,990 23,375 10,626 
Restaurant operating expenses3,660 — 3,904 — 
Factory operating expenses3,473 — 3,473 — 
Impairment of assets— 753 — 3,927 
Refranchising (gain) loss(250)325 (679)1,869 
Acquisition costs2,053 503 2,985 633 
Advertising expense5,483 814 8,043 2,358 
Total costs and expenses27,385 5,385 41,101 19,413 
Income (loss) from operations2,376 (1,296)3,592 (7,794)
Total other (expense) income, net(7,194)709 (18,893)(800)
Loss before income tax expense(4,818)(587)(15,301)(8,594)
Income tax benefit(1,183)(19)(3,303)(1,405)
Net loss(3,635)(568)(11,998)(7,189)
Less: Net loss attributable to noncontrolling interest(14)— (19)— 
Net loss attributable to FAT Brands Inc.$(3,621)$(568)$(11,979)$(7,189)
For the Thirteen Weeks Ended

  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)

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For the thirteenthirty-nine weeks ended March 28, 20210September 26, 2021 and March 29,September 27, 2020:

Net Loss

Revenue- 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 - Revenues consist Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and management fees. We had revenuesother revenue. Total revenue increased $33.1 million, or 285%, in the first three quarters of $6,649,000 for the thirteen weeks ended March 28, 2021, to $44.7 million compared to $4,423,000 for$11.6 million in the thirteen weeks ended March 29,same period of 2020. The increase reflects revenue from Johnny Rockets, which was acquired during the third quarter of

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2020; revenue from the acquisition of Johnny Rockets,GFG, which occurred in September 2020.

July 2021; and the continuing 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, restaurant operating expenses, factory operating expenses, impairment charges, refranchising restaurant net gains or losses, and advertising expenseexpense. Costs and refranchisingexpenses increased $21.7 million, or 112%, in the first three quarters of 2021 to $41.1 million compared to the same period in the prior year.
General and administrative expenses increased $12.7 million, or 120%, in the first three quarters of 2021 compared to the same period in the prior year, primarily due to the acquisition of GFG during the third quarter and increased professional fees.
Advertising expenses increased $5.7 million, or 241%, in the first three quarters of 2021 compared to the prior year. These expenses vary in relation to the advertising revenue and reflect the addition of advertising expenses from GFG and Johnny Rockets and the increase in customer activity as the recovery from COVID continues.
Acquisition costs during the first three quarters of 2021 totaled $3.0 million, primarily representing costs incurred for the acquisition of GFG, which closed during the third quarter, and Twin Peaks, which closed during the fourth quarter.
We recorded non-cash goodwill and tradename impairment charges of $3.9 million during the first three quarters of 2020. There were no impairment charges recorded during the comparable period of 2021.
Refranchising gains in the first three quarters of 2021 were comprised of $1.6 million in net gains related to the sale of refranchised restaurants, partially offset by restaurant operating costs, net of associated sales. Our costs and expenses increased from $5,001,000food sales, of $0.9 million. Refranchising losses in the first quarterthree quarters of 2020 were comprised of restaurant operating costs, net of food sales, of $1.1 million, plus $0.8 million in net losses related to $6,545,000 inthe sale or closure of refranchised restaurants.
Other (Expense) Income – Other expense for the first quarterthree quarters of 2021.

2021 was $18.9 million and consisted primarily of $12.7 million in net interest expense and a $6.4 million net loss on the extinguishment of debt. Other expense for the first three quarters of 2020 was $0.8 million and consisted primarily of $3.3 million of net interest expense, partially offset by a $1.7 million gain on the adjustment of contingent acquisition consideration payable.

Income Tax Benefit – The effective rate was 21.6% for the first three quarters of 2021 compared to 16.3% for the comparable period in 2020.
For the thirteen weeks ended March 28,September 26, 2021 our generaland September 27, 2020:
Revenue – Total revenue increased $25.7 million, or 628%, in the third quarter of 2021, to $29.8 million compared to $4.1 million in the same period of 2020. The increase reflects revenue from Johnny Rockets, which was acquired during the third quarter of 2020; revenue from the acquisition of GFG, which occurred in July 2021; and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales.
Costs and Expenses – Costs and expenses increased $22.0 million, or 409%, to $27.4 million in the third quarter of 2021 compared to the prior year period.
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 increaseincreased $10.0 million, or 334%, 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 firstthird quarter of 2021 our refranchising efforts resultedcompared to the prior year period, primarily due to the acquisition of GFG during the third quarter and increased professional fees.

Advertising expenses increased $4.7 million, or 574%, in the third quarter of 2021 compared to the prior year. These expenses vary in relation to the advertising revenue and reflect the addition of advertising expenses from GFG and Johnny Rockets and the increase in customer activity as the recovery from COVID continues.
Acquisition costs during the third quarter of 2021 totaled $2.1 million, primarily representing costs incurred for the acquisition of GFG, which closed during the third quarter, and Twin Peaks, which closed during the fourth quarter.
We recorded non-cash tradename impairment charges of $0.8 million during the third quarter of 2020. There were no impairment charges recorded during the third quarter of 2021.
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Refranchising gains in the third quarter of 2021 were comprised of $0.5 million in net gains related to the sale of refranchised restaurants, partially offset by restaurant operating costs, and expenses, net of associatedfood sales, of $0.2 million. Refranchising losses in the third quarter of 2020 were comprised of restaurant operating costs, net of food sales in the amount of $427,000 compared to $539,000 during the comparable period of 2020.

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.

$0.3 million.

Other Expense (Expense) Income – Other expense for the thirteen weeks ended March 28,third quarter of 2021 totaled $2,665,000 compared to $2,090,000was $7.2 million and consisted primarily of interest expense of $7.2 million. Other income for the period ended March 29, 2020. These expensesthird quarter of 2020 was $0.7 million and consisted primarily of a $1.7 million gain on the adjustment of contingent acquisition consideration payable; partially offset by net interest expense of $2,748,000$0.4 million and $2,074,000a $0.4 million change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock.
Income Tax Benefit – The effective tax rate was 24.6% for the 2021 and 2020 periods, respectively.

Income Tax Benefit – We recorded an income tax benefitthird quarter of $129,000 for the thirteen weeks ended March 28, 2021 compared to an income tax benefit in the amount of $298,0003.2% for the thirteen weeks ended March 29,comparable period in 2020. These tax results were based on a net loss before taxes of 2,561,000 and $2,668,000 for the thirteen weeks ended March 28, 2021 and March 29, 2020, respectively. Non-deductible interest expense and valuation allowances accounted for the variance between the effective tax rate and the statutory rate.

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 thirteenthirty-nine weeks ended March 28,September 26, 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 Companywe 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. We have completed similar financings relating to the acquisition of Global Franchise Group and Twin Peaks.
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, weWe believe that we will be in compliance with our debt covenants and have sufficient sources of cash to meet our liquidity position will be sufficientneeds 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$43.5 million as of March 28,September 26, 2021, compared to $7,211,000$7.2 million as of December 27, 2020.

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The following table summarize key components of our condensed consolidated cash flows for the thirteenthirty-nine weeks ended March 28,September 26, 2021 and March 29, 2020:

September 27, 2020:

For the Thirty-nine Weeks Ended
(In thousands)

For the Thirteen Weeks Ended

  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 

September 26, 2021 September 27, 2020
Net cash used in operating activities$(4,006)$(8,506)
Net cash provided by (used in) investing activities$(346,150)$(33,124)
Net cash provided by financing activities$386,473 $55,873 
Increase in cash flows$36,317 $14,243 
Operating Activities

Net cash fromused in operating activities decreased $13,078,000$4.5 million in 2020the first three quarters 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 20202021 was $14,860,000,$12.0 million compared to a net loss$7.2 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$8.0 million in 20202021 compared to $2,612,000a negative adjustment of $1.3 million in 2019.2020. The primary components of the adjustments to reconcile the net loss to net cash fromused in operations for each year were as follows:

For the thirteen weeks ended March 28, 2021:
●A positive adjustment to reconcile cash used in operations due to a decrease in operating lease right of use assets of $605,000.
●A positive adjustment to reconcile cash used in operations due to depreciation and amortization of $398,000.
●A positive adjustment to reconcile cash used in operations due to an increase in deferred income of $332,000.

For the thirteen weeks ended March 29, 2020:
●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.
●A negative adjustment to reconcile cash used in operations due to a decrease in accrued interest payable of $973,000.

For the first three quarters of 2021:
•A positive adjustment to reconcile cash used in operations due to a net loss on extinguishment of debt in the amount of $4.9 million,
•A negative adjustment to reconcile cash used in operations due to an increase in deferred income taxes of $3.4 million,
•A negative adjustment to reconcile cash used in operations due to a decrease in accrued expense of $3.7 million,
•A positive adjustment to reconcile cash used in operations due to an increase in interest payable in the amount of $3.8 million and
•A negative adjustment to reconcile cash used in operations due to an increase in accounts receivable of $3.0 million.
For the first three quarters of 2020:
•A positive adjustment to reconcile cash used in operations due to non-cash impairment charges in the amount of $3.9 million,
•A negative adjustment to reconcile cash used in operations due to an increase in accrued interest receivable from affiliates in the amount of $2.6 million,
•A positive adjustment to reconcile cash used in operations due to a provision for bad debt in the amount of $0.9 million,
•A negative adjustment to reconcile cash used in operations due to a gain on the recalculation of contingent consideration payable on an acquisition in the amount of $1.7 million and
•A negative adjustment to reconcile cash used in operations due to an increase in deferred tax assets of $1.6 million.
Investing Activities

Net cash used in investing activities decreased by $2,840,000was $346.2 million year to date in the thirteen weeks ended March 28, 2021, compared to net cash used in investing activities of $33.1 million in the prior yearcomparable period of 2020. This was primarily due to a decrease in the advances to non-consolidated affiliates.

acquisition of GFG.

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Financing Activities

Net cash from financing activities decreased by $12,950,000was $386.5 million year to date in 2021, primarily as a result of the two securitization transactions and a preferred stock offering we completed in the thirteen weeks ended March 28, 2021 compared to the prior year. Proceeds from borrowings were $37,271,000 higher in 2020 due to the salefirst three quarters of the Series A-2 and B-2 Notes. That increase was partially offset by the payoff of prior debt in the amount of $24,149,000 during the first quarter of 2020.

2021.

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 shareholdersstockholders of record as of May 3, 2021. The amount2021, for a total of $1.6 million.
On June 1, 2021, the Board of Directors declared a cash dividend totaled $1,590,000.

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.

On August 24, 2021, the Board of Directors declared a cash dividend of 0.13 per share of common stock, payable on September 15, 2021 to stockholders of record as of September 6, 2021, for a total of $2.1 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.

2021 GFG Royalty Securitization

On March 6, 2020, we completed a whole-business securitization (the “Securitization”) through

In connection with the creationacquisition of a bankruptcy-remote issuing entity,GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC (“FATGFG 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, a special purpose, wholly-owned subsidiary 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”), FB Royalty completed the issuance and sale in a private offering (the “Offering”“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(the "GFG Securitization Notes”Notes").

The 2021GFG Securitization Notes were issued in a securitization transaction pursuant toand had the following terms:

Closing
Date		 ClassSeniorityPrincipal
Balance		CouponWeighted
Average
Life
(Years)		Non-Call
Period
(Months)		Anticipated
Call Date		Final Legal
Maturity
Date
7/22/2021A-2Senior$209,000,000 6.00 %2.0167/25/20237/25/2051
7/22/2021B-2Senior Subordinated$84,000,000 7.00 %2.0167/25/20237/25/2051
7/22/2021M-2Subordinated$57,000,000 9.50 %2.0167/25/20237/25/2051
Net proceeds from the issuance of the GFG Securitization Notes totaled $338.9 million, which substantiallyconsisted of the combined face amount of $350.0 million, net of debt offering costs of $6.0 million and original issue discount of $5.1 million. Substantially all of the assets held by the Issuer and its subsidiaries, including the Company,proceeds were pledged as collateralused to secure the 2021 Notes. On the Closing Date, FAT used a portion of the net proceeds of the Offering to repay in full theacquire GFG.
The GFG 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.

Capital Expenditures

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 GFG 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 March 28,September 26, 2021, we were in compliance with these covenants.

The GFG Securitization Notes are generally secured by a security interest in substantially all the assets of GFG Royalty and its subsidiaries.
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Table of Contents
2021 FB Royalty Securitization
On April 26, 2021, FAT Brands Royalty I, LLC (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the Offering of three tranches of fixed rate senior secured notes (collectively, the “2021 Securitization Notes”) as follows:
Closing
Date		ClassSeniorityPrincipal
Balance		CouponWeighted
Average
Life
(Years)		Non-Call
Period
(Months)		Anticipated
Call Date		Final Legal
Maturity
Date
4/26/2021A-2Senior$97,104,000 4.75 %2.2567/25/20234/25/2051
4/26/2021B-2Senior Subordinated$32,368,000 8.00 %2.2567/25/20234/25/2051
4/26/2021M-2Subordinated$15,000,000 9.00 %2.2567/25/20234/25/2051
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 Securitization Notes require that the principal and interest obligations have first priority and amounts are segregated weekly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of weekly cash flow that exceeds the required weekly interest reserve is generally remitted to the Company. Interest payments are required to be made on a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on each tranche. The material terms of the 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 September 26, 2021, we were in compliance with these covenants.
The 2021 Securitization Notes are generally secured by a security interest in substantially all the assets of FB Royalty and its subsidiaries.
A portion of the proceeds of the 2021 Securitization Notes were used to repay and retire the following notes issued in 2020 under the Base Indenture:
NotePublic
Rating		SeniorityIssue Amount Coupon First Call DateFinal Legal Maturity
Date
Series A-2BBSenior$20,000,000 6.50 %4/27/20214/27/2026
Series B-2BSenior Subordinated$20,000,000 9.00 %4/27/20214/27/2026
Series M-2N/ASubordinated$40,000,000 9.75 %4/27/20214/27/2026
The payoff amount totaled $83.7 million, which included principle of $80.0 million, accrued interest of $2.2 million and prepayment premiums of $1.5 million. FB Royalty recognized a loss on extinguishment of debt of $7.8 million in connection with the refinance.
Capital Expenditures
As of September 26, 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.

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 in the amount of the non-refundable deposits.

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 our

Our condensed consolidated financial statements for more details on our share-based compensation.

Use of estimates: The preparation ofand 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 managementus to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and liabilitiesexpenses. These estimates and disclosuresassumptions are affected by the application of contingent assetsour 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 atmay change in subsequent periods. While we apply our

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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. Actualcircumstances, actual results could differvary 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 ASUdescribed 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 thatand the adoptionrelated notes included in our Annual Report on Form 10-K for our fiscal year ended December 27, 2020

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Table of this standard will have a material impact on its consolidated financial statements.

Contents

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,September 26, 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 thirteenthirty-nine weeks ended March 28,September 26, 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.

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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.

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.

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.

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

None.


On July 22, 2021, the Company completed the acquisition of GFG and, as part of the purchase consideration, issued to the sellers 1,964,865 shares of Common Stock, which shares were reclassified as Class A Common Stock effective August 16, 2021, and 3,089,245 shares of Series B Cumulative Preferred Stock. On August 23, 2021, the Company issued another 294,729 shares of Class A Common Stock to the sellers in satisfaction of the Company’s obligations under the purchase agreement for GFG. All issuances of such securities were 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 toFiled
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)

Exhibit
Number
Incorporated By Reference to
Filed
Herewith
DescriptionFormExhibitFiling Date
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-K2.106/28/2021
2.2
Unit Purchase Agreement, dated August 31, 2021, by and among FAT Brands Inc., Twin Peaks Holdings, LLC, and Twin Peaks Buyer, LLC
8-K2.109/02/2021
3.1
Second Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on August 16, 2021
8-K3.108/19/2021
3.2
Certificate of Amendment to Second Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on August 24, 2021
8-K3.108/30/2021
3.3
Certificate of Increase of Series B Cumulative Preferred Stock, filed with the Delaware Secretary of State on September 15, 2021
8-K3.109/16/2021
3.4
Certificate of Elimination of Series A Fixed Rate Cumulative Preferred Stock, filed with the Delaware Secretary of State on September 16, 2021
8-K3.209/16/2021
3.5
Certificate of Increase of Series B Cumulative Preferred Stock, filed with the Delaware Secretary of State on October 28, 2021
8-K3.110/28/2021
3.6
Amended and Restated Bylaws, effective October 15, 2021
8-K3.110/18/2021
4.1
Base Indenture, dated July 22, 2021, by and between FAT Brands GFG Royalty I, LLC, and UMB Bank, N.A., as trustee and securities intermediary
8-K4.107/26/2021
4.2
Series 2021-1 Supplement to the Base Indenture, dated July 22, 2021, by and between FAT Brands GFG Royalty I, LLC, and UMB Bank, N.A., as trustee and securities intermediary
8-K4.207/26/2021
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4.3
Base Indenture, dated October 1, 2021, by and between FAT Brands Twin Peaks I, LLC, and UMB Bank, N.A., as trustee and securities intermediary
8-K4.110/06/2021
4.4
Series 2021-1 Supplement to the Base Indenture, dated October 1, 2021, by and between FAT Brands Twin Peaks I, LLC, and UMB Bank, N.A., as trustee and securities intermediary
8-K4.210/06/2021
10.1
Guarantee and Collateral Agreement, dated July 22, 2021, by and among the Guarantors named therein in favor of UMB Bank, N.A., as trustee
8-K10.107/26/2021
10.2
Management Agreement, dated July 22, 2021, by and among FAT Brands Inc., FAT Brands GFG Royalty I, LLC, each of the Franchise Entities named therein, and UMB Bank, N.A., as trustee
8-K10.207/26/2021
10.3
Put/Call Agreement, dated July 22, 2021, by and between FAT Brands Inc. and LS Global Franchise L.P.
8-K10.307/26/2021
10.4
Guarantee and Collateral Agreement, dated October 1, 2021, by and among the Guarantors named therein in favor of UMB Bank, N.A., as trustee
8-K10.110/06/2021
10.5
Management Agreement, dated October 1, 2021, by and among FAT Brands Inc., FAT Brands Twin Peaks I, LLC, each of the Securitization Entities named therein, and UMB Bank, N.A., as trustee
8-K10.210/06/2021
10.6
Put/Call Agreement, dated October 1, 2021, by and between FAT Brands Inc. and Twin Peaks Holdings, LLC
8-K10.310/06/2021
10.7
Preferred Stock Exchange Agreement, dated August 25, 2021, by and between FAT Brands Inc. and Trojan Investments, LLC
8-K10.108/30/2021
10.8
Put Option Agreement, dated August 25, 2021, by and between FAT Brands Inc. and Trojan Investments, LLC and Fog Cutter Holdings, LLC
8-K10.208/30/2021
10.9
Amended and Restated 2017 Omnibus Equity Incentive Plan
Schedule 14A (proxy statement)Appendix A09/09/2021
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.INSInline XBRL Instance DocumentX (Furnished)
101.SCHInline XBRL Taxonomy Extension Schema DocumentX (Furnished)
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX (Furnished)
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX (Furnished)
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX (Furnished)
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX (Furnished)
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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,November 8, 2021By/s/ Andrew A. WiederhornKenneth J. Kuick
Andrew A. WiederhornKenneth J. Kuick
President and Chief Executive Officer
(Principal Executive Officer)
May 12, 2021By/s/ Rebecca D. Hershinger
Rebecca D. Hershinger
Chief Financial Officer
(Principal Financial and Accounting Officer)

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