As of May ~~7, 2021,~~2, 2022, there were ~~12,229,479~~15,131,597 shares of Class A common stock and 1,270,805 shares of Class B common stock outstanding.

FAT BRANDS INC.

QUARTERLY REPORT ON FORM 10-Q

March ~~28, 2021~~

27, 2022

TABLE OF CONTENTS


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

	FAT Brands Inc. and Subsidiaries:
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4 5
	Condensed Consolidated Statements of Changes in Stockholders’ ~~Equity~~Deficit (Unaudited)	5 6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6 7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7 9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31 21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38 26
Item 4.	Controls and Procedures	39 26

PART II.	OTHER INFORMATION	40 27
Item 1.	Legal Proceedings	40 27
Item 1A.	Risk Factors	40 27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40 27
Item 3.	Defaults Upon Senior Securities	40 27
Item 4.	Mine Safety Disclosures	40 27
Item 5.	Other Information	40 27
Item 6.	Exhibits	41 27

SIGNATURES		42 28

Table of Contents

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


	March 27, 2022		December 26, 2021
			Audited
Assets
Current assets
Cash	$	28,973	$	56,656
Restricted cash	33,043		24,740
Accounts receivable, net of allowance for doubtful accounts of $3,328 and $4,016 as of March 27, 2022 and December 26, 2021, respectively	17,966		19,555
Trade and other notes receivable, net of allowance for doubtful accounts of $129 as of both March 27, 2022 and December 26, 2021	238		231
Assets classified as held for sale	5,337		5,476
Other current assets	11,647		11,853
Total current assets	97,204		118,511

Noncurrent restricted cash	18,525		18,525
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271, as of both March 27, 2022 and December 26, 2021	3,431		3,493
Operating lease right of use assets	96,813		98,552
Goodwill	295,343		295,128
Other intangible assets, net	648,888		652,788
Property and equipment, net	81,399		80,501
Other assets	3,205		2,534
Total assets	$	1,244,808	$	1,270,032

Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable	$	23,495	$	27,527
Accrued expenses and other liabilities	42,651		46,295
Deferred income, current portion	2,827		2,636
Accrued advertising	12,312		10,853
Accrued interest payable	12,614		10,678
Dividend payable on preferred shares	1,565		1,574
Liabilities related to assets classified as held for sale	4,647		4,780
Current portion of operating lease liability	14,394		14,341
Redeemable preferred stock	135,000		67,500
Current portion of long-term debt	851		631
Current portion of acquisition purchase price payable	1,197		1,173
Other	10,390		10,500
Total current liabilities	261,943		198,488

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Deferred income, net of current portion	18,755		17,662
Deferred income tax liabilities, net	16,210		12,921
Operating lease liability, net of current portion	91,576		92,920
Long-term debt, net of current portion	907,068		904,265
Other liabilities	362		976
Total liabilities	1,295,914		1,227,232

Commitments and contingencies (Note 16)	0		0

Redeemable preferred stock	—		64,455

Stockholders’ deficit
Preferred stock, $0.0001 par value; 15,000,000 shares authorized; 3,221,471 shares issued and outstanding at March 27, 2022 and December 26, 2021, respectively; liquidation preference $25 per share	49,920		55,661
Class A common stock and Class B common stock and additional paid-in capital as of March 27, 2022: $0.0001 par value per share: 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,402,402 shares issued and outstanding (Class A 15,131,597, Class B 1,270,805). Common stock and additional paid-in capital as of December 26, 2021: $0.0001 par value; 51,600,000 shares authorized; 16,380,552 shares issued and outstanding (Class A 15,109,747, Class B 1,270,805).	(24,792)		(24,837)
Accumulated deficit	(76,234)		(52,479)
Total stockholders’ deficit	(51,106)		(21,655)
Total liabilities and stockholders’ deficit	$	1,244,808	$	1,270,032

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 Weeks Ended March ~~28, 2021~~27, 2022 and March ~~29, 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

28, 2021


	2022		2021

Revenue
Royalties	$	20,898	$	4,898
Restaurant sales	58,077		—
Advertising fees	9,361		1,188
Factory revenues	8,179		—
Franchise fees	714		540
Management fees and other income	174		23
Total revenue	97,403		6,649

Costs and expenses
General and administrative expense	31,066		4,926
Cost of restaurant and factory revenues	54,799		—
Refranchising loss	548		427
Acquisition costs	248		15
Advertising fees	10,257		1,192
Total costs and expenses	96,918		6,560

Income from operations	485		89

Other income (expense), net
Interest expense	(19,027)		(2,460)
Interest expense related to preferred shares	(1,999)		(288)
Other income, net	1,310		98
Total other expense, net	(19,716)		(2,650)

Loss before income tax expense	(19,231)		(2,561)

Income tax provision (benefit)	4,524		(129)

Net loss	$	(23,755)	$	(2,432)

Basic and diluted loss per common share	$	(1.45)	$	(0.20)
Basic and diluted weighted average shares outstanding	16,388,471		11,970,505
Cash dividends declared per common share	$	0.13	$	—

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)~~

thousands)

For the Thirteen Weeks Ended March 27, 2022


	Common Stock										Preferred Stock
	Class A Shares	Class B Shares	Class A par value		Class B par value		Additional paid-in capital		Total Common Stock		Shares	Par value		Additional paid-in capital		Total Preferred Stock		Accumulated deficit		Total

Balance at December 26, 2021	15,109,747	1,270,805	$	2	$	—	$	(24,839)	$	(24,837)	3,221,471	$	—	$	55,661	$	55,661	$	(52,479)	$	(21,655)
Net loss	—	—	—		—		—		—		—	—		—		—		(23,755)		(23,755)
Issuance of common stock through exercise of warrants	21,850	—	—		—		61		61		—	—		18		18		—		79
Share-based compensation	—	—	—		—		2,112		2,112		—	—		—		—		—		2,112
Dividends declared on common stock	—	—	—		—		(2,128)		(2,128)		—	—		—		—		—		(2,128)
Dividends declared on Series B preferred stock	—	—	—		—		—		—		—	—		(1,652)		(1,652)		—		(1,652)
Exercise of Series B preferred stock put option	—	—	—		—		—		—		—	—		(4,107)		(4,107)		—		(4,107)
Balance at March 27, 2022	15,131,597	1,270,805	$	2	$	—	$	(24,794)	$	(24,792)	3,221,471	$	—	$	49,920	$	49,920	$	(76,234)	$	(51,106)

For the Thirteen Weeks Ended March 28, 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 )

~~For the Thirteen Weeks Ended March 29, 2020~~

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

Balance at December 29, 2019 11,860,299 $ 1 $ 11,413 $ 11,414 $ (6,036 ) $ 5,378
Net loss - - - - (2,370 ) (2,370 )
Issuance of common stock in lieu of director fees payable 16,360 - 75 75 - 75
Share-based compensation - - 15 15 - 15
Correction of recorded conversion rights associated with Series A-1 preferred shares -
-
(90 ) (90 ) - (90 )

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


	Common Stock											Preferred Stock
	Class A Shares	Class B Shares		Class A par value		Class B par value		Additional paid-in capital		Total Common Stock		Shares	Par value		Additional paid-in capital		Total Preferred Stock		Accumulated 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)

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)

For the Thirteen Weeks Ended March ~~28, 2021~~27, 2022 and March ~~29, 2020~~

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

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

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

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

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

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

28, 2021


	2022		2021
Cash flows from operating activities
Net loss	$	(23,755)	$	(2,432)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes	3,068		(995)
Depreciation and amortization	6,561		398
Share-based compensation	2,112		37
Change in operating right of use assets	1,875		605
Accretion of loan fees and interest	2,634		364
Accretion of preferred shares	—		10
Accretion of purchase price liability	24		24
Provision for bad debts	185		—
Change in:
Accounts receivable	1,404		(258)
Other current assets	205		397
Deferred income	1,506		332
Accounts payable	(4,014)		59
Accrued expense	(4,181)		83
Accrued advertising	1,462		(187)
Accrued interest payable	1,936		47
Dividend payable on preferred shares	(9)		278
Other	(722)		(8)
Total adjustments	14,046		1,186
Net cash used in operating activities	(9,709)		(1,246)

Cash flows from investing activities
Purchases of property and equipment	(3,770)		(573)
Other	30		—
Net cash used in investing activities	(3,740)		(573)

Cash flows from financing activities
Proceeds from borrowings, net of issuance costs	492		—
Repayments of borrowings	(236)		—
Change in operating lease liabilities	(1,424)		(353)
Exercise of warrants	79		515
Dividends paid on redeemable preferred stock	(1,062)		—
Dividends paid on common shares	(2,128)		—
Dividends paid on preferred shares	(1,652)		(639)
Net cash used in financing activities	(5,931)		(477)

Net decrease in cash and restricted cash	(19,380)		(2,296)

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Cash and restricted cash at beginning of the period	99,921		7,211
Cash and restricted cash at end of the period	$	80,541	$	4,915

Supplemental disclosures of cash flow information:
Cash paid for interest	$	14,978	$	1,969
Cash paid for income taxes	$	210	$	211

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

statements

Table of Contents

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 acquires and ~~acquires primarily~~manages quick-service, fast casual, casual dining and polished 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, 2021,~~27, 2022, the Company ~~owns and franchises nine~~owned 17 restaurant ~~brands through various wholly owned subsidiaries:~~brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli's, Twin Peaks, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe ~~Buffalo’s~~& Express, Hurricane Grill & Wings, ~~Ponderosa Steakhouses, Bonanza Steakhouses,~~Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and ~~Elevation Burger. Combined, these brands have~~Ponderosa and Bonanza Steakhouses. As of March 27, 2022, the Company had 2,360 locations. Of this amount, 2,230 stores were franchised, representing approximately ~~700 locations, including units under construction, and more than 200 under development.~~

94% of total restaurants.

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~~

The Company's operations ~~are~~have historically been comprised ~~exclusively~~primarily 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~~these ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants ~~in order to~~and may convert them to franchise locations. During the refranchising period, the Company may operate the restaurants and classifies the operational activities as refranchising gains or losses and the assets and associated liabilities as held-for sale.

Through recent acquisitions, the Company also operates "company owned" restaurant locations of certain brands.

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~~impact the United States and other countries. As a result, at certain times the 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 have reduced consumer traffic, all resulting in a negative impact to franchisee and Company ~~revenues.~~revenue. While the disruption to our business from the COVID-19 pandemic is currently expected to be temporary, there is still a great deal of uncertainty around the severity and duration of the disruption. We may experience longer-term effects on our business and economic growth and changes in consumer demand in the U.S. and worldwide. The effects of COVID-19 may materially adversely affect our business, results of operations, liquidity and ability to service our existing debt, particularly if these effects continue in place for a significant amount of time.

Liquidity

The Company recognized income from operations of ~~$104,000~~$0.5 million and $0.1 million during the thirteen weeks ended March ~~28, 2021 compared to a loss from operations of $578,000 for the thirteen weeks ended March 29, 2020. The Company recognized a net loss of $2,432,000 during the thirteen weeks ended~~27, 2022 and March 28, 2021, ~~compared to~~respectively. The Company has a history of net ~~loss~~losses and an accumulated deficit of $2,370,000 during the thirteen weeks ended March 29, 2020. Net cash used in operations totaled $1,246,000 for the thirteen weeks ended March 28, 2021 compared to $3,371,000 for thirteen weeks ended March 29, 2020. As$76.2 million as of March ~~28, 2021, the Company’s total liabilities exceeded total assets by $45,576,000 compared to $41,883,000 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”),~~2022. Additionally, the Company ~~disclosed that~~had negative working capital of $164.7 million. Of this amount, $135.0 million represents the current portion of redeemable preferred stock as discussed in Note 12. If the Company does not deliver the applicable cash proceeds at the related due dates, the amount then due will accrue interest until the payment is completed. The Company had $29.0 million of unrestricted cash at March 27, 2022 and plans on the combination of cash generated from operations and cash on hand to be sufficient to cover any working capital requirements for the ~~operating performance during the~~next twelve months ended December 27, 2020 and the Company’s financial position as of December 27, 2020 raised substantial doubt about the Company’s ability to continue as a going concern as assessed under the framework of FASB’s Accounting Standard Codification (“ASC”) 205 for the twelve months followingfrom the date of this report. If the Company does not achieve its operating plan, additional forms of financing may be required through the issuance of ~~the 2020 Form 10-K.~~

~~Subsequent~~debt or equity. Although management believes it will have access to ~~the reporting period ended March 28, 2021, o~~n ~~April 26, 2021, the Company completed the issuance and sale~~financing, no assurances can be given that such financing will be available on acceptable terms, in a private offering (the “Offering”) of three tranches of fixed rate secured notes (see Note 21). 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 (see Note 11). ~~The Offering alleviated the substantial doubt about the Company’s ability to continue as a going concern that was disclosed in the 2020 Form 10-K.~~

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

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, the Company believes that its liquidity position will be sufficient for the twelve months of operations following the issuance of this Form 10-Q.

timely manner or at all.

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. All intercompany accounts and transactions have been eliminated in consolidation. Our revenues are derived from 2 sales channels, franchised restaurants and company owned locations, which we operate as 1 reportable segment.

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

Fiscal year – The Company operates on a 52-week calendar and its fiscal year ends on the last Sunday of the calendar year. Consistent with ~~the~~ industry practice, the Company measures its stores’ performance based upon 7-day work weeks. Using the 52-week cycle ensures consistent weekly reporting for operations and ensures that each week has the same days since certain days are more profitable than others. The use of this fiscal year means a 53^rd53rd 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 between goodwill and additional paid in capital on the consolidated balance sheet. These adjustments did not impact the Company’s 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.

classifications.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments,and later amended the ASU in 2019, as described below. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts.

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

NOTE 3. MERGERS AND ACQUISITIONS

~~Merger with Fog Cutter Capital Group Inc.~~

Acquisition of Fazoli's

On December ~~10, 2020,~~15, 2021, the Company ~~entered into an Agreement~~completed the acquisition of Fazoli's for a total cash purchase price of $137.1 million. Founded in 1988 in Lexington, KY, Fazoli’s is a premium QSR Italian chain priding itself on serving premium quality Italian food, fast, fresh and ~~Plan~~friendly. Menu offerings include freshly prepared pasta entrees, Submarinos® sandwiches, salads, pizza and desserts – along with its unlimited signature breadsticks.

Acquisition of ~~Merger (the “Merger Agreement”) with FCCG, Fog Cutter Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of~~Native Grill & Wings

On December 15, 2021, the Company completed the acquisition of Native Grill & Wings (“~~Merger Sub”~~Native”), for a total cash purchase price of $20.1 million. Based in Chandler, Arizona, Native Grill & Wings is a family-friendly, polished sports grill with

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franchised locations throughout Arizona, Illinois, and ~~Fog Cutter Holdings, LLC, a Delaware limited liability company (“Holdings”).~~

~~Pursuant to~~Texas. Native serves over 20 award-winning wing flavors that guests can order by the ~~Merger Agreement, FCCG agreed to merge with~~individual wing, as well as an extensive menu of pizza, burgers, sandwiches, salads and ~~into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary~~more.

Acquisition of Twin Peaks

On October 1, 2021, the Company ~~(the “Merger”). Upon closing~~completed the acquisition of Twin Peaks Buyer, LLC (“Twin Peaks”) for a total purchase price of $310.3 million. Twin Peaks is the ~~Merger, the former stockholders~~franchisor and operator of ~~FCCG became direct stockholders~~a chain of sports lodge themed restaurants.

Acquisition of Global Franchise Group

On July 22, 2021, the Company ~~holding, in~~completed the ~~aggregate, 9,679,288 shares~~acquisition of ~~the Company’s common stock (the same number~~LS GFG Holdings Inc. (“GFG”), for a total purchase price of shares of common stock held by FCCG immediately prior to the Merger) and will receive certain limited registration rights with respect to the shares received in the Merger. As a result of the Merger, FCCG’s wholly owned subsidiaries, Homestyle Dining, LLC, Fog Cap Development LLC, Fog Cap Acceptance Inc. and BC Canyon LLC, became indirect wholly owned subsidiaries of the Company (the “Merged Entities”).

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

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

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

~~The Merger is treated under ASC 805-50-30-6 which indicates that when there~~$444.9 million. GFG is a ~~transfer~~franchisor of ~~assets or exchange of shares between entities under common control, the receiving entity shall recognize those assets~~5 quick service restaurant brands (Round Table Pizza, Great American Cookies, Marble Slab Creamery, Pretzelmaker and liabilities at their net carrying amounts at the date of transfer. As such, on the date of the Merger, all of the transferred assets and assumed liabilities of FCCG and the Merged Entities are recorded on the Company’s books at FCCG’s book value. The consolidation of the operations of FCCG and the Merged Entities with the Company is presentedHot Dog on a ~~prospective basis from the date of transfer as there has not been a change in the reporting entity.~~

~~The Merger resulted in the following assets and liabilities being included in the 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 net loss of $432,000 attributed to the Merged Entities is included in the accompanying consolidated statements of operations for the thirteen weeks ended March 28, 2021. There were no revenues attributed to the Merged Entities during the period.

Stick).

Proforma Information

The table below presents the combined proforma revenue and net loss of the Company and Fazoli's, Twin Peaks and GFG (the "Material Acquired Entities") for the thirteen weeks ended March ~~29, 2020,~~28, 2021, assuming the ~~Merger~~acquisitions had occurred on December ~~30, 2019~~28, 2020 (the beginning of the Company’s ~~2020~~2021 fiscal year), pursuant to ASC 805-10-50 (in thousands). This proforma information does not purport to represent what the actual results of operations of the Company would have been had the Merger occurred on that date, nor does it purport to predict the results of operations for future periods.

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

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

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

●

FCCG historically made loan advances to Andrew A. Wiederhorn, its CEO and significant stockholder (the “Stockholder Loan”). Prior to the Merger, the Stockholder Loan was cancelled, and the balance recorded as a loss by FCCG on forgiveness of loan to stockholder. Had the Merger been completed as of the assumed proforma date of December 31, 2018 (the beginning of the Company’s 2019 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)millions). 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~~the Material Acquired Entities 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:

●

Revenue – The unaudited proforma revenues 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.

Revenue

●

~~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.~~

78.4

Net loss

●

~~Former parent company management fees have been eliminated from the proforma.~~

(9.9)

	●	~~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, 2021~~27, 2022 and December ~~27, 2020~~26, 2021 (in ~~thousands)~~millions):

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


	March 27, 2022		December 26, 2021

Property, plant and equipment	$	0.8	$	0.8
Operating lease right of use assets	$	4.5	$	4.7
Total	$	5.3	$	5.5

Operating lease liabilities related to the assets classified as held for sale in the amount of ~~$9,656,000~~$4.6 million and ~~$9,892,000,~~$4.8 million have been classified as current liabilities on the accompanying condensed consolidated balance ~~sheet~~sheets as of March ~~28, 2021~~27, 2022 and December ~~27, 2020,~~26, 2021, respectively.

~~Restaurant operating costs, net of food sales, totaled $427,000 and $539,000 for~~

Refranchising losses during the thirteen weeks ended March 27, 2022 and March 28, 2021 ~~and March 29, 2020, respectively.~~

were as follows (in millions):


	Thirteen Weeks Ended
	March 27, 2022		March 28, 2021
Restaurant costs and expenses, net of revenue	$	0.5	$	0.4

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~~Note~~

NOTE 5. NOTES RECEIVABLE

Notes receivable consist of trade notes receivable, the Elevation Buyer Note and the Twin Peaks - Hollywood note. Trade notes receivable are created when a settlement is reached relating to a delinquent franchisee account and the entire balance is not immediately paid. Trade notes receivable generally include personal guarantees from the franchisee. The notes are made for the shortest time frame negotiable and will generally carry an interest rate of 6.0% to 7.5%. Reserve amounts, on the notes, are established based on the likelihood of collection. As of March 27, 2022 and March 28, 2021 trade notes receivable totaled $0.5 million, which was net of reserves of $0.4 million.

The Elevation Buyer Note was funded in connection with the purchase of Elevation ~~Burger in 2019.~~Burger. 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. This Note is subordinated in right of payment to all indebtedness of the Seller arising under any agreement or instrument to which the Seller or any of its affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment to the Elevation Buyer Note, whether existing on the effective date of the Elevation Buyer Note or arising thereafter. 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).~~circumstances. As part of the total consideration for the Elevation acquisition, the Elevation Buyer Note was recorded at a carrying value of ~~$1,903,000,~~$1.9 million, which was net of a discount of ~~$397,000.~~$0.4 million. As of March ~~28, 2021~~27, 2022 and December ~~27, 2020,~~26, 2021, the balance of the Elevation Note was ~~$1,850,000~~$1.6 million and ~~$1,830,000,~~$1.7 million, respectively, which ~~was~~were net of discounts of ~~$247,000 and $267,000, respectively.~~$0.2 million. During the ~~thirteen~~13 weeks ended March ~~28, 2021~~27, 2022 and March ~~29, 2020,~~28, 2021, the Company recognized ~~$52,000~~$46 thousand and ~~$53,000~~$52 thousand in interest income on the Elevation Buyer Note, respectively.

~~Note~~

The Twin Peaks - Hollywood note was funded in connection with the development of a Twin Peaks restaurant. As of March 27, 2022, the amount of the secured note was $1.5 million.

NOTE 6. ~~GOODWILL~~

~~Goodwill~~PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in ~~thousands)~~millions):

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~~


	March 27, 2022		December 26, 2021
Real estate	$	60.5	$	60.5
Equipment	26.7		22.9
	87.2		83.4
Accumulated depreciation	(5.8)		(2.9)
Property and equipment, net	$	81.4	$	80.5

Table of its goodwill as of December 27, 2020 and recognized impairment charges as deemed necessary at that time. A subsequent review of the carrying value as of March 28, 2021 did not result in additional impairment charges for the thirteen weeks ended as of that date. There were also no impairment charges during the thirteen weeks ended March 29, 2020.

~~Note~~Contents

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS,

NET

Changes in Carrying Value of Goodwill and Other ~~intangible assets consist~~Intangible Assets (in millions)


	Amortizing Intangible Assets		Non-Amortizing Intangible Assets
	Amortizing Intangible Assets		Goodwill		Trademarks
December 26, 2021	$	175.6	$	295.1	$	477.2
Amortization	$	(3.7)	$	—	$	—
Adjustment to preliminary purchase price	$	(0.2)	$	0.2	$	—
March 27, 2022	$	171.7	$	295.3	$	477.2

Gross Carrying Value and Accumulated Amortization 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 offeringOther Intangible Assets (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

The Company reviewed the carrying value of its other intangible assets as of December 27, 2020 and recognized impairment charges as deemed necessary at that time. A subsequent review of the carrying value as of March 28, 2021 did not result in additional impairment charges for the thirteen weeks ended as of that date. There were also no impairment charges during the thirteen weeks ended March 29, 2020.

millions)


	March 27, 2022							December 26, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets
Franchise agreements		$	109.2	$	(7.9)	$	101.2	$	109.4	$	(5.7)	$	103.7
Customer relationships		73.9		(3.8)		70.1		73.9		(2.4)		71.5
Other		0.4		—		0.4		0.4		—		0.4
Balance, end of year		$	183.4	$	(11.7)	$	171.7	$	183.6	$	(8.0)	$	175.6

Non-amortizing intangible assets
Trademarks						477.2						477.2
Total amortizing and non-amortizing intangible assets, net						$	648.9					$	652.8

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

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 2022	$	10.9
2023	13.7
2024	13.4
2025	13.2
2026	13.2
Thereafter	107.4
Total	$	171.7

NOTE 8. DEFERRED INCOME

Deferred income iswas as follows (in ~~thousands)~~millions):

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~~


	March 27, 2022		December 26, 2021

Deferred franchise fees	$	20.6	$	19.8
Deferred royalties	0.1		0.2
Deferred vendor incentives	0.8		0.4
Total	$	21.6	$	20.3

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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, 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)Company’s provision (benefit) for 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. taxes (in millions):


	Thirteen Weeks Ended
	March 27, 2022			March 28, 2021
Provision (benefit) for income taxes	$	4.5		$	(0.1)
Effective tax rate	(23.5)		%	5.0		%

The ~~Tax Sharing Agreement was terminated in connection with the Merger during the fourth quarter of 2020.~~

~~Deferred taxes reflect the net effect of temporary differences~~difference between the ~~carrying amount~~statutory tax rate of ~~assets and liabilities for financial reporting purposes~~21% and the ~~amounts used for calculating taxes payable. Deferred~~effective tax ~~assets are reduced by a~~rate of (23.5)% in the thirteen weeks ended March 27, 2022 was primarily due to increases in the valuation allowance, ~~if, based on~~nondeductible expenses and the ~~weight~~impact of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. As of March 28, 2021 and December 27, 2020, the Company recorded a valuation allowance against its deferred tax assets in the amount of $678,000 and $513,000, respectively, as it determined that these amounts would not likely be realized.

~~Income tax provision related to continuing operations differ from the amounts computed by applying the statutory~~state 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.

taxes.

NOTE 10. LEASES

As of March 28, 2021, the Company has thirteen operating leases for corporate offices and for certain restaurant properties that are in the process of being refranchised. The leases have remaining terms ranging from 2.6 to 17.8 years.

The Company recognized lease expense of ~~$810,000~~$4.5 million and ~~$347,000~~$0.8 million for the thirteen ~~months~~weeks ended March 27, 2022 and March 28, 2021, ~~and March 29, 2020,~~ respectively. ~~The weighted average remaining lease term of the operating leases as of March 28, 2021 was 7.4 years.~~

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

March 28,
2021

December 27,
2020

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

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


	March 27, 2022		December 26, 2021

Right of use assets	$	96.8	$	98.6
Right of use assets classified as held for sale	4.5		4.7
Total right of use asset	$	101.3	$	103.2

Operating lease liabilities	$	106.0	$	107.3
Lease liabilities related to assets held for sale	4.6		4.8
Total operating lease liabilities	$	110.6	$	112.0

The contractual future maturities of the Company’s operating lease liabilities as of March ~~28, 2021,~~27, 2022, including anticipated lease extensions, are as follows (in ~~thousands)~~millions):

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:
Remainder of 2022	$	12.5
2023	15.9
2024	14.7
2025	14.3
2026	13.2
Thereafter	165.6
Total lease payments	236.2
Less imputed interest	(125.6)
Total	$	110.6

Table of Contents

The current portion of the operating lease liability as of March 27, 2022 was $14.4 million.

Supplemental cash flow information for the thirteen weeks ended March ~~28, 2021~~27, 2022 related to leases iswas as follows (in ~~thousands)~~millions):

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

~~Note~~


	Thirteen Weeks Ended
	March 27, 2022		March 28, 2021
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	4.3	$	0.8

NOTE 11. DEBT

Long-term debt consisted of the following (in millions):

March 27, 2022 December 26, 2021
Final Maturity Anticipated Call Date Rate Face Value Book Value Book Value
Senior Debt
2021 FB Royalty Securitization 4/25/2051 7/25/2023 4.75 % $ 97.1 $ 95.5 $ 95.4
2021 GFG Royalty Securitization 7/25/2051 7/25/2023 6.00 % 209.0 205.9 205.6
2021 Twin Peaks Securitization 7/25/2051 7/25/2023 7.00 % 150.0 147.0 146.8
2021 Fazoli's/Native Securitization 7/25/2051 7/25/2023 6.00 % 128.8 123.3 122.8
Senior Subordinated Debt
2021 FB Royalty Securitization 4/25/2051 7/25/2023 8.00 % 32.4 31.8 31.8
2021 GFG Royalty Securitization 7/25/2051 7/25/2023 7.00 % 84.0 81.7 81.5
2021 Twin Peaks Securitization 7/25/2051 7/25/2023 9.00 % 50.0 46.8 46.6
2021 Fazoli's/Native Securitization 7/25/2051 7/25/2023 7.00 % 25.0 22.9 22.7
Subordinated Debt
2021 FB Royalty Securitization 4/25/2051 7/25/2023 9.00 % 15.0 14.2 14.1
2021 GFG Royalty Securitization 7/25/2051 7/25/2023 9.50 % 57.0 52.9 52.6
2021 Twin Peaks Securitization 7/25/2051 7/25/2023 10.00 % 50.0 44.5 44.2
2021 Fazoli's/Native Securitization 7/25/2051 7/25/2023 9.00 % 40.0 35.6 35.1
Total securitized debt 938.2 902.0 899.3
Elevation note 7/19/2026 N/A 6.00 % 7.5 5.4 5.6
Equipment note 3/7/2028 N/A 8.49 % 0.5 0.5 —
Total debt 946.2 907.9 904.9
Current portion of long-term debt — (0.9) (0.6)
Long-term debt $ 946.2 $ 907.1 $ 904.3

Terms of Outstanding Debt

2021 FAT Royalty Securitization

On ~~March 6, 2020, the Company completed a whole-business securitization (the “Securitization”) through the creation of a bankruptcy-remote issuing entity,~~April 26, 2021, FAT Brands Royalty I, LLC (“~~FAT~~FB Royalty”), ~~in which~~a special purpose, wholly-owned subsidiary of FAT Brands Inc., completed the issuance and sale of three tranches of fixed rate secured notes (the “2021 FAT Royalty ~~issued $20 million~~Securitization

Table 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~~ Contents

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 have the following terms:~~

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

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

~~Net proceeds from the issuance of the Series A-2 and B-2 Notes were $37,389,000, which consisted of the combined face~~with a total aggregate principal amount of ~~$40,000,000, net of discounts of $246,000 and debt offering costs of $2,365,000.~~$144.5 million. The ~~discount and offering costs are accreted as additional interest expense over the expected term of the Series A-2 and B-2 Notes.~~

~~On September 21, 2020, FAT~~2021 FB 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 are accreted as additional interest expense over the expected term of the Series M-2 Notes.

~~The Series M-2~~Securitization 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~~generally secured by ana security interest in substantially all the assets of FB Royalty and its subsidiaries.

2021 GFG Royalty Securitization

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 FAT Brands, completed the issuance and sale of three tranches of fixed rate secured notes (the "2021 GFG Royalty Securitization Notes") with a total aggregate principal amount of $350.0 million. Immediately following the closing of the acquisition of GFG, the Company contributed the franchising subsidiaries of GFG to GFG Royalty, pursuant to a Contribution Agreement. The GFG Securitization Notes are generally secured by a security interest in substantially all the assets of GFG Royalty and its subsidiaries.

2021 Twin Peaks Securitization

In connection with the acquisition of Twin Peaks, on October 1, 2021, the Company completed the issuance and sale in a private offering through its special purpose, wholly-owned subsidiary, FAT Brands Twin Peaks I, LLC, of three tranches of fixed rate secured notes (the "Twin Peaks Securitization Notes") with a total aggregate principal amount of $250.0 million. Immediately following the closing of the acquisition of Twin Peaks, the Company contributed the franchising subsidiaries of Twin Peaks to FAT Brands Twin Peaks I, LLC,, pursuant to a Contribution Agreement. The Twin Peaks Securitization Notes are generally secured by a security interest in substantially all the assets of FAT ~~Royalty, including the Johnny Rockets companies, that have been contributed to FAT Royalty~~Brands Twin Peaks I, LLC, and ~~are obligations only of FAT Royalty under the Indenture and not obligations of the Company.~~

~~While the 2020~~its subsidiaries.

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

In connection with the acquisition of Fazoli's and Native Grill & Wings, on December 15, 2021, the Company completed the issuance and sale in a private offering through its special purpose, wholly-owned subsidiary, FAT Brands Fazoli's Native I, LLC, of three tranches of fixed rate secured notes (the "Fazoli's/Native Securitization ~~FAT Royalty and each~~Notes") with a total aggregate principal amount of $193.8 million. Immediately following the closing of the ~~Franchise Entities (as defined in the Indenture) entered into a Management Agreement with~~acquisition of Fazoli's and Native, the Company ~~dated as~~contributed the franchising subsidiaries of ~~the Closing Date (the “Management Agreement”),~~these entities to FAT Brands Fazoli's Native I, LLC, 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 2020~~Fazoli's/Native Securitization Notes are generally secured by a security interest in substantially all of the assets of FAT Brands Fazoli's Native I, LLC and its subsidiaries.

Terms and Debt Covenant Compliance

The 2021 FAT Royalty ~~including~~Securitization Notes, the ~~equity interests in~~2021 GFG Royalty Securitization Notes, the ~~Franchise Entities. The restrictions placed on~~2021 Twin Peaks Securitization Notes and the ~~Company’s subsidiaries~~ 2021 Fazoli's/Native Securitization Notes (collectively, the "Securitization Notes") require that ~~FAT Royalty’s~~the 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 are~~be 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~~interest reserve is generally remitted to the Company. ~~Once the~~Interest payments are required ~~obligations are satisfied, there are no further restrictions, including payment of dividends,~~to be made on a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on the ~~cash flows~~then outstanding principal balance of each tranche.

The material terms of the ~~subsidiaries.~~

~~The 2020~~ Securitization Notes ~~have not been~~contain covenants which are standard and ~~will not be registered under~~customary for these types of agreements, including the ~~Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any jurisdiction.~~

~~The 2020 Securitization Notes are subject to certain~~following financial ~~and non-financial covenants, including a~~covenants: (i) debt service coverage ratio, ~~calculation, as defined in the Indenture. If certain covenants are not met, the 2020 Securitization Notes may become partially or fully due~~(ii) leverage ratio and ~~payable on an accelerated schedule. In addition, FAT Royalty may voluntarily prepay, in part or in full, the 2020 Securitization Notes in accordance with the provisions in the Indenture.~~(iii) senior leverage ratio. As of March ~~28, 2021, FAT Royalty~~27, 2022, the Company was in compliance with these covenants.

As of March 28, 2021, the recorded balance of the 2020 Securitization Notes was $73,682,000, which is net of debt offering costs of $3,216,000 and original issue discount of $3,102,000. As of December 27, 2020, 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. The Company recognized interest expense on the 2020 Securitization Notes of $2,063,000 for the thirteen weeks ended March 28, 2021, which includes $158,000 for amortization of debt offering costs and $155,000 for amortization of the original issue discount. The average effective interest rate of the 2020 Securitization Notes, including the amortization of debt offering costs and original issue discount, was 11.2% for the thirteen weeks ended March 28, 2021.

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

~~Loan and Security Agreement~~

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

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

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

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

The Company recognized interest expense on the Loan and Security Agreement of $1,783,000 for the thirteen weeks ended March 29, 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.

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 financial statements of the Company at $6,185,000, which is net of a loan discount of $1,295,000 and debt offering costs of $30,000.

As of March 28, 2021, the carrying value of the Elevation Note was $5,987,000 which is net of the loan discount of $807,000 and debt offering costs of $53,000. As of December 27, 2020, the carrying value of the Elevation Note was $5,919,000 which is net of the loan discount of $872,000 and debt offering costs of $56,000. The Company recognized interest expense relating to the Elevation Note during the thirteen months ended March 28, 2021 in the amount of $171,000, which included amortization of the loan discount of $65,000 and amortization of $3,000 in debt offering costs. The Company recognized interest expense relating to the Elevation Note during the thirteen weeks ended March 29, 2020 in the amount of $189,000, which included amortization of the loan discount of $71,000 and amortization of $3,000 in debt offering costs. Theannualized effective interest rate for the Elevation Note during the thirteen weeks ended March ~~28, 2021~~27, 2022 was ~~11.5%~~11.4%.

The Elevation Note is a general unsecured obligation of Company and is subordinated in right of payment to all senior indebtedness of the ~~Company arising under any agreement or instrument to which Company or any~~Company.

Equipment Note

Table of ~~its Affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment.~~

~~Paycheck Protection Program Loans~~

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

At inception, the PPP Loans and EIDL Loans related to FAT Brands Inc. as well as 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 atContents

On March 8, 2022, an interest rate of 1%, with a deferral of payments for the first six months. As of March 28, 2021 and December 27, 2020, the balance remaining on the PPP Loans and EIDL Loans was $1,186,000 and $1,183,000 related to FAT Brands Inc., as the five restaurant locations were closed or refranchised during the second and third quarters of 2020.

~~Subsequent 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~~indirect subsidiary of the Company ~~as part~~entered into a $0.5 million equipment financing note, the proceeds of which will be used to purchase certain equipment for a new Twin Peaks restaurant (the "Equipment Note"). The Equipment Note has a maturity date of March 7, 2028 and bears interest at a fixed rate of 8.49% per annum. The Equipment Note is secured by certain restaurant equipment.

NOTE 12. SERIES B CUMULATIVE PREFERRED STOCK

GFG Preferred Stock Consideration

On July 22, 2021, the Company completed the acquisition of GFG. A portion 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,~~ consideration paid included 3,089,245 newly issued shares of the ~~FCCG Debt was repaid in full (see Note 21)~~.

~~Note 12. PREFERRED STOCK~~

Company’s Series B ~~Cumulative~~ Preferred Stock

On (the "GFG Preferred Stock Consideration"). Additionally, on July ~~13, 2020,~~22, 2021, the Company entered into ~~an underwriting agreement (the “Underwriting Agreement”)~~a Put/Call Agreement with the GFG sellers, pursuant to ~~issue~~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 August 20, 2022 (extended from the original date of April 22, 2022), subject to the other provisions of the Put/Call Agreement. On March 22, 2022, the Company received a put notice on the GFG Preferred Stock Consideration and ~~sell in a public offering (the “Offering”) 360,000~~reclassified the GFG Preferred Stock Consideration to current liabilities on its condensed consolidated balance sheet.

Twin Peaks Preferred Stock Consideration

On October 1, 2021, the Company completed the acquisition of Twin Peaks. A portion of the consideration paid included 2,847,393 shares of ~~8.25%~~the Company’s Series B Cumulative Preferred Stock ~~(“Series B~~(the "Twin Peaks Preferred ~~Stock”~~Stock Consideration").

The Twin Peaks seller 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 these shares. The lock-up provisions restrict sales until March 31, 2022 for 1,793,858 shares (the “Initial Put/Call Shares”) and ~~1,800,000 warrants, plus 99,000 additional warrants pursuant~~September 30, 2022 for the remaining 1,053,535 shares (the “Secondary Put/Call Shares”), subject to certain exceptions set forth in the ~~underwriter’s overallotment option (the “2020 Series B Offering Warrants”), to purchase common stock at $5.00 per share. In~~Put/Call Agreement with the ~~Underwriting Agreement,~~seller of Twin Peaks referenced below.

On October 1, 2021, 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, 2020Seller entered into a ~~Warrant Agency~~Put/Call Agreement ~~with VStock Transfer, LLC,~~pursuant to ~~act as~~which the ~~Warrant Agent~~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 ~~Series B Offering Warrants (the “Warrant Agency Agreement”).~~

~~The Certificate~~Secondary Put/Call Shares at any time until September 30, 2022 for a cash payment of ~~Designation amends and restates~~$25.0 million, plus any accrued but unpaid dividends on such shares. If the ~~terms of~~Company does not deliver 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~~applicable cash proceeds to the Seller when due, the amounts then due will accrue interest at the rate of 10.0% per annum until repayment is completed. On October 7, 2021, the Company ~~of $8,122,000, which was net of $878,000 in underwriting~~received a put notice on the Initial Put/Call Shares and ~~offering costs.~~

~~Holders of Series B Cumulative~~the Secondary Put/Call Shares. The Company has classified the Twin Peaks Preferred Stock ~~shall be entitled to receive, when,~~Consideration as ~~and if declared by the FAT Board or~~ a ~~duly authorized committee thereof, in~~current liability on its sole discretion, out of funds of 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 monthly 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, 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 issued 3,537 shares of new Series B Preferred Shares in payment of $88,000 accrued and outstanding dividends relating to the Original Series B Preferred at a price of $25 per share.

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

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

In connection with the acquisition of FCCG by the Company, in December 2020 the Company declared a special stock dividend (the “Special Dividend”) payable only to holders of our 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.

~~As of March 28, 2021, the Series B Preferred Stock consisted of 1,183,272 shares outstanding with a~~condensed consolidated balance ~~of $21,267,000. The Company declared preferred dividends to the holders of the Series B Preferred Stock totaling $610,000 during the thirteen weeks ended March 28, 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 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 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.

~~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 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.

~~The Company classifies the Series A Preferred Stock as debt.~~

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

The Company recognized interest expense on the Series A Preferred Stock of $288,000 for the thirteen weeks ended March 28, 2021, which includes accretion expense of $9,000 as well as $1,000 for the amortization of debt offering costs. The Company recognized interest expense on the Series A Preferred Stock of $355,000 for the thirteen weeks ended March 29, 2020, which includes accretion expense 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 for 2021 was 14.5%.

~~Note 13. Related Party Transactions~~

~~During the thirteen weeks ended March 28, 2021, there were no reportable related party transactions. For the thirteen weeks ended March 29, 2020, the Company reported the following:~~

~~Due from Affiliates~~

On April 24, 2020, the Company entered into an Intercompany Revolving Credit Agreement with FCCG (“Intercompany Agreement”). The Company had previously extended credit to FCCG pursuant to a certain Intercompany Promissory Note (the “Original Note”), dated October 20, 2017, with an initial principal balance of $11,906,000. 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. Pursuant to the Intercompany Agreement, the revolving credit facility bore interest at a rate of 10% per annum, had a five-year term with no prepayment penalties, and had a maximum capacity of $35,000,000. All additional borrowings under the Intercompany Agreement were subject to the approval of the Board of Directors, in advance, on a quarterly basis and may have been 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, 2020, the balance receivable under the Intercompany Agreement was $26,854,000.

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

~~Series B Cumulative Preferred Stock~~

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

~~As of March 29, 2020, the following reportable related persons participated in the initial closing of the Company’s Preferred Offering:~~

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

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

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

~~Note 14. SHAREHOLDERS’ EQUITY~~

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

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

●

The Company issued 103,000 shares of common stock between February 10, 2021 and February 17, 2021 in satisfaction of the exercise of certain 2020 Series B Offering Warrants. The proceeds to the Company from the exercise of the options totaled $515,000.

sheet.

~~Note 15.~~

NOTE 13. SHARE-BASED COMPENSATION

Effective September 30, 2017, the Company adopted the 2017 Omnibus Equity Incentive Plan (the “Plan”). The Plan was amended and restated on October 19, 2021. 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~~4,000,000 shares available for grant.

The Company has periodically issued stock options under the Plan. All of the stock options issued by the Company to date have included a vesting period of three years, with one-third of each grant vesting annually. ~~The Company’s~~As of March 27, 2022, there were 2,748,436 stock ~~option activity for thirteen weeks ended March 28, 2021 is summarized 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

~~The range~~options outstanding with a weighted average exercise price of ~~assumptions used in the Black-Scholes valuation model to record the stock-based compensation are as follows:~~

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

$10.56.

The Company recognized share-based compensation expense in the amount of ~~$37,000~~$2.1 million and ~~$15,000, respectively,~~$37,000, during the thirteen weeks ended March 27, 2022 and March 28, 2021, ~~and March 29, 2020.~~respectively. As of March ~~28, 2021,~~27, 2022, there remains ~~$124,000~~$11.6 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.~~

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NOTE 14. 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 thirteen weeks ended March ~~28, 2021 is~~27, 2022 was 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~~


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Warrants outstanding at December 26, 2021	1,707,670	$	4.72	3.2
Exercised	(21,850)	$	3.64	3.3
Warrants outstanding at March 27, 2022	1,685,820	$	4.63	2.9
Warrants exercisable at March 27, 2022	1,685,820	$	4.63	2.9

During the thirteen weeks ended March 27, 2022, 21,850 warrants were exercised in exchange for 21,850 shares of ~~assumptions used to establish the value of the warrants using the Black-Scholes valuation model are as follows:~~

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

~~In addition~~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 $0.1 million.

~~Note 17.~~

NOTE 15. 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 April 20, 2021,~~

On January 11, 2022, the Board of Directors declared a cash dividend of $0.13 per share of Class A common stock and Class B common stock, payable on ~~May 7, 2021~~March 1, 2022 to ~~shareholders~~stockholders of record as of ~~May 3, 2021,~~February 15, 2022, for a total of ~~$1,590,000.~~

$2.1 million.

~~Note 18. Commitments~~

NOTE 16. COMMITMENTS AND CONTINGENCIES

Litigation

James Harris and ~~Contingencies~~

~~Litigation~~

Adam Vignola, derivatively on behalf of FAT Brands, Inc. 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 (“Plaintiffs”), putative stockholders of the Company, filed a shareholder derivative action in the Delaware Court of Chancery nominally on behalf of the Company against the Company’s directors (Squire Junger, James Neuhauser, Edward Rensi and Andrew Wiederhorn (the “Individual Defendants”)), and the Company’s majority stockholders, Fog Cutter Holdings, LLC and Fog Cutter Capital Group, Inc. (collectively with the Individual Defendants, “Defendants”). Plaintiffs assert claims of breach of fiduciary duty, unjust enrichment and waste of corporate assets arising out of the Company’s December 2020 merger with Fog Cutter Capital Group, Inc. On August 5, 2021, Defendants filed a motion to dismiss Plaintiffs’ complaint (the “Motion”). Argument on the Motion was heard on February 11, 2022. At the conclusion of the argument, the Court indicated that it would deny the Motion with respect to most claims and most Defendants, but would reserve final decision until after more fully considering the arguments as to the unjust enrichment claim and one of the Individual Defendants. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. As this matter is still in the early stages and discovery is just underway, we cannot predict the outcome of this lawsuit. This lawsuit does not assert any claims against the Company. However, 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.

James Harris and Adam Vignola, derivatively on behalf of FAT Brands, Inc. v. Squire Junger, James Neuhauser, Edward Rensi, Andrew Wiederhorn and Fog Cutter Holdings, LLC, and FAT Brands Inc., nominal defendant (Delaware Chancery Court, Case No. 2022-0254)

On March 17, 2022, plaintiffs James Harris and Adam Vignola (“Plaintiffs”), putative stockholders of the Company, filed a shareholder derivative action in the Delaware Court of Chancery nominally on behalf of the Company against the Company’s directors (Squire Junger, James Neuhauser, Edward Rensi and Andrew Wiederhorn (the “Individual Defendants”)), and the Company’s majority stockholder, Fog Cutter Holdings, LLC (collectively with the Individual Defendants, “Defendants”). Plaintiffs assert claims of breach of fiduciary duty in connection with the Company’s June 2021 recapitalization transaction. As this matter is still in the early stages, we cannot predict the outcome of this lawsuit. This lawsuit does not assert any claims

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against the Company. However, 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.

Robert J. Matthews, et al., v. FAT Brands, Inc., Andrew Wiederhorn, Ron Roe, Rebecca Hershinger and Ken Kuick (United States District Court for the Central District of California, Case No. 2:22-cv-01820)
On March 18, 2022, plaintiff Robert J. Matthews, a putative investor in the Company, filed a putative class action lawsuit against the Company, Andrew Wiederhorn, Ron Roe, Rebecca Hershinger and Ken Kuick, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), alleging that the defendants are responsible for false and misleading statements and omitted material facts in the Company’s reports filed with the SEC under the 1934 Act related to the LA Times story published on February 19, 2022 about the company and its management. The plaintiff alleges that the Company’s public statements wrongfully inflated the trading price of the Company’s common stock, preferred stock and warrants. The plaintiff is seeking to certify the complaint as a class action and is seeking compensatory damages in an amount to be determined at trial. As this matter is still in the early stages, we cannot predict the outcome of this lawsuit. On April 25, 2022, Kerry Chapman, a putative investor in the Company, filed a putative class action lawsuit against the Company, Andrew Wiederhorn, Ron Roe, Rebecca Hershinger and Ken Kuick in the United States District Court for the Central Division of California, asserting substantially the same claims as those made by Matthews in the above-referenced lawsuit.

Government Investigations

The U.S. Attorney’s Office for the Central District of California (the “U.S. Attorney”) and the U.S. Securities and Exchange Commission informed the Company in December 2021 that they have opened investigations relating to the Company and our Chief Executive Officer, Andrew Wiederhorn, and are formally seeking documents and materials concerning, among other things, the Company’s December 2020 merger with Fog Cutter Capital Group Inc., transactions between these entities and Mr. Wiederhorn, and compensation, extensions of credit and other benefits or payments received by Mr. Wiederhorn or his family. The Company is cooperating with the government regarding these matters, and we believe that the Company is not currently a target of the U.S. Attorney’s investigation. At this early stage, the Company is not able to reasonably estimate the outcome or duration of the government investigations.

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)~~

12-cv-772-HE)

In 2012 and 2013, two property owners in Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and our subsidiary Fog Cutter Capital Group Inc. (now known as Fog Cutter Acquisition, LLC), for alleged environmental contamination on their properties, stemming from dry cleaning operations on one of the properties. The property owners seek damages in the range of ~~$12~~$12.0 million to ~~$22~~$22.0 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.~~October 2022. 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”) filed a complaint against Fog Cutter Capital Group, Inc. (“FCCG”) in New York state court for an indemnification claim (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 “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.

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actions will have a material adverse effect on its business, financial condition, results of operations, liquidity or capital resources. As of March ~~28,2021,~~27, 2022, the Company had accrued an aggregate of ~~$5.68~~$5.1 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 17. GEOGRAPHIC INFORMATION AND MAJOR FRANCHISEES

R~~evenues~~

Revenue by geographic area ~~are~~was as follows (in ~~thousands)~~millions):

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
	March 27, 2022		March 28, 2021
United States	$	95.4	$	4.8
Other countries	2.0		1.8
Total revenue	$	97.4	$	6.6

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

During the thirteen weeks ended March ~~28, 2021~~27, 2022 and March ~~29, 2020,~~28, 2021, 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.~~18. SUBSEQUENT EVENTS

Management has evaluated all events and transactions that occurred subsequent to March ~~28, 2021~~27, 2022 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~~

~~On April 26, 2021 (the “Closing Date”), FB Royalty completed the issuance and sale in a private offering (the “Offering” as defined in Note 1)~~events.

Table of three tranches of fixed rate senior secured notes as follows: (i) 4.75% Series 2021-1 Fixed Rate Senior Secured Notes, Class A-2, in an initial principal amount of $97,104,000; (ii) 8.00% Series 2021-1 Fixed Rate Senior Subordinated Secured Notes, Class B-2, in an initial principal amount of $32,368,000; and (iii) 9.00% Series 2021-1 Fixed Rate Subordinated Secured Notes, Class M-2, in an initial principal amount of $15,000,000 (collectively, the “2021 Securitization Notes”).

The 2021 Securitization Notes were issued in a securitization transaction pursuant to which substantially all of the assets held by the Issuer and its subsidiaries, including the Company, were pledged as collateral to secure the 2021 Securitization Notes. 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, 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.~~

Contents

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

The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the thirteen weeks ended March ~~28, 2021~~27, 2022 and March ~~29, 2020,~~28, 2021, 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~~23, 2022 “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~~As of March ~~2017 as~~27, 2022, the Company owned seventeen restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli's, Twin Peaks, Great American Cookies, Hot Dog on a ~~wholly owned subsidiary~~Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses. As of ~~Fog Cutter Capital Group, Inc. (“FCCG”), we completed our initial public offering on October 20, 2017 and issued additional shares~~March 27, 2022, the Company had 2,360 locations. Of this amount, 2,230 stores were franchised, representing approximately 94% 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~~total restaurants.

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.

Table of ~~March 28, 2021,~~Contents

Our revenues are derived primarily from two sales channels, franchised restaurants and company owned restaurants, which we operate as one segment. The primary sources of revenues are the ~~Company owns nine restaurant brands: Fatburger, Johnny Rockets, Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Ponderosa~~sale of food and ~~Bonanza Steakhouses, Elevation Burger~~beverages at our company restaurants and ~~Yalla Mediterranean, that have approximately 700 locations, including units under construction.~~

~~Operating segments~~

~~With minor exceptions,~~the collection of royalties, franchise fees and advertising revenue from sales of food and beverages at 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.

franchised restaurants.

Results of Operations

We operate on a 52-week or 53-week fiscal year ending on the last Sunday of the calendar year. In a 52-week fiscal year, each quarter contains 13 weeks of operations. In a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations, which may cause our revenue, expenses and other results of operations to be higher due to an additional week of operations.

Results of Operations of FAT Brands Inc.

The following table summarize key components of our condensed consolidated results of operations for the thirteen weeks ended March ~~28, 2021~~27, 2022 and March ~~29, 2020. Certain account balances from the prior period have been reclassified to conform to current period presentation.~~

28, 2021.

(In thousands)

~~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 )


	Thirteen Weeks Ended
	March 27, 2022		March 28, 2021
Statements of operations data:

Revenue
Royalties	$	20,898	$	4,898
Restaurant sales	58,077		—
Advertising fees	9,361		1,188
Factory revenues	8,179		—
Franchise fees	714		540
Management fees and other income	174		23
Total revenue	97,403		6,649

Costs and expenses
General and administrative expense	31,066		4,926
Cost of restaurant and factory revenues	54,799		—
Refranchising loss	548		427
Acquisition costs	248		15
Advertising fees	10,257		1,192
Total costs and expenses	96,918		6,560

Income from operations	485		89

Total other expense, net	(19,716)		(2,650)

Loss before income tax expense	(19,231)		(2,561)

Income tax provision (benefit)	4,524		(129)

Net loss	$	(23,755)	$	(2,432)

Table of Contents

For the thirteen weeks ended March ~~28, 20210~~27, 2022 and March ~~29, 2020:~~

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

~~Revenues~~ 2021:

Revenue- ~~Revenues consist~~ Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and ~~management fees. We had revenues~~other revenue. Total revenue increased $90.8 million, or 1,365%, in the first quarter of ~~$6,649,000 for the thirteen weeks ended March 28, 2021~~2022, to $97.4 million compared to ~~$4,423,000 for~~$6.6 million in the ~~thirteen weeks ended March 29, 2020.~~same period of 2021. The increase ~~of $2,226,000~~ reflects ~~the inclusion of revenues~~revenue from the acquisition of ~~Johnny Rockets, which occurred~~GFG in ~~September 2020.~~

July 2021, the acquisition of Twin Peaks in October 2021, the acquisition of Fazoli's in December 2021 and the acquisition of Native in December 2021 (collectively, the "2021 Acquisitions") 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, cost of restaurant and factory revenues, net refranchising (gains) losses and advertising ~~expense~~expense. Costs and ~~refranchising~~expenses increased $90.4 million, or 1,381%, in the first quarter of 2022 to $96.9 million compared to the same period in the prior year, primarily due to the 2021 Acquisitions.

General and administrative expenses increased $26.1 million, or 531%, in the first quarter of 2022 compared to the same period in the prior year, primarily due to the 2021 Acquisitions and increased compensation costs, professional fees and travel, reflecting the significant expansion of the organization.

Cost of restaurant and factory revenues totaled $54.8 million for the first quarter of 2022 and were exclusively related to the 2021 Acquisitions. These costs relate to the operations of the company owned restaurant locations and the dough factory operated by GFG, which currently sells products exclusively to our brands.

Refranchising losses of $0.5 million and $0.4 million in the first quarter of 2022 and 2021, respectively, were comprised of restaurant operating costs, net of ~~associated~~food sales. ~~Our costs and~~

Advertising expenses increased ~~from $5,001,000~~$9.1 million in the first quarter of ~~2020~~2022 compared to ~~$6,545,000~~the prior year period. These expenses vary in relation to the advertising revenue and reflect advertising expenses related to the 2021 Acquisitions and the increase in customer activity as the recovery from COVID continues.

Other Expense, net – Other expense, net for the first quarter of ~~2021.~~

~~For the thirteen weeks ended March 28,~~2022 and 2021 ~~our general~~was $19.7 million and ~~administrative expenses totaled $4,926,000. For the thirteen weeks ended March 29, 2020, our general and administrative expenses totaled $3,531,000. The increase in the amount of $1,395,000 was~~$2.7 million, respectively, primarily ~~the result of an increase in compensation expense for the quarter of $587,000 and higher legal fees in the amount of $489,000.~~

During the first quarter of 2021, our refranchising efforts resulted in restaurant operating costs and expenses, net of associated 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.

~~Other Expense –~~ ~~Other expense for the thirteen weeks ended March 28, 2021 totaled $2,665,000 compared to $2,090,000 for the period ended March 29, 2020. These expenses consisted primarily~~comprised of net interest expense of ~~$2,748,000~~$21.0 million and ~~$2,074,000~~$2.7 million, respectively.

Income Tax Benefit – The effective rate was (23.5)% and 5.0% for the first quarter of 2022 and 2021, ~~and 2020 periods,~~ respectively.

~~Income Tax Benefit –~~ ~~We recorded an income tax benefit of $129,000 for the thirteen weeks ended March 28, 2021 compared~~ The difference in effective rate was primarily due to ~~an income tax benefit~~increases in the amount of $298,000 for the thirteen weeks ended March 29, 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 andour valuation ~~allowances accounted for the variance between the effective tax rate and the statutory rate.~~

allowance.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, acquisitions and expansion of franchised restaurant locations and for other general business purposes. Our primary sources of funds for liquidity during the ~~thirteen weeks ended March 28, 2021~~firsts quarter of 2022 consisted of cash on hand at the beginning of the period.

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~~may 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,~~

We have liabilities of $135.0 million relating to put options held by others on our Series B Cumulative Preferred Stock due in 2022. The Company has contractual options pursuant to the put/call agreements to extend this repayment via incremental interest payments and there are capital market options that the Company ~~completed~~may consider. We believe that we have sufficient liquidity to meet our liquidity needs and capital resource requirements for at least the ~~issuance~~next twelve months primarily through currently available cash and sale in a private offering (the “Offering”) of three tranches of fixed rate secured notes (see Note 21 of the Financial Statements). Proceeds of the Offering were used to repay in full its 2020 Securitization Notes as well as feescash equivalents, cash flows from operations and ~~expenses related~~access to the ~~Offering, resulting in net proceeds to the Company~~capital markets.

As of ~~approximately $57 million (see Note 11~~March 27, 2022, we had cash and restricted cash totaling $80.5 million.

Table of ~~the Financial Statements).~~

In addition to the liquidity provided by the Offering, we have seen significant improvement in our operating performance subsequent to December 27, 2020, as COVID-19 vaccinations have become more prevalent in the United States and federal, state and local restrictions have eased in many, but not all, of the markets where our franchisees operate. As a result, we believe that our liquidity position will be sufficient for the twelve months of operations following the issuance of this Form 10-Q.

Contents

Comparison of Cash Flows

Our cash and restricted cash balance was ~~$4,915,000~~$80.5 million as of March ~~28, 2021,~~27, 2022, compared to ~~$7,211,000~~$99.9 million as of December ~~27, 2020.~~

26, 2021.

The following table summarize key components of our condensed consolidated cash flows for the ~~thirteen~~13 weeks ended March ~~28, 2021~~27, 2022 and March ~~29, 2020~~:

~~(In thousands)~~

28, 2021:

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

(In millions)


	March 27, 2022		March 28, 2021

Net cash used in operating activities	$	(9.7)	$	(1.2)
Net cash used in investing activities	$	(3.8)	$	(0.6)
Net cash used in financing activities	$	(5.9)	$	(0.5)
Net cash flows	$	(19.4)	$	(2.3)

Operating Activities

Net cash ~~from~~used in operating activities ~~decreased $13,078,000~~increased $8.5 million in ~~2020~~the first quarter of 2022 compared to ~~2019. There were variations~~2021, primarily due higher debt service costs associated with our securitizations, partially offset by changes in the components of the cash from operations between the two periods. Our net loss in 2020 was $14,860,000, compared to a net loss in 2019 of $1,018,000. The net positive adjustments to reconcile these net losses to net cash provided by (or used in) operations were $3,376,000 in 2020 compared to $2,612,000 in 2019. The primary components of the adjustments to reconcile the net loss to net cash from 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.~~

working capital.

Investing Activities

Net cash used in investing activities ~~decreased by $2,840,000~~was $3.7 million in ~~the thirteen weeks ended March 28, 2021 compared to the prior year primarily due to a decrease in the advances to non-consolidated affiliates.~~

~~Financing Activities~~

Net cash from financing activities decreased by $12,950,000 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 sale 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.~~

~~Dividends~~

~~Our Board~~2022, compared to net cash used in investing activities of ~~Directors did not declare any~~$0.6 million in the comparable period of 2021. The increase was primarily due to higher purchases of property and equipment in connection with company-owned restaurants acquired during fiscal 2021.

Financing Activities

Net cash used in financing activities was $5.9 million for the first quarter of 2022 and was primarily comprised of dividends paid on our Class A and Class B common stock ~~during the thirteen weeks ended March 28, 2021. Subsequent to the end of the quarter, on April 20, 2021,~~and our Series B Cumulative Preferred Stock.

Dividends

On January 11, 2022, the Board of Directors declared a cash dividend of $0.13 per share of Class A and Class B common stock, payable on ~~May 7, 2021~~March 1, 2022 to ~~shareholders~~stockholders of record as of ~~May 3, 2021. The amount~~February 15, 2022, for a total of ~~the dividend totaled $1,590,000.~~

$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.

~~Securitization~~

On March 6, 2020, we completed a whole-business securitization (the “Securitization”) through the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”) in which FAT Royalty issued $20 million of Series 2020-1 Fixed Rates Senior Secured Notes, Class A-2 and $20 million of Series 2020-1 Fixed Rate Senior Subordinated Notes, Class B-2 (collectively the “Series A-2 and B-2 Notes”) pursuant to an indenture and the supplement thereto each dated March 6, 2020, as amended, (collectively, the “Indenture”).

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

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

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

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

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

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

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

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

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

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

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

While the 2020 Securitization Notes are outstanding, scheduled payments of principal and interest are required to be made on a quarterly basis, with the scheduled principal payments of $1,000,000 per quarter on each of the Series A-2 and B-2 Notes and $200,000 per quarter on the Series M-2 Notes beginning the second quarter of 2021. It is expected that the Securitization Notes will be repaid prior to the Final Legal Maturity Date, with the anticipated repayment date occurring in January 2023 for the A-2 Notes, October 2023 for the B-2 Notes and April 2026 for the Series M-2 Notes (the “Anticipated Repayment Dates”). If FAT Royalty has not repaid or refinanced the Securitization Notes prior to the applicable Anticipated Repayment Date, additional interest expense will begin to accrue and all additional proceeds will be utilized for additional amortization, as defined in the Indenture.

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

The 2020 Securitization Notes are secured by substantially all of the assets of FAT Royalty, including the equity interests in the Franchise Entities. The restrictions placed on the FAT Royalty subsidiaries require that the Securitization principal and interest obligations have first priority, after the payment of the Management Fee and certain other FAT Royalty expenses (as defined in the Indenture), and amounts are segregated monthly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of monthly cash flow that exceeds the required monthly debt service is generally remitted to the Company. Once the required obligations are satisfied, there are no further restrictions, including payment of dividends, on the cash flows of the subsidiaries.

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

The 2020 Securitization Notes are subject to certain financial and non-financial covenants, including a debt service coverage ratio calculation, as defined in the Indenture. In the event that certain covenants are not met, the 2020 Securitization Notes may become partially or fully due and payable on an accelerated schedule. In addition, FAT Royalty may voluntarily prepay, in part or in full, the Notes in accordance with the provisions in the Indenture.

Capital Expenditures

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”) of three tranches of fixed rate senior secured notes as follows: (i) 4.75% Series 2021-1 Fixed Rate Senior Secured Notes, Class A-2, in an initial principal amount of $97,104,000; (ii) 8.00% Series 2021-1 Fixed Rate Senior Subordinated Secured Notes, Class B-2, in an initial principal amount of $32,368,000; and (iii) 9.00% Series 2021-1 Fixed Rate Subordinated Secured Notes, Class M-2, in an initial principal amount of $15,000,000 (collectively, the “2021 Securitization Notes”).

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

~~Capital Expenditures~~

~~As of March 28, 2021,~~27, 2022, we do not have any material commitments for capital expenditures.

Critical Accounting Policies and Estimates

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

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

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

~~Goodwill and other intangible assets:~~ Goodwill and other intangible assets with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually, or more frequently if indicators arise. During the thirteen weeks ended March 28, 2021, there were no identified impairments of assets.

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

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

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

~~Share-based compensation:~~ We have a stock option plan which provides for options to purchase shares of our common stock. For grants to employees and directors, we recognize an expense for the value of options granted at their fair value at the date of grant over the vesting period in which the options are earned. Cancellations or forfeitures are accounted for as they occur. Fair values are estimated using the Black-Scholes option-pricing model. For grants to non-employees for services, we revalue the options each reporting period while the services are being performed. The adjusted value of the options is recognized as an expense over the service period. See Note 15 in our

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

~~Use of estimates:~~ ~~The preparation of~~and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements ~~in conformity with accounting principles generally accepted in the United States of America~~ requires ~~management~~us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and ~~liabilities~~expenses. These estimates and ~~disclosures~~assumptions are affected by the application of ~~contingent assets~~our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 26, 2021. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and ~~liabilities at~~may change in subsequent periods. While we apply our

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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. Actual~~circumstances, actual results could ~~differ~~vary from ~~those estimates.~~

~~Recently Issued Accounting Standards~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments~~ these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and ~~later amended the ASU~~described in 2019 as described below. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts.

~~In November 2019, the FASB issued ASU No. 2019-10,~~ ~~Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”)~~. The purpose of this amendment is to create a two-tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to implement major FASB standards, including ASU 2016-13. Smaller Reporting Companies are permitted to defer adoption of ASU 2016-13, and its related amendments, until fiscal periods beginning after December 15, 2022. Under the current SEC definitions, the Company meets the definition of an SRC and is adopting the deferral period for ASU 2016-13. The guidance requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on itsour annual consolidated financial statements ~~but does not expect that~~and the ~~adoption~~related notes included in our Annual Report on Form 10-K for our fiscal year ended December 26, 2021

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, 2021,~~27, 2022, have concluded that, in regard to the segregation of duties and the financial close process, our disclosure controls and procedures were ~~not~~ effective.

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

Changes in internal control over financial reporting

There were no significant changes in our internal control over financial reporting in connection with an evaluation that occurred during the thirteen weeks ended March ~~28, 2021~~27, 2022 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

~~Stratford Holding LLC v. Foot Locker Retail Inc. (U.S. District Court for the Western District~~

For a description of ~~Oklahoma, Case No. 5:12-cv-00772-HE)~~

~~In 2012~~our material pending legal proceedings, please see Note 16, Commitments 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)Contingencies, 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”) filed a complaint against Fog Cutter Capital Group, Inc. (“FCCG”) in New York state court for an indemnification claim (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, which included $225,030 in interest dating back to March 2012. SBN then obtained a sister state judgment in Los Angeles Superior Court, Case No. BS172606 (the “California case”), which included the $651,290 judgment from the NY case, plus additional statutory interest and fees, for a total judgment of $656,543. In May 2018, SBN filed a cost memo, requesting an additional $12,411 in interest to be added to the ~~judgment~~condensed consolidated financial statements included elsewhere in the California case, for a total of $668,954. In May 2019, the parties agreed to settle the matter for $580,000, which required the immediate payment of $100,000, and the balance to be paid in August 2019. FCCG wired $100,000 to SBN in May 2019, but has not yet paid the remaining balance of $480,000. 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. The Company does not believe that the ultimate resolution of these actions will have a material adverse effectthis Quarterly Report 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.~~

Form 10-Q.

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,~~23, 2022, which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in such factors discussed in our Annual Report. The risks described in our Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Subsequent to March 28, 2021, on May 3, 2021, the exercise price of the 2020 Series B Offering Warrants decreased from $5.00 per share to $4.8867 per share based on the cash dividend payable to holders of the Company’s common stock as of such date (See Notes 16 and 17 of the Financial Statements).

None.

ITEM 6. EXHIBITS

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

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
Description Form Exhibit Filing Date
10.1 Letter Agreement, dated March 30, 2022, by and between FAT Brands Inc. and Kenneth J. Kuick 8-K 10.1 4/5/2022
31.1
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document X (Furnished)
101.SCH Inline XBRL Taxonomy Extension Schema Document X (Furnished)
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X (Furnished)
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X (Furnished)

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101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X (Furnished)
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X (Furnished)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			FAT BRANDS INC.

May ~~12, 2021~~10, 2022			By	/s/ ~~Andrew A. Wiederhorn~~Kenneth J. Kuick
				~~Andrew A. Wiederhorn~~Kenneth J. Kuick
				~~President and Chief Executive Officer~~
		~~(Principal Executive Officer)~~

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


Large accelerated filer	~~[ ]~~o	Accelerated filer	~~[ ]~~o

Non-accelerated filer	~~[X]~~x	Smaller reporting company	~~[X]~~x

Emerging growth company	~~[X]~~o

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

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

	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

	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

	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	)

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	)

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

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

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

	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

	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

	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

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

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


	March 27, 2022								December 26, 2021
	Final Maturity	Anticipated Call Date	Rate		Face Value		Book Value		Book Value
Senior Debt
2021 FB Royalty Securitization	4/25/2051	7/25/2023	4.75	%	$	97.1	$	95.5	$	95.4
2021 GFG Royalty Securitization	7/25/2051	7/25/2023	6.00	%	209.0		205.9		205.6
2021 Twin Peaks Securitization	7/25/2051	7/25/2023	7.00	%	150.0		147.0		146.8
2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	6.00	%	128.8		123.3		122.8
Senior Subordinated Debt
2021 FB Royalty Securitization	4/25/2051	7/25/2023	8.00	%	32.4		31.8		31.8
2021 GFG Royalty Securitization	7/25/2051	7/25/2023	7.00	%	84.0		81.7		81.5
2021 Twin Peaks Securitization	7/25/2051	7/25/2023	9.00	%	50.0		46.8		46.6
2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	7.00	%	25.0		22.9		22.7
Subordinated Debt
2021 FB Royalty Securitization	4/25/2051	7/25/2023	9.00	%	15.0		14.2		14.1
2021 GFG Royalty Securitization	7/25/2051	7/25/2023	9.50	%	57.0		52.9		52.6
2021 Twin Peaks Securitization	7/25/2051	7/25/2023	10.00	%	50.0		44.5		44.2
2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	9.00	%	40.0		35.6		35.1
Total securitized debt					938.2		902.0		899.3
Elevation note	7/19/2026	N/A	6.00	%	7.5		5.4		5.6
Equipment note	3/7/2028	N/A	8.49	%	0.5		0.5		—
Total debt					946.2		907.9		904.9
Current portion of long-term debt					—		(0.9)		(0.6)
Long-term debt					$	946.2	$	907.1	$	904.3

	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

	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

	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

	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	)

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

4.1	Base Indenture, dated March 6, 2020, and amended and restated as of April 26, 2021, by and between FAT Brands Royalty I, LLC and UMB Bank, N.A., as trustee and securities intermediary.	8-K	4.1	4/26/2021
4.2	Series 2021-1 Supplement to the Base Indenture, dated April 26, 2021, by and between FAT Brands Royalty I, LLC and UMB Bank, N.A., as trustee.	8-K	4.2	4/26/2021
10.1	Guarantee and Collateral Agreement, dated April 26, 2021, by and among each of the Securitization Entities, as Guarantors, in favor of UMB Bank, N.A., as Trustee.	8-K	10.1	4/26/2021
10.2	Management Agreement, dated March 6, 2020, and amended and restated as of April 26, 2021, by and among FAT Brands Inc., FAT Brands Royalty I, LLC, each of the Securitization Entities and UMB Bank, N.A., as Trustee.	8-K	10.2	4/26/2021
31.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
101.INS	XBRL Instance Document				X (Furnished)
101.SCH	XBRL Taxonomy Extension Schema Document				X (Furnished)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				X (Furnished)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				X (Furnished)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				X (Furnished)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				X (Furnished)