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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 27, 2021

26, 2022

OR

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

Commission file number 001-38250

fat-20220626_g1.jpg
FAT Brands Inc.

(Exact name of registrant as specified in its charter)

Delaware 82-1302696

(State or other jurisdiction of


incorporation or organization)

 

(I.R.S. Employer


Identification No.)

9720 Wilshire Blvd., Suite 500

Beverly Hills,, CA90212

(Address of principal executive offices, including zip code)

(310)319-1850

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareFATFATThe Nasdaq Stock Market LLC
Class B Common Stock, par value $0.0001 per shareFATBBThe Nasdaq Stock Market LLC
Series B Cumulative Preferred Stock, par value $0.0001 per shareFATBPFATBPThe Nasdaq Stock Market LLC
Warrants to purchase Class A Common StockFATBWFATBWThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Yesx ☒ No ☐

o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Yesx ☒ No ☐

o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☐oAccelerated filer☐o
Non-accelerated filer☒xSmaller reporting company☒x
Emerging growth company☒o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ Noo ☒

No

x

As of August 2, 2021,July 22, 2022, there were 14,653,96115,136,416 shares of Class A common stock and 1,270,805 shares of Class B common stock outstanding.


Table of Contents

FAT BRANDS INC.

QUARTERLY REPORT ON FORM 10-Q

June 27, 2021

26, 2022

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PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FAT BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)
June 26, 2022December 26, 2021
Audited
Assets  
Current assets  
Cash$15,502 $56,656 
Restricted cash23,396 24,740 
Accounts receivable, net of allowance for doubtful accounts of $3,311 and $4,016 as of June 26, 2022 and December 26, 2021, respectively35,659 19,555 
Trade and other notes receivable, net of allowance for doubtful accounts of $129 as of both June 26, 2022 and December 26, 2021245 231 
Assets classified as held-for-sale5,288 5,476 
Other current assets12,678 11,853 
Total current assets92,768 118,511 
Noncurrent restricted cash12,526 18,525 
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271 as of both June 26, 2022 and December 26, 20211,867 3,493 
Operating lease right-of-use assets95,497 98,552 
Goodwill296,485 295,128 
Other intangible assets, net646,908 652,788 
Property and equipment, net83,455 80,501 
Other assets2,986 2,534 
Total assets$1,232,492 $1,270,032 
Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable$23,584 $27,527 
Accrued expenses and other liabilities45,601 46,295 
Deferred income, current portion2,248 2,636 
Accrued advertising13,835 10,853 
Accrued interest payable11,723 10,678 
Dividend payable on preferred shares1,565 1,574 
Liabilities related to assets classified as held-for-sale4,601 4,780 
Current portion of operating lease liability13,890 14,341 
Redeemable preferred stock135,000 67,500 
Current portion of long-term debt903 631 
Current portion of acquisition purchase price payable350 1,173 
Other2,887 10,500 
Total current liabilities256,187 198,488 


  June 27, 2021  December 27, 2020 
  Unaudited    
Assets        
Current assets        
Cash $48,124  $3,944 
Restricted cash  4,096   2,867 
Accounts receivable, net of allowance for doubtful accounts of $816 and $739, as of June 27, 2021 and December 27, 2020, respectively  5,583   4,208 
Trade and other notes receivable, net of allowance for doubtful accounts of $103 as of June 27, 2021 and December 27, 2020  217   208 
Assets classified as held for sale  7,735   10,831 
Other current assets  2,486   2,365 
Total current assets  68,241   24,423 
         
Noncurrent restricted cash  1,800   400 
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271, as of June 27, 2021 and December 27, 2020  1,583   1,622 
Deferred income tax asset, net  33,555   30,551 
Operating lease right of use assets  4,913   4,469 
Goodwill  9,706   10,909 
Other intangible assets, net  46,950   47,711 
Other assets  2,420   1,059 
Total assets $169,168  $121,144 
         
Liabilities and Stockholders’ Deficit        
Liabilities        
Current liabilities        
Accounts payable $8,410  $8,625 
Accrued expenses and other liabilities  21,235   19,833 
Deferred income, current portion  1,684   1,887 
Accrued advertising  1,980   2,160 
Accrued interest payable  1,473   1,847 
Dividend payable on preferred shares  1,397   893 
Liabilities related to assets classified as held for sale  7,131   9,892 
Current portion of operating lease liability  929   748 
Current portion of preferred shares, net  7,980   7,961 
Current portion of long-term debt  913   19,314 
Other  18   17 
Total current liabilities  53,150   73,177 
         
Deferred income – noncurrent  9,691   9,099 
Acquisition purchase price payable  776   2,806 
Operating lease liability, net of current portion  4,508   4,011 
Long-term debt, net of current portion  146,140   73,852 
Other liabilities  58   82 
Total liabilities  214,323   163,027 
         
Commitments and contingencies (Note 19)  -    -  
         
Stockholders’ deficit        
Preferred stock, $.0001 par value; 5,000,000 shares authorized; 1,643,272 and 1,183,272 shares issued and outstanding at June 27, 2021 and December 27, 2020, respectively; liquidation preference $25 per share  29,092   21,788 
Common stock, $.0001 par value; 25,000,000 shares authorized; 12,491,528 and 11,926,264 shares issued and outstanding at June 27, 2021 and December 27, 2020, respectively (1)  (45,086)  (42,775) 
Accumulated deficit  (29,254)  (20,896)
Stockholders’ deficit attributable to FAT Brands Inc.  (45,248)  (41,883)
Noncontrolling interests  93   - 
Total stockholders’ deficit  (45,155)  (41,883)
Total liabilities and stockholders’ deficit $169,168  $121,144 


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










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Deferred income, net of current portion20,008 17,662 
Deferred income tax liabilities, net16,177 12,921 
Operating lease liability, net of current portion90,652 92,920 
Long-term debt, net of current portion908,629 904,265 
Other liabilities1,962 976 
Total liabilities1,293,615 1,227,232 
Commitments and contingencies (Note 16)00
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 June 26, 2022 and December 26, 2021; liquidation preference $25 per share48,259 55,661 
Class A common stock and Class B common stock and additional paid-in capital as of June 26, 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)(24,960)(24,837)
Accumulated deficit(84,422)(52,479)
Total stockholders’ deficit(61,123)(21,655)
Total liabilities and stockholders’ deficit$1,232,492 $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 and Twenty-sixTwenty-Six Weeks Ended June 26, 2022 and June 27, 2021 and June 28, 2020 (Unaudited)

  June 27, 2021  June 28, 2020  June 27, 2021  June 28, 2020 
  Thirteen Weeks Ended  Twenty-six Weeks Ended 
  June 27, 2021  June 28, 2020  June 27, 2021  June 28, 2020 
             
Revenue                
Royalties $6,161  $2,213  $11,057  $5,522 
Franchise fees  482   273   1,022   449 
Advertising fees  1,370   613   2,560   1,544 
Restaurant sales  234   -    234   -  
Management fees and other income  35   8   58   15 
Total revenue  8,282   3,107   14,931   7,530 
                 
Costs and expenses                
General and administrative expense  5,483   4,104   10,408   7,636 
Restaurant operating expenses  244   -    244   - 
Impairment of assets  -   3,174   -   3,174 
Refranchising (gain) loss  (856)  1,006   (429)  1,544 
Advertising expense  1,367   613   2,560   1,544 
Total costs and expenses  6,238   8,897   12,783   13,898 
                 
Income (loss) from operations  2,044   (5,790)  2,148   (6,368)
                 
Other income (expense), net                
Interest expense, net of interest income of $836 and $1,554 due from affiliates during the thirteen and twenty-six weeks ended June 28, 2020, respectively. There was no interest income due from affiliates in 2021.  (2,406)  (289)  (4,866)  (1,911)
Interest expense related to preferred shares  (264)  (476)  (552)  (928)
Net loss on extinguishment of debt  (6,405)  -   (6,405)  - 
Change in fair value of derivative liability  -   1,264   -   1,264 
Other expense, net  (892)  (49)  (809)  (64)
Total other (expense) income, net  (9,967)  450   (12,632)  (1,639)
                 
Loss before income tax expense  (7,923)  (5,340)  (10,484)  (8,007)
                 
Income tax benefit  (1,992)  (1,089)  (2,121)  (1,386)
                 
Net loss (5,931) (4,251) (8,363) (6,621)
Less: Net loss attributable to noncontrolling interest  (5)  -   (5)  - 
Net loss attributable to FAT Brands Inc. $ (5,926)  $(4,251)  $(8,358)  $(6,621)
                 
Basic and diluted loss per common share $(0.48) $(0.36) $(0.69) $(0.56)
Basic and diluted weighted average shares outstanding  12,275,370   11,886,182   12,122,938   11,877,507 
Cash dividends declared per common share $0.26  $-  $0.26  $- 

Thirteen Weeks EndedTwenty-Six Weeks Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Revenue
Royalties$21,665 $6,161 $42,563 $11,057 
Restaurant sales60,044 234 118,121 234 
Advertising fees9,568 1,370 18,929 2,560 
Factory revenues8,570 — 16,749 — 
Franchise fees1,295 482 2,009 1,022 
Management fees and other income1,643 35 1,817 58 
Total revenue102,785 8,282 200,188 14,931 
Costs and expenses
General and administrative expense20,841 5,097 45,437 9,624 
Cost of restaurant and factory revenues49,846 244 104,644 244 
Depreciation and amortization6,711 386 13,181 784 
Refranchising loss (gain)453 (856)1,001 (429)
Acquisition costs135 917 383 932 
Advertising fees11,596 1,367 21,853 2,560 
Total costs and expenses89,582 7,155 186,499 13,715 
Income from operations13,203 1,127 13,689 1,216 
Other (expense) income, net
Interest expense(18,998)(2,406)(38,026)(4,866)
Interest expense related to preferred shares(4,715)(264)(6,714)(552)
Net loss on extinguishment of debt— (6,405)— (6,405)
Other income, net2,071 25 3,381 123 
Total other expense, net(21,642)(9,050)(41,359)(11,700)
Loss before income tax expense(8,439)(7,923)(27,670)(10,484)
Income tax (benefit) provision(251)(1,992)4,273 (2,121)
Net loss(8,188)(5,931)$(31,943)(8,363)
Less: Net loss attributable to noncontrolling interest— (5)— (5)
Net loss attributable to FAT Brands Inc.$(8,188)$(5,926)$(31,943)$(8,358)
Basic and diluted loss per common share$(0.50)$(0.48)$(1.95)$(0.69)
Basic and diluted weighted average shares outstanding16,405,108 12,275,370 16,396,896 12,122,938 
Cash dividends declared per common share$0.13 $0.13 $0.26 $0.26 
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, unaudited)

thousands)

For the Twenty-sixTwenty-Six Weeks Ended June 26, 2022
Common StockPreferred Stock
Class A SharesClass B SharesClass A Par
Value		Class B Par
Value		Additional
Paid-In
 Capital		Total
Common
 Stock		SharesPar
Value		Additional
Paid-In
 Capital		Total
Preferred
 Stock		Accumulated
Deficit		Total
Balance at December 26, 202115,109,747 1,270,805 $2 $— $(24,839)$(24,837)3,221,471 $— $55,661 $55,661 $(52,479)$(21,655)
Net loss— — — — — — — — — — (31,943)(31,943)
Issuance of common stock through exercise of warrants21,850 — — — 64 64 — — 19 19 — 83 
Share-based compensation— — — — 4,076 4,076 — — — — — 4,076 
Dividends declared on common stock— — — — (4,263)(4,263)— — — — — (4,263)
Dividends declared on Series B preferred stock— — — — — — — — (3,314)(3,314)— (3,314)
Exercise of Series B preferred stock put option— — — — — — — — (4,107)(4,107)— (4,107)
Balance at June 26, 202215,131,597 1,270,805 $2 $— $(24,962)$(24,960)3,221,471 $— $48,259 $48,259 $(84,422)$(61,123)






















6
For the Twenty-Six Weeks Ended June 27, 2021
Common StockPreferred Stock
Class A SharesClass A Par
Value		Additional
Paid-In Capital		Total
Common
 Stock		SharesPar
Value		Additional
 Paid-In
 Capital		Total
Preferred
 Stock		Non-
 Controlling
 Interest		Accumulated DeficitTotal
Balance at December 27, 202011,926,264 $1 $(42,776)$(42,775)1,183,272 $— $21,788 $21,788 $— $(20,896)$(41,883)
Net loss— — — — — — — — (5)(8,358)(8,363)
Issuance of common stock through exercise of warrants (1)265,264 — 1,140 1,140 — — 243 243 — — 1,383 
Issuance of preferred stock— — — — 460,000 — 8,281 8,281 — — 8,281 
Share-based compensation300,000 — 230 230 — — — — — — 230 
Measurement period adjustment in accordance with ASU 2015-16— — (1,451)(1,451)— — — — — — (1,451)
Stock contracted for issue in payment of debt (2)— — 816 816 — — — — — — 816 
Sale of Interest in operating restaurant— — 151 151 — — — — 98 — 249 
Dividends declared on common stock— — (3,197)(3,197)— — — — — — (3,197)
Dividends declared on Series B preferred stock— — — — — — (1,220)(1,220)— — (1,220)
Balance at June 27, 202112,491,528$1 $(45,087)$(45,086)1,643,272 $— $29,092 $29,092 $93 $(29,254)$(45,155)
(1) Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.
(2) Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.



     

Common Stock

Par

  

Common Stock

Additional

paid-in

  

Total

Common Stock

     

Preferred Stock

Par

  

Preferred Stock

Additional

paid-in

  

Total

Preferred

  

Non-

controlling

  Accum-
ulated		  Total 
  Common Stock  Preferred Stock          
     Par  

Additional

paid-in

  

Total

Common

     Par  

Additional

paid-in

  

Total

Preferred

  

Non-

controlling

  Accum-
ulated		    
  Shares  value  capital  Stock  Shares  value  capital  Stock  interest  deficit  Total 
                                  
Balance at December 27, 2020 – audited  11,926,264  $1  $(42,776) $(42,775)  1,183,272  $-  $21,788  $21,788   $-  $(20,896)  $ (41,883)
Net loss  -   -   -   -   -   -   -   -   (5)  (8,358)  (8,363)
Issuance of common stock through exercise of warrants (1)  265,264   -   1,140   1,140   -   -   243   243   -   -   1,383 
Issuance of preferred stock  -   -   -   -   460,000   -   8,281   8,281   -   -   8,281 
Share-based compensation  300,000   -   230   230   -   -   -   -   -   -   230 
Measurement period adjustment in accordance with ASU 2015-16  -   -   (1,451)  (1,451)  -   -   -   -   -   -   (1,451)
Stock contracted for issue in payment of debt (2)  -   -   816   816   -   -   -   -   -   -   816 
Sale of interest in operating restaurant          151   151                   98       249 
Dividends declared on common stock  -   -   (3,197)  (3,197)  -   -   -   -   -   -   (3,197)
Dividends declared on Series B preferred stock  -   -   -   -   -   -   (1,220)  (1,220)  -   -   (1,220)
Issuance of common stock in lieu of cash directors fees payable                                            
Issuance of common stock in lieu of cash directors fees payable                                            
Fair value of derivative liability                                            
Correction of recorded conversion rights associated with Series A-1 preferred shares                                            
                                             
Balance at June 27, 2021  12,491,528  $1  $(45,087) $(45,086)  1,643,272  $-  $29,092  $29,092   $93  $(29,254) $(45,155)


(1)Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.
(2)Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.


















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For the Twenty-sixThirteen Weeks Ended June 28, 202026, 2022
Common StockPreferred Stock
Class A SharesClass B SharesClass A Par
Value		Class B Par
Value		Additional
Paid-In
 Capital		Total
 Common
 Stock		SharesPar
Value		Additional
Paid-In
 Capital		Total
Preferred
 Stock		Accumulated
 Deficit		Total
Balance at March 27, 202215,131,597 1,270,805 $2 $— $(24,794)$(24,792)3,221,471 $— $49,920 $49,920 $(76,234)$(51,106)
Net loss— — — — — — — — — — (8,188)(8,188)
Share-based compensation— — — — 1,964 1,964 — — — — — 1,964 
Dividends declared on common stock— — — — (2,132)(2,132)— — — — — (2,132)
Dividends declared on Series B preferred stock— — — — — — — — (1,661)(1,661)— (1,661)
Balance at June 26, 202215,131,597 1,270,805 $2 $— $(24,962)$(24,960)3,221,471 $— $48,259 $48,259 $(84,422)$(61,123)


  Common Stock  Preferred Stock          
     Par  

Additional

paid-in

        Par  

Additional

paid-in

  

Total

Preferred

  

Non-

controlling

  Accumulated    
  Shares  value  capital  Total  Shares  value  capital  Stock  interest  deficit  Total 
                                  
Balance at December 29, 2019 - audited  11,860,299  $1  $11,413  $11,414  --  - - --  - - --  - - -- -- --  - -$(6,036) $5,378 
Net loss  -   -   -   -                       (6,621)  (6,621)
Issuance of common stock in lieu of cash directors’ fees payable  34,596   -   135   135   -    -    -    -    -    -   135 
Share-based compensation  -   -   16   16                       -   16 
Fair value of derivative liability  -   -   (2,406)  (2,406)                          (2,406)
Correction of recorded conversion rights associated with Series A-1 preferred shares  -   -   (90)  (90)                      -   (90)
                                             
Balance at June 28, 2020  11,894,895  $1  $9,068  $9,069   -    -    -     -    - $(12,657) $(3,588)
























8
For the Thirteen Weeks Ended June 27, 2021

5
Common StockPreferred Stock
Class A SharesClass B SharesClass A Par
Value		Class B Par
Value		Additional
Paid-In Capital		Total Common StockSharesPar
Value		Additional
 Paid-In
 Capital		Total
Preferred
 Stock		Non-
 Controlling
 Interest		Accumulated DeficitTotal
Balance at March 28, 202112,029,264 — $1 $— $(43,516)$(43,515)1,183,272 $— $21,267 $21,267 $— $(23,328)$(45,576)
Net loss— — — — — — — — — — (5)(5,926)(5,931)
Issuance of common stock through exercise of warrants (1)162,264 — — — 714 714 — — 154154 — — 868 
Issuance of Preferred B Stock— — — — — — 460,000 — 8,2818,281 — — 8,281 
Share-based compensation300,000 — — — 193 193 — — — — — — 193 
Measurement period adjustment in accordance with ASU 2015-16— — — — (248)(248)— — — — — — (248)
Stock contracted for issue in payment of debt (2)— — — — 816 816 — — — — — — 816 
Sale of interest in operating restaurant— — — — 151 151 — — — — 98— 249 
Dividends declared on common stock— — — — (3,197)(3,197)— — — — — — (3,197)
Dividends declared on Series B preferred stock— — — — — — — — (610)(610)— — (610)
Balance at June 27, 202112,491,528 — $1 $— $(45,087)$(45,086)1,643,272 $— $29,092 $29,092 $93 $(29,254)$(45,155)
(1) Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.
(2) Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.

  Common Stock     Preferred Stock             
     Par  

Additional

 paid-in

  

Total

 Common

     Par  

Additional

 paid-in

  

Total

Preferred

  

Non-

 controlling

  

Accum-

ulated

    
  Shares  value  capital  Stock  Shares  value  capital  Stock  interest  deficit  Total 
                                  
Balance at March 28, 2021  12,029,264  $1  $(43,516) $(43,515)  1,183,272  $-  $21,267  $21,267  $-  $(23,328) $ (45,576)
Net loss  -   -   -   -   -   -   -   -   (5)  (5,926)  (5,931)
Issuance of common stock through exercise of warrants (1)  162,264   -   714   714   -   -   154   154   -   -   868 
Issuance of preferred stock  -   -   -   -   460,000   -   8,281   8,281   -   -   8,281 
Share-based compensation  300,000   -   193   193   -   -   -   -   -   -   193 
Measurement period adjustment in accordance with ASU 2015-16  -   -   (248)  (248)  -   -   -   -   -   -   (248)
Stock contracted for issue in payment of debt (2)  -   -   816   816   -   -   -   -   -   -   816 
Sale of interest in operating restaurant          151   151                   98       249 
Dividends declared on common stock  -   -   (3,197)  (3,197)  -   -   -   -   -   -   (3,197)
Dividends declared on Series B preferred stock  -   -   -   -   -   -   (610)  (610)  -   -   (610)
                                             
Balance at June 27, 2021  12,491,528  $1  $(45,087) $(45,086)  1,643,272  $-  $29,092  $29,092   $93  $(29,254) $(45,155)

(1)Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.
(2)Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.

For the Thirteen Weeks Ended June 28, 2020

  Common Stock  Preferred Stock          
     Par  

Additional

paid-in

        Par  

Additional

paid-in

  

Total

Preferred

  

Non-

controlling

  Accumulated    
  Shares  value  capital  Total  Shares  value  capital  Stock  interest  deficit  Total 
                                  
Balance at March 29, 2020  11,876,659  $1  $11,413  $11,414  -  - - --  - - --  - - -- -- --  - -$(8,406) $3,008 
Net loss  -   -   -   -                       (4,251)  (4,251)
Issuance of common stock in lieu of cash directors’ fees payable  18,236   -   60   60   -    -    -    -    -    -   60 
Share-based compensation  -   -   1   1                       -   1 
Fair value of derivative liability          (2,406)  (2,406)                          (2,406)
                                             
Balance at June 28, 2020  11,894,895  $1  $9,068  $9,069   -    --    --    -    -   $(12,657) $(3,588)

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

6












9
FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS

(dollars in thousands, unaudited)

thousands)

For the Twenty-sixTwenty-Six Weeks Ended June 27, 202126, 2022 and June 28, 202027, 2021
20222021
Cash flows from operating activities:  
Net loss$(31,943)$(8,363)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes3,256 (3,003)
Net loss on extinguishment of debt— 4,859 
Depreciation and amortization10,645 784 
Share-based compensation4,076 230 
Change in operating right-of-use assets3,241 1,065 
Accretion of loan fees and interest5,787 696 
Accretion of preferred shares— 47 
Accretion of purchase price liability48 20 
Gain on sale of refranchised assets— (1,119)
Provision for bad debts423 23 
Change in:
Accounts receivable(16,530)(1,395)
Other current assets(825)(783)
Deferred income1,959 388 
Accounts payable(3,924)(395)
Accrued expense(1,231)2,014 
Accrued advertising2,985 (180)
Accrued interest payable483 (374)
Dividend payable on preferred shares(9)533 
Other(6,404)21 
Total adjustments3,980 3,431 
Net cash used in operating activities(27,963)(4,932)
Cash flows from investing activities:
Acquisitions, net of cash acquired(2,772)— 
Payments received on loans receivable1,647 — 
Net proceeds from sale of refranchised restaurants— 1,442 
Purchases of property and equipment(7,987)(1,258)
Other(192)37 
Net cash (used in) provided by investing activities(9,304)221 
Cash flows from financing activities:
Proceeds from borrowings, net of issuance costs704 140,789 
Repayments of borrowings(510)(92,613)
Issuance of preferred shares, net— 8,281 
Change in operating lease liabilities(2,864)(798)
Payments made on acquisition purchase price liability— (1,075)


  2021  2020 
Cash flows from operating activities        
Net loss $(8,363) $(6,621)
Adjustments to reconcile net loss to net cash used in operations:        
Deferred income taxes  (3,003)  (1,524)
Net loss on extinguishment of debt  4,859   - 
Depreciation and amortization  784   500 
Share-based compensation  230   16 
Change in operating right of use assets  1,065   399 
Accretion of loan fees and interest  696   412 
Accretion of preferred shares  47   38 
Accretion of purchase price liability  20   255 
Gain on sale of refranchised assets  (1,119)  (165)
Change in fair value of derivative liability  -   (1,264)
Impairment of assets  -   3,174 
Provision for bad debts  23   1,069 
Change in:        
Accounts receivable  (1,395)  856 
Accrued interest receivable from affiliate  -   (1,554)
Tax Sharing Agreement liability  -   (154)
Other current assets  (783)  (102)
Deferred income  388   33 
Accounts payable  (395)  386 
Accrued expense  2,014   - 
Accrued advertising  (180)  (220)
Accrued interest payable  (374)  (462)
Dividend payable on preferred shares  533   889 
Other  21   45 
Total adjustments  3,431   2,627 
Net cash used in operating activities  (4,932)  (3,994)
         
Cash flows from investing activities        
Change in due from affiliates  -   (7,040)
Payments received on loans receivable  -   68 
Net proceeds from sale of refranchised restaurants  1,442   698 
Purchases of property and equipment  (1,258)  (52)
Other  37   - 
Net cash provided by (used in) investing activities  221   (6,326)
         
Cash flows from financing activities        
Proceeds from borrowings, net of issuance costs  140,789   38,803 
Repayments of borrowings  (92,613)  (24,224)
Issuance of preferred shares, net  8,281   - 
Change in operating lease liabilities  (798)  (296)
Payments made on acquisition purchase price liability  (1,075)  (500)
Exercise of warrants  1,382   - 
Dividends paid in cash on common shares  (3,197)  - 
Dividends paid in cash on preferred shares  (1,249)  - 
Net cash provided by financing activities  51,520   13,783 
         
Net increase in cash and restricted cash  46,809   3,463 
Cash and restricted cash at beginning of the period  7,211   25 
Cash and restricted cash at end of the period $54,020  $3,488 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest $4,619  $2,526 
Cash paid for income taxes $400  $17 
         
Supplemental disclosure of non-cash financing and investing activities:        
Director fees converted to common stock $-  $135 
Income taxes receivable included in amounts due from affiliates $-  $(154)











10
Exercise of warrants79 1,382 
Dividends paid on redeemable preferred stock(1,062)— 
Dividends paid on common shares(4,263)(3,197)
Dividends paid on preferred shares(3,314)(1,249)
Net cash (used in) provided by financing activities(11,230)51,520 
Net (decrease) increase in cash and restricted cash(48,497)46,809 
Cash and restricted cash at beginning of the period99,921 7,211 
Cash and restricted cash at end of the period$51,424 $54,020 
Supplemental disclosures of cash flow information:
Cash paid for interest$32,430 $4,619 
Cash paid for income taxes$447 $400 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7












11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND RELATIONSHIPS

Organization and Nature of Business

FAT Brands Inc. (the “Company"Company" or FAT”"FAT") is a leading multi-brand restaurant franchising company that develops, markets acquires and acquires primarilymanages 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 June 27, 2021, 26, 2022, the Company owns and franchises 9owned 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 havePonderosa and Bonanza Steakhouses. As of June 26, 2022, the Company had 2,354 locations. Of this amount, 2,261 stores were franchised, representing approximately 70096% of total restaurants. locations, including units under construction, and more than 200 under development.

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

With minor exceptions, the Company’s

The Company's operations arehave historically been comprised exclusivelyprimarily 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 itsthese ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants in order toand may convert them to franchise locations. During the refranchising period, the Company will generallymay 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 throughoutimpact 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 revenue. While the disruption to our business from the COVID-19 pandemic is currently expected to be temporary, there is still a great deal of uncertainty around the severity and duration of the disruption. We may experience longer-term effects on our business and economic growth and changes in consumer demand in the U.S. and worldwide. The effects of COVID-19 may materially adversely affect our business, results of operations, liquidity and ability to service our existing debt, particularly if these effects continue in place for a significant amount of time.

Liquidity

The Company recognized income from operations of $2.1 $13.7 million and $1.2 million during the twenty-six weeks ended June 27, 2021 compared to a loss from operations of $6.4 million for the twenty-six weeks ended June 28, 2020. The Company recognized a net loss of $8.4 million during the twenty-six weeks ended26, 2022 and June 27, 2021, compared torespectively. The Company has a history of net losslosses and an accumulated deficit of $6.6million during the twenty-six weeks ended June 28, 2020. A one-time net charge of $6.4million relating to the refinance of the Company’s debt was included in the net loss for 2021. Net cash used in operations totaled $4.9 million for the twenty-six weeks ended June 27, 2021 compared to $4.0 million for twenty-six weeks ended June 28, 2020. As of June 27, 2021, the Company’s total liabilities exceeded total assets by $45.2 million compared to $41.9 $84.4 million as of December 27, 2020.

8

In the Company’s 2020 Annual Report on Form 10-K (“2020 Form 10-K”),June 26, 2022. Additionally, the Company disclosed thathad negative working capital of $163.4 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 $15.5 million of unrestricted cash at June 26, 2022 and plans on the combination of the operating performance during the twelve months ended December 27, 2020cash generated from operations and the Company’s financial position as of December 27, 2020 raised substantial doubt about the Company’s abilitycash on hand to continue as a going concern as assessed under the framework of FASB’s Accounting Standard Codification (“ASC”) 205 for the twelve months following the date of the issuance of the 2020 Form 10-K.

On April 26, 2021, the Company completed the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured notes. Proceeds of the Offering were usedbe sufficient 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 Company utilized a portion of the net proceeds from the Offering to repay approximately $12.5 million of indebtedness assumed as a result of the Merger (see Note 11).

The change in the Company’s financial position reflects operating improvements as the effects of COVID-19 began to stabilize. In addition to the liquidity provided by the successful completion of the Offering, the Company has experienced 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. Management believes that the Company will be in compliance with its debt covenants and has sufficient sources of cash to meet its liquidity needscover any working capital requirements for the next twelve months.

months from 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 debt or equity. Although management believes it will have access to financing, no assurances can be given that such financing will be available on acceptable terms, in a timely manner or at all.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation – The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The operations of Johnny Rockets have been included since its acquisition on September 21, 2020 and the operations of FCCG have been included since the merger on December 24, 2020. All intercompany accounts and transactions have been eliminated in consolidation. The Company operates its businessOur revenues are derived from 2 sales channels, franchised restaurants and company-owned locations, which we operate as one operating and1 reportable segment.













12
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 industry practice, the Company measures its stores’ performance based upon 7-day work weeks. Using the 52-week cycle ensures consistent weekly reporting for operations and ensures that each week has the same days since certain days are more profitable than others. The use of this fiscal year means a 53rd53rd week is added to the fiscal year every 5 or 6 years. In a 52-week year, all four quarters are comprised of 13 weeks. In a 53-week year, one extra week is added to the fourth quarter.

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 AmericaGAAP 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 revenue 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 classificationsclassifications.

Employee Retention Credits - On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Security Act (the "CARES Act") to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including measurement period adjustmentsa provision for an Employee Retention Credit ("ERC"). As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the preliminary purchase price allocations relatingCompany accounts for the ERC by analogy to the acquisitionInternational Accounting Standard, Accounting for Government Grants and Disclosure of Johnny Rockets and the Merger inGovernment Assistance ("IAS 20"). In accordance with ASU 2015-16. DuringIAS 20, the first halfCompany determined it has reasonable assurance for receipt of 2021, adjustments were madethe ERC and during the thirteen weeks ended June 26, 2022 recorded an ERC benefit of $12.6 million within cost of restaurant and factory revenues and general and administrative expense as a reduction to provisional amounts reclassifying $1.5 million between goodwill and additional paidlabor expense in capital onthe condensed consolidated statements of operations. The Company recorded a corresponding accrual for the benefit expected to be received within accounts receivable in the condensed consolidated balance sheet. These adjustments did not impact the Company’s condensed consolidated statementsheets as of operations during the current or prior periods.June 26, 2022.

9

Recently Issued Accounting Standards

In June 2016,March 2022, the FASBFinancial Accounting Standards Board (the "FASB") issued ASU 2016-13, No. 2022-02, Financial Instruments-Credit Losses (Topic 326)-Measurement: Troubled Debt Restructurings and Vintage Disclosures. The purpose of Credit Losses on Financial Instruments, this amendment is to enhance disclosure requirements for certain loan refinancings 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,restructurings by creditors when a borrower is experiencing financial difficulty. It requires that an entity is required to recognize an allowance that reflects its current estimatedisclose current-period gross writeoffs by year of credit losses expected toorigination for financing receivables and net investments in leases. The amendments should be incurred over the lifeapplied prospectively and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted if an entity has adopted the amendments in ASU 2016-13 described below, including adoption in an interim period. The Company will evaluate ASC No. 2022-02 and does not expect the adoption of this standard will have a material impact on its condensed consolidated financial instrument based on historical experience, current conditions and reasonable and supportable forecasts.statements.

In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - CreditInstruments-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 periodsyears 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 does not expect the adoption of this standard will have a material impact on its condensed consolidated financial statements.













13
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 above. 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.

NOTE 3. MERGERS AND ACQUISITIONS
Nestle Toll House Cafe by Chip

Merger with Fog Cutter Capital Group Inc.

On December 10, 2020,May 24, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with FCCG, Fog Cutter Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), and Fog Cutter Holdings, LLC, a Delaware limited liability company (“Holdings”).

Pursuant to the Merger Agreement, FCCG agreed to merge withacquire the franchised chain of stores known as Nestlé® Toll House® Café by Chip® from Crest Foods, Inc., consisting of all royalties generated under the Nestlé® Toll House® Café by Chip® brand, and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of the Company (the “Merger”). Upon closing of the Merger, the former stockholders of FCCG became direct stockholders of the Company holding, in the aggregate, 9,679,288 shares of the Company’s common stock (the same number of shares of common stock held by FCCG immediately prior to the Merger) and received certain limited registration rights with respect to the shares received in the Merger. As a result of the Merger, FCCG and certain of its wholly owned subsidiaries, Homestyle Dining, LLC, Fog Cap Development LLC, Fog Cap Acceptance Inc. and BC Canyon LLC, became indirect wholly owned subsidiaries of the Company (the “Merged Entities”).

Under the Merger Agreement, Holdingsfranchisor has agreed to indemnifycause the network to rebrand the stores as Great American Cookies, subject to the cooperation of the individual franchisees. Nestlé® Toll House® Café by Chip® is a franchised chain of stores with approximately 85 cafés across the United States. The Company paid an initial installment of the purchase price of $1.8 million. The final purchase price will be calculated on or before January 31, 2024.

Acquisition of Fazoli's
On December 15, 2021, the Company completed the acquisition of Fazoli's for breachesa total cash purchase price of FCCG’s representations$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 warranties, covenantsfriendly. Menu offerings include freshly prepared pasta entrees, Submarinos® sandwiches, salads, pizza 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 valuedesserts – along with its unlimited signature breadsticks.
Acquisition of shares of Common Stock ofNative Grill & Wings
On December 15, 2021, the Company to ensurecompleted the acquisition of Native Grill & Wings (“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 franchised locations throughout Arizona, Illinois and Texas. Native serves over 20 award-winning wing flavors that it has assets available to satisfy such indemnification obligations if necessary.

In connection withguests can order by the Merger,individual wing, as well as an extensive menu of pizza, burgers, sandwiches, salads and more.

Acquisition of Twin Peaks
On October 1, 2021, the Company declared a special stock dividend (the “Special Dividend”) payable oncompleted the record date to holdersacquisition 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”Twin Peaks Buyer, LLC (“Twin Peaks”) for each outstanding sharea total purchase price of Common Stock held by such stockholders, with$310.3 million. Twin Peaks is the valuefranchisor and operator of any fractional sharesa chain of Series B Preferred Stock being paid in cash.sports lodge themed restaurants.

 FCCG did not receive any portion
Acquisition 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 byGlobal Franchise Group

On July 22, 2021, the Company by virtuecompleted the acquisition of the Merger.

10

The Company undertook the Merger primarily to simplify its corporate structure and eliminate limitations that restrict the Company’s ability to issue additional Common StockLS GFG Holdings Inc. (“GFG”), for acquisitions and capital raising. FCCG holds a substantial amounttotal purchase price 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 provides that when there$444.9 million. GFG is a transferfranchisor of assets or exchange of shares between entities under common control, the receiving entity shall recognize those assets5 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 the Merged Entities were recorded on the Company’s books at the Merged Entities’ book value. The consolidation of the operations of the Merged Entities with the Company is presentedHot Dog on a prospective basis from the date of transfer.

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

SCHEDULE OF ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS ACQUIRED

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

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 and twenty-six weeks ended June 28, 2020,27, 2021, assuming the Mergeracquisitions had occurred on December 30, 201928, 2020 (the beginning of the Company’s 20202021 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.805-10-50-

Business Combinations (Topic 805)

SCHEDULE OF PROFORMA REVENUE AND NET (LOSS) INCOME

  

Thirteen Weeks Ended

June 28, 2020

  

Twenty-six

Weeks Ended

June 28, 2020

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

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

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

11

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

SCHEDULE OF ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS ACQUIRED

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

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

Proforma Information

The table below presents the proforma revenue and net (loss) income of the Company for the thirteen and twenty-six weeks ended June 28, 2020, assuming the acquisition of Johnny Rockets had occurred on December 30, 2019 (the beginning of the Company’s 2020 fiscal year), pursuant to ASC 805-10-50 (in thousands)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 Rocketsthe Material Acquired Entities occurred on this date nor does it purport to predict the results of operations for future periods.


SCHEDULE OF PROFORMA REVENUE AND NET (LOSS) INCOME

  

Thirteen Weeks Ended

June 28, 2020

  

Twenty-six Weeks Ended

June 28, 2020

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

12
Thirteen Weeks EndedTwenty-Six Weeks Ended
June 27, 2021June 27, 2021


The proforma information above reflects the combination









14
Revenue93.5 $171.9 
Net loss(4.4)$(14.3)

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


nOTE

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.held-for-sale. As a result, the following assets have been classified as held for saleheld-for-sale on the accompanying condensed consolidated balance sheets as of June 27, 202126, 2022 and December 27, 202026, 2021 (in thousands)millions):

SCHEDULE OF REMAINING ASSETS CLASSIFIED AS HELD FOR SALE

  

June 27,

2021

  

December 27,

2020

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

June 26, 2022 December 26, 2021
Property 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 saleheld-for-sale in the amount of $7.1 $4.6 million and $9.9 $4.8 million have been classified as current liabilities on the accompanying condensed consolidated balance sheets as of June 27, 202126, 2022 and December 27, 2020,26, 2021, respectively.

Refranchising gains in

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

13

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

During the thirteen weeks ended June 27, 2021, one restaurant location was sold to an entity which is 49% owned by a subsidiary of the Company. The 51% owner of the entity is not affiliated with the Company. In addition to its significant equity interest in the restaurant, the Company provides virtually all of the management functions associated with the operation of the business. As a result, the assets, liabilities and operating results of the restaurantCompany's refranchising program (in millions):

Thirteen Weeks EndedTwenty-Six Weeks Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
Restaurant costs and expenses, net of revenue$(0.5)$(0.2)$(1.0)$(0.7)
Gain on store sales or closures— 1.1 — 1.1 
Refranchising (loss) gain$(0.5)$0.9 $(1.0)$0.4 



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 included increated when a settlement is reached relating to a delinquent franchisee account and the Company’s condensed consolidated financial statements, subjectentire 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 noncontrolling interestsnotes, are established based on the likelihood of the non-affiliated investor.

Note 5. NOTE RECEIVABLE

collection. As of June 26, 2022 and December 26, 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 $2.3 $2.3 million in cash to the Seller under a subordinated promissory note bearing interest at 6.0%6.0% per year and maturing in August 2026.2026. 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












15
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 $1.9 $1.9 million, which was net of a discount of $0.4 $0.4 million. As of June 27, 202126, 2022 and December 27, 2020,26, 2021, the balance of the Elevation Note was $1.8 $1.6 million and $1.7 million, respectively, which waswere net of discounts of $0.2 $0.2 million and $0.3 $0.2 million, respectively. During the thirteen and twenty-six weeks ended June 27, 2021,26, 2022, the Company recognized $50,000 $44,000 and $102,000 $90,000 in interest income on the Elevation Buyer Note, respectively. During the thirteen and twenty-six weeks ended June 28, 2020,27, 2021, the Company recognized $53,000 $50,000 and $106,000, respectively,$102,000 in interest income on the Elevation Buyer Note.

Note, respectively.

The Twin Peaks - Hollywood note was funded in connection with the development of a Twin Peaks restaurant. The note was fully repaid in 2022. As of December 26, 2021, the amount of the secured note was $1.5 million.

NOTE 6. GOODWILL

Goodwill consistedPROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands)millions):
June 26, 2022December 26, 2021
Real estate$60.6 $60.5 
Equipment31.5 22.9 
92.1 83.4 
Accumulated depreciation(8.6)(2.9)
Property and equipment, net$83.5 $80.5 

SCHEDULE OF











16
NOTE 7. GOODWILL

  

June 27,

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 

AND OTHER INTANGIBLE ASSETS, NET

Changes in Carrying Value of Goodwill and Other Intangible Assets (in millions)
Amortizing Intangible AssetsNon-Amortizing Intangible Assets
GoodwillTrademarks
December 26, 2021$175.6 $295.1 $477.2 
Amortization(7.4)— — 
Additions1.8 — — 
Adjustment to preliminary purchase price(0.3)1.4 — 
June 26, 2022$169.7 $296.5 $477.2 
Gross Carrying Value and Accumulated Amortization of Other Intangible Assets (in millions)
June 26, 2022December 26, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Amortizing intangible assets
Franchise agreements$109.2 (10.3)$98.9 $109.4 $(5.7)$103.7 
Customer relationships73.9 (5.2)68.7 73.9 (2.4)71.5 
Other2.1 — 2.10.4 — 0.4 
$185.2 $(15.5)$169.7 183.7 $(8.1)$175.6 
Non-amortizing intangible assets
Trademarks477.2 477.2 
Total amortizing and non-amortizing intangible assets, net$646.9 $652.8 
The expected future amortization of the Company’s capitalized franchise agreements is as follows (in millions):
Fiscal year:
Remaining 2022$7.6 
202315.0 
202414.7 
202514.5 
202614.5 
Thereafter103.4 
Total$169.7 
A review of the carrying value of goodwill as of June 26, 2022 and June 27, 2021 did not result in any impairment charges for the twenty-six weeks ended as of that date. When considering the available facts, assessments and judgments, as












17
Table of June 28, 2020, the Company recorded goodwill impairment charges of $1.5Contents million relating to the Ponderosa and Bonanza brands for the twenty-six weeks ended as of that date.

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

14

Note 7. OTHER INTANGIBLE ASSETS

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

SCHEDULE OF INTANGIBLE ASSETS

  

June 27,

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  (965)  (804)
Ponderosa – cost  1,477   1,477 
Ponderosa – accumulated amortization  (388)  (337)
Elevation Burger – cost  2,450   2,450 
Elevation Burger – accumulated amortization  (1,010)  (761)
Johnny Rockets – cost  6,600   6,600 
Johnny Rockets – accumulated amortization  (462)  (162)
Total franchise agreements  11,882   12,643 
Total Other Intangible Assets $46,950  $47,711 

The Company reviewed the carrying value of its other intangible assets as of June 27, 2021 and June 28, 2020. During the twenty-six weeks ended June 27, 2021, no impairment charges for other intangible assets were deemed necessary. When considering the available facts, assessments and judgments as of June 28, 2020, the Company recorded non-cash tradename impairment charges of $1.7 million relating to the Ponderosa and Bonanza brands for the twenty-six weeks ended as of that date.

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

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

SCHEDULE OF FUTURE AMORTIZATION  

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

15

NoteNOTE 8. DEFERRED INCOME

Deferred income was as follows (in thousands)millions):

SCHEDULE OF DEFERRED INCOME

  

June 27,

2021

  

December 27,

2020

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

Note

June 26,
2022		 December 26,
2021
Deferred franchise fees$22.0 $19.8 
Deferred royalties0.1 0.2 
Deferred vendor incentives0.2 0.3 
Total$22.3 $20.3 
NOTE 9. INCOME TAXES

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

SCHEDULE OF BENEFIT FOR INCOME TAXES

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

Thirteen Weeks EndedTwenty-Six Weeks Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
(Benefit) provision for income taxes$(0.3)$(2.0)$4.3 $(2.1)
Effective tax rate3.0 %25.1 %(15.4)%20.2 %
The difference between the statutory tax rate of 2121% and the effective tax rate of 3.0% and (15.4)% in the thirteen and twenty-six weeks ended June 26, 2022, respectively, was primarily due to increases in the valuation allowance, nondeductible expenses and the impact of state income taxes.
The difference between the statutory tax rate of 21% and the effective tax rate in the thirteen weeks ended June 27, 2021 was primarily due to the impact of state income taxes and the forgiveness of loans under the Paycheck Protection Program (the “PPP Loans”) (see Note 11).

NOTE 10. LEASES

As of June 27, 2021, the Company has 12operating leases for corporate offices, two Company owned stores and for certain restaurant properties that are in the process of being refranchised. The leases have remaining terms ranging from 2.3 to 7.9 years.

The Company recognized lease expense of $0.7$4.8 million and $0.4$0.7 million for the thirteen weeks ended June 26, 2022 and June 27, 2021, respectively. The Company recognized lease expense of $9.3 million and June 28, 2020, respectively. For$1.5 million for the twenty-six weeks ended June 27, 202126, 2022 and June 28, 2020, the Company recognized lease expense of $1.5 million and $0.7 million, respectively. The weighted average remaining lease term of the operating leases as of June 27, 2021, was 5.5 years.

respectively.

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

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

  

June 27,

2021

  

December 27,

2020

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

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

June 26,
2022		 December 26,
2021
Operating lease right-of-use assets$95.5 $98.6 
Right-of-use assets classified as held-for-sale4.5 4.7 
Total right-of-use assets$100.0 $103.2 
Operating lease liabilities$104.5 $107.3 
Lease liabilities related to assets held for sale4.6 4.8 
Total operating lease liabilities$109.1 $112.0 
The contractual future maturities of the Company’s operating lease liabilities as of June 27, 2021,26, 2022, including anticipated lease extensions, are as follows (in thousands)millions):

SCHEDULE OF CONTRACTUAL FUTURE MATURITIES OF OPERATING LEASE LIABILITIES

Fiscal year:    
2021 $1,491 
2022  3,059 
2023  3,148 
2024  3,007 
2025  2,656 
Thereafter  2,693 
Total lease payments  16,054 
Less imputed interest  3,486 
Total $12,568 











18
Fiscal year:
Remainder of 2022$8.3 
202315.9 
202414.8 
202514.3 
202613.1 
Thereafter161.7 
Total lease payments228.1 
Less imputed interest(119.0)
Total$109.1 

The current portion of the operating lease liability as of June 26, 2022 was $13.9 million.
Supplemental cash flow information for the twenty-six weeks ended June 27, 202126, 2022 related to leases was as follows (in thousands)millions):

SUMMARY OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES

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

16
Twenty-Six Weeks Ended
June 26, 2022June 27, 2021
Cash paid for amounts included in the measurement of operating lease liabilities: 
Operating cash flows from operating leases$8.1 $1.3 


Note










19
NOTE 11. DEBT

Long-term debt consisted of the following (in millions):
June 26, 2022December 26, 2021
Final MaturityAnticipated Call DateRateFace ValueBook ValueBook Value
Senior Debt
2021 FB Royalty Securitization4/25/20517/25/20234.75 %$97.1 $95.6 $95.4 
2021 GFG Royalty Securitization7/25/20517/25/20236.00 %209.0 205.9 205.6 
2021 Twin Peaks Securitization7/25/20517/25/20237.00 %150.0 147.2 146.8 
2021 Fazoli's/Native Securitization7/25/20517/25/20236.00 %128.8 123.8 122.8 
Senior Subordinated Debt
2021 FB Royalty Securitization4/25/20517/25/20238.00 %32.4 31.9 31.8 
2021 GFG Royalty Securitization7/25/20517/25/20237.00 %84.0 81.8 81.5 
2021 Twin Peaks Securitization7/25/20517/25/20239.00 %50.0 47.0 46.6 
2021 Fazoli's/Native Securitization7/25/20517/25/20237.00 %25.0 23.1 22.7 
Subordinated Debt
2021 FB Royalty Securitization4/25/20517/25/20239.00 %15.0 14.2 14.1 
2021 GFG Royalty Securitization7/25/20517/25/20239.50 %57.0 53.1 52.6 
2021 Twin Peaks Securitization7/25/20517/25/202310.00 %50.0 44.9 44.2 
2021 Fazoli's/Native Securitization7/25/20517/25/20239.00 %40.0 36.0 35.1 
Total Securitized Debt938.3 904.5 899.3 
Elevation Note7/19/2026N/A6.00 %6.5 4.3 5.6 
Equipment Notes5/5/2027 to 3/7/2029N/A7.99% to 8.49%0.7 0.7 — 
Total debt945.5 909.5 904.9 
Current portion of long-term debt— (0.9)(0.6)
Long-term debt$945.5 $908.6 $904.3 
Terms of Outstanding Debt
2021 FAT Royalty Securitization

On April 26, 2021, (the “Closing Date”), FAT Brands Royalty I, LLC a Delaware limited liability company (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands Inc., completed the Offeringissuance and sale of three tranches of fixed rate senior secured notes (collectively, the(the “2021 FAT Royalty Securitization












20
Notes”) as follows:

SCHEDULE OF SECURITIZATION OF NOTES

Closing

Date

 Class  Seniority 

Principal

Balance

  Coupon  

Weighted

Average

Life

(Years)

  

Non-Call

Period

(Months)

  

Anticipated

Call Date

 

Final Legal

Maturity

Date

4/26/2021  A-2  Senior $97,104,000   4.75%  2.25   6  7/25/2023 4/25/2051
4/26/2021  B-2  Senior Subordinated $32,368,000   8.00%  2.25   6  7/25/2023 4/25/2051
4/26/2021  M-2  Subordinated $15,000,000   9.00%  2.25   6  7/25/2023 4/25/2051

Net proceeds from the issuance of the 2021 Securitization Notes totaled $140.8 million, which consisted of the combined facewith a total aggregate principal amount of $144.5 million (net of debt offering costs of $3.0 million and original issue discount of $0.7 million). As of June 27, 2021, the carrying value of the 2021 Securitization Notes was $140.9 million (net of debt offering costs of $2.9 million and original issue discount of $0.7 million). The Company recognized interest expense on the 2021 Securitization Notes of $1.6 million for the thirteen and twenty-six weeks ended June 27, 2021, which includes $0.1 million for amortization of debt offering costs and $34,000 for amortization of the original issue discount. The average annualized effective interest rate of the 2021 Securitization Notes, including the amortization of debt offering costs and original issue discount, was 6.7% for the time the debt was outstanding during the twenty-six weeks ended June 27, 2021.

$144.5 million. The 2021 Securitization Notes require that the principal and interest obligations have first priority and amounts are segregated weekly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of weekly cash flow that exceeds the required weekly interest reserve is generally remitted to the Company. Interest payments are required to be made on a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on each tranche. The material terms of the 2021 Securitization Notes also include, among other things, the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and (iii) senior leverage ratio. As of June 27, 2021, we were in compliance with these covenants.

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

17
On July 6, 2022, FB Royalty issued an additional $76.5 million aggregate principal amount of three tranches of fixed rate senior secured notes as follows:

A portion
Closing DateClassSeniorityPrincipal BalanceCouponFinal Legal Maturity Date
7/6/2022A-2Senior$42.74.75%7/25/2051
7/6/2022B-2Senior Subordinated$14.28.00%7/25/2051
7/6/2022M-2Subordinated$19.69.00%7/25/2051

Of the $76.5 million aggregate principal amount, $61.5 million was issued to FAT Brands Inc. and will be eliminated in consolidation. The remainder of the notes were sold privately, resulting in net proceeds of the 2021 Securitization Notes were used to repay and retire the following notes issued in 2020 under the Base Indenture:

Note 

Public

Rating

 Seniority Issue Amount  Coupon  First Call Date Final Legal Maturity Date
               
Series A-2 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
Series M-2 N/A Subordinated $40,000,000   9.75% 4/27/2021 4/27/2026

The payoff amount totaled $83.7$13.5 million which included principle(net of $80.0 million, accrued interestdebt offering costs of $2.2$0.6 million and prepayment premiumsoriginal issue discount of $1.5 million. FB$0.9 million).

2021 GFG Royalty recognized a loss on extinguishment of debt of $7.8 million inSecuritization
In connection with the refinance.

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 Brands Twin Peaks I, LLC, and its subsidiaries.
2021 Fazoli's / Native Securitization
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 Notes") with a total aggregate principal amount of $193.8 million. Immediately following the closing of the acquisition of Fazoli's and Native, the Company contributed the franchising subsidiaries of these entities to FAT Brands Fazoli's Native I, LLC, pursuant to a Contribution Agreement. The Fazoli's/Native Securitization Notes are generally secured by a security interest in substantially all the assets of FAT Brands Fazoli's Native I, LLC and its subsidiaries.
Terms and Debt Covenant Compliance
The Company recognized2021 FAT Royalty Securitization Notes, the 2021 GFG Royalty Securitization Notes, the 2021 Twin Peaks Securitization Notes and the 2021 Fazoli's/Native Securitization Notes (collectively, the "Securitization Notes") require that the principal (if any) and interest expenseobligations be segregated 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 interest reserve is generally remitted to the












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Company. Interest payments are required to be made on a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on the 2020then outstanding principal balance of each tranche.
The material terms of the Securitization Notes contain covenants which are standard and customary for these types of $0.5 agreements, including the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and (iii) senior leverage ratio.million and $0.9 million for As of June 26, 2022, the thirteen weeks ended June 27, 2021 and June 28, 2020, respectively. The Company recognized interest expense related to the 2020 Securitization Notes of $2.6 was in compliance with these covenants.million and $1.2 million for the twenty-six weeks ended June 27, 2021 and June 28, 2020, respectively.

Elevation Note

On June 19, 2019, the Company completed the acquisition of Elevation Burger. A portion of the purchase price included the issuance to the Seller of a convertible subordinated promissory note (the “Elevation Note”) with a principal amount of $7.5 $7.5 million, bearing interest at 6.0%6.0% per year and maturing in July 2026.2026. The Elevation Note is convertible under certain circumstances into shares of the Company’s common stock at $12.00 $12.00 per share. In connection with the valuation of the acquisition of Elevation Burger, the Elevation Note was recorded on the condensed consolidated financial statements of the Company at $6.2 million (net of a loan discount of $1.3 million and debt offering costs of $30,000).

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

The annualized effective interest rate for the Elevation Note during the twenty-six weeks ended June 27, 202126, 2022 was 11.4%11.2%.

In June 2022, pursuant to the claw-back provision of the purchase agreement, the balance of the Elevation Note was reduced by $1.0 million to $6.5 million.

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

Assumed Debt from Merger

In connection with the Merger, certain debts

Equipment Financing (Twin Peaks)
During fiscal 2022, an indirect subsidiary of FCCG totaling $12.5 million (the “FCCG Debt”) were assumed by Fog Cutter Acquisition LLC.

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

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

SCHEDULE OF FCCG MERGER

  December 27, 2020 
Note payable to a private lender. The note bore interest at a fixed rate of 12% per annum and was unsecured. Interest was due monthly in arrears. The note was scheduled to mature on May 21, 2021. $1,977 
     
Note payable to a private lender. The note bore interest at a fixed rate of 12% per annum and was unsecured. Interest was due monthly in arrears. The note was scheduled to mature on May 21, 2021.  2,871 
     
Note payable to a private lender. The note bore interest at a fixed rate of 15% per annum. The note was scheduled to mature May 21, 2021.  17 
     
Note payable to a private lender. The note bore interest at a fixed rate of 12% per annum. Interest was due monthly in arrears. The note was scheduled to mature May 21, 2021.  762 
     
Consideration payable to former FCCG stockholders issued in redemption of fractional shares of FCCG’s stock. The consideration was unsecured and non-interest bearing and was due and payable on May 21, 2021.  6,864 
     
Total $12,491 

Loan and Security Agreement

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

The term loan under 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 $3.5 million 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 $26.8 million. This consisted of $24.0 million in principle, approximately $2.1 million in accrued interest and $0.7 million in penalties and fees.

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

Paycheck Protection Program Loans

During 2020, the Company received loan proceeds in the amount of approximately $1.5 million under 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.

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At inception, the PPP Loans and EIDL Loans related to FAT Brands Inc. and five restaurant locations that were part of the Company’s refranchising program. As of December 27, 2020, the balance remaining on the PPP Loans and EIDL Loans had been reduced to $1.2 million due to the closure or refranchising of the five restaurant locations during the second and third quarters of 2020. During the thirteen weeks ended June 27, 2021, the Company received confirmation that the entire balance remaining on the PPP Loans, plus accrued interest, had been forgiven under the terms of the program. The Company recognized interest expense of $4,000 and a gain on extinguishment of debt in the amount of $1.2 million relating to the PPP Loans and EIDL Loans during the twenty-six weeks ended June 27, 2021.

Note 12. PREFERRED STOCK

Series B Cumulative Preferred Stock

On July 13, 2020, the Company entered into an underwriting agreementcertain equipment financing arrangements to borrow up to $1.0 million, the proceeds of which will be used to purchase certain equipment for a new Twin Peaks restaurant and to retrofit existing restaurants with equipment (the “Underwriting Agreement”"Equipment Financing") to issue. The Equipment Financing has maturity dates between May 5, 2027 and sell in a public offering (the “Offering”) 360,000 March 7, 2029 and bear interest at fixed rates between 7.99% and 8.49% per annum. The Equipment Financing is secured by certain equipment of the Twin Peaks restaurant.

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 consideration paid included 3,089,245 newly issued shares of the Company’s Series B Preferred Stock (the "GFG Preferred Stock Consideration"). Additionally, on July 22, 2021, the Company entered into a Put/Call Agreement with the GFG sellers, pursuant to which the Company may purchase, or the GFG sellers may require the Company to purchase the GFG Preferred Stock Consideration for $67.5 million plus any accrued but unpaid dividends on or before August 20, 2022 (extended from the original date of April 22, 2022), subject to the other provisions of the Put/Call Agreement. If the Company does not deliver the applicable cash proceeds to the GFG Sellers when due, the then amount due will accrue interest at the rate of 5.0% per annum until repayment is completed. On March 22, 2022, the Company received a put notice on the GFG Preferred Stock Consideration and reclassified the GFG Preferred Stock Consideration to current liabilities on its condensed consolidated balance sheet.
Twin Peaks Preferred Stock Consideration
8.25%
On October 1, 2021, the Company completed the acquisition of Twin Peaks. A portion of the consideration paid included 2,847,393 shares of 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 warrantsSeptember 30, 2022 for the remaining 1,053,535 shares (the “Secondary Put/Call Shares”), subject to purchase common stock at $certain exceptions set forth in the Put/Call Agreement with the seller of Twin Peaks referenced below.
5.00
 per share, plus 99,000 additional warrants
On October 1, 2021, the Company and the Seller entered into a Put/Call Agreement pursuant to which the underwriter’s overallotment option (the “2020 Series B Offering Warrants”).

The Offering closedCompany was granted the right to call from the Seller, and the Seller was granted the right to put to the Company, the Initial Put/Call Shares at any time until March 31, 2022 for a cash payment of $42.5 million, and the Secondary Put/Call Shares at any time until September 30, 2022 for a cash payment of $25.0 million, plus any accrued but unpaid dividends on July 16, 2020 with netsuch shares. If the Company does not deliver the applicable cash proceeds to the CompanySeller when due, the amounts then due will accrue interest at the rate of $8.1 million (net of $0.9 million in underwriting and offering costs).

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

●The holders of the outstanding 57,140 shares of Original Series B Preferred became subject to the new terms of the Certificate of Designation and received an additional 3,537 shares of Series B Preferred stock in payment of previously accrued dividends.
●The Company entered into an agreement to exchange 15,000 shares of Series A Fixed Rate Cumulative Preferred Stock owned by FCCG, including accrued dividends thereon, for 74,449 shares of Series B Preferred Stock.
●The Company exchanged all of the outstanding shares of Series A-1 Fixed Rate Cumulative Preferred Stock for 168,001 shares of Series B Preferred Stock.

In December 2020, in connection with the acquisition of FCCG by the Company, the Company declared a special stock dividend (the “Special Dividend”) payable only to holders of the Company’s Common Stock, other than FCCG, on the record date, consisting of 0.2319998077 shares of Series B Cumulative Preferred Stock for each outstanding share of Common Stock held by such stockholders. The 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 $8.9 million.

10.0% per annum until repayment is completed. On June 22,October 7, 2021, the Company closedreceived a second underwritten public offering of 460,000 shares of 8.25% Series B Cumulativeput notice on the Initial Put/Call Shares and the Secondary Put/Call Shares. The Company has classified the Twin Peaks Preferred Stock atConsideration as a price to the publiccurrent liability on its condensed consolidated balance sheet.













22
Table of $20.00 Contentsper share. The net proceeds to the Company totaled $8.3 million (net of $0.9 million in underwriting discounts and other offering expenses).

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

Series A Fixed Rate Cumulative Preferred Stock

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

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

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

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(ii)On June 27, 2018, the Company entered into a Note Exchange Agreement, as amended, under which it agreed with FCCG to exchange $2.0 million of the remaining balance of the Company’s outstanding Promissory Note issued to the FCCG on October 20, 2017 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”).

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.

The Company classifies the Series A Preferred Stock as debt.

As of June 27, 2021, there were 80,000 shares of Series A Preferred Stock outstanding, with a balance of $8.0 million.

The Company recognized interest expense on the Series A Preferred Stock of $264,000 and $354,000 for the thirteen weeks ended June 27, 2021 and June 28, 2020, respectively. The Company recognized interest expense on the Series A Preferred Stock of $552,000 and $708,000 for the twenty-six weeks ended June 27, 2021 and June 28, 2020. The year-to-date effective interest rate for the Series A Preferred Stock for 2021 was 13.9%.

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

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

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

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

NOTE 13. ACQUISITION PURCHASE PRICE PAYABLE

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

Note 14. RELATED PARTY TRANSACTIONS

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

Due from Affiliates

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

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

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

Note 15. STOCKHOLDERS’ EQUITY

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

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

●Warrants to purchase 289,227 shares of common stock were exercised during the twenty-six weeks ended June 27, 2021. The proceeds to the Company from the exercise of the warrants totaled $1.1 million.
●Between April 6, 2021 and May 18, 2021, the Company granted 300,000 restricted shares of common stock to certain senior executives of the Company. The shares vest over three yearsin equal installments at the anniversary date of grant. The value of the restricted stock grant was $2.8 million and will be amortized as expense over the vesting period.
●On June 21, 2021, the Company entered into an agreement to issue 62,500 shares of common stock with a market value of $0.8 million in partial payment of the acquisition purchase price payable relating to the acquisition of Yalla Mediterranean (See Note 13). The shares were issued on June 30, 2021.
●On April 20, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on May 7, 2021 to stockholders of record as of May 3, 2021, for a total of $1.6 million.
●On June 1, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on June 21, 2021 to stockholders of record as of June 14, 2021, for a total of $1.6 million.

Note 16.

NOTE 13. SHARE-BASED COMPENSATION

Effective September 30, 2017, the Company adopted the 2017 Omnibus Equity Incentive Plan (the “Plan”). The Plan was amended on October 19, 2021 to increase the number of shares available for issuance under the Plan. The Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, FAT Brands Inc. and its subsidiaries. The Plan provides a maximum of 1,021,2504,000,000 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. As of June 27, 2021,26, 2022, there were 656,1052,610,936 shares of stock options outstanding with a weighted average exercise price of $9.34 per share.

$10.51.

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

There were no new grants during the twenty-six weeks ended June 26, 2022.

The Company recognized share-based compensation expense in the amount of $0.2$1.9 million and $1,000,$0.2 million, during the thirteen weeks ended June 27, 202126, 2022 and June 28, 2020,27, 2021, respectively. The Company recognized share-based compensation expense in the amount of $0.2$4.0 million and $16,000,$0.2 million, during the twenty-six weeks ended June 27, 202126, 2022 and June 28, 2020,27, 2021, respectively. As of June 27, 2021,26, 2022, there remains $2.7$9.0 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.

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Note 17.

NOTE 14. WARRANTS

The Company’s warrant activity for the thirteentwenty-six weeks ended June 27, 202126, 2022 was as follows:

SUMMARY OF WARRANT ACTIVITY

   

Number of

Shares

  

Weighted

Average

Exercise Price

  

Weighted

Average

Remaining

Contractual

Life (Years)

 
Warrants outstanding at December 27, 2020   2,273,533  $5.68   3.8 
Grants   -  $-   - 
Exercised   (300,437) $(5.05)  (4.0)
Warrants outstanding at June 27, 2021   1,973,096  $5.57   3.7 
Warrants exercisable at June 27, 2021   1,954,106  $5.58   3.7 
 Number of
Shares		Weighted
Average
Exercise Price		Weighted
Average
Remaining
Contractual
Life (Years)
Warrants exercisable at December 26, 20211,707,670 $4.72 3.2
Exercised(21,850)$3.64 3.3
Warrants outstanding at June 26, 20221,685,820 $4.54 2.7
Warrants exercisable at June 26, 20221,685,820 $4.54 2.7
During the twenty-six weeks ended June 26, 2022, 21,850 warrants were exercised in exchange for 21,850 shares of common stock with net proceeds to the Company of $0.1 million.

Note 18.

NOTE 15. DIVIDENDS ON COMMON STOCK

On April 20, 2021,12, 2022 the Board of Directors declared a cash dividend of $0.13 $0.13 per share of Class A common stock and Class B common stock, payable on May 7, 2021June 1, 2022 to stockholders of record as of May 3, 2021,16, 2022, for a total of $$2.1 million.
1.6

million.


On June 1, 2021, the Board








23
Table of Directors declared a cash dividend of $0.13 Contentsper share of common stock, payable on June 21, 2021to stockholders of record as of June 14, 2021, for a total of $1.6 million.

Note 19.

NOTE 16. COMMITMENTS AND CONTINGENCIES

Litigation

and Investigations

James Harris and 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’s behalfCompany against the Company’s current directors (Squire Junger, James Neuhauser, Edward Rensi and our currentAndrew Wiederhorn (the “Individual Defendants”)), and formerthe Company’s majority stockholders, allegingFog 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. Mr. Vignola was previously involved in litigation against the Company, havingOn August 5, 2021, Defendants filed a putative class action lawsuit relatingmotion 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 Company’s 2017 initial public offering, which lawsuit was voluntarily dismissed by stipulationunjust enrichment claim and one of the Individual Defendants. On May 25, 2022, the Court ultimately denied the Motion in 2020. The defendantsits entirety. Defendants dispute the allegations of the new lawsuit and intend to vigorously defend against the claims. However,As this matter is still in the early stages and discovery is just underway, we cannot predict the outcome of this lawsuit. SubjectThis 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.

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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. On May 27, 2022, Defendants filed a motion to dismiss Plaintiff's complaint (the "Motion"). No hearing date has been set for the Motion. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. As this matter is still in the early stages, 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.

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. On April 25, 2022, Kerry Chipman, 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. On May 2, 2022, the Court entered an order consolidating the actions filed by Matthews and Chipman under the caption In re FAT Brands Inc. Securities Litigation. On June 13, 2022, the Court appointed plaintiff Robert Matthews as lead plaintiff and The Rosen Law Firm, P.A., as lead counsel in the consolidated action. Plaintiffs filed their Consolidated Amended Complaint on June 27, 2022. On July 19, 2022, the parties entered into a stipulation to stay the litigation so that they can engage in mediation, which is scheduled to occur in August 2022. As this matter is still in the early stages, we cannot predict the outcome of this lawsuit nor the success of the parties' anticipated mediation.












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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 (which we refer to as “SBN”(“SBN”) filed a complaint against Fog Cutter Capital Group, Inc. (which we refer to as “FCCG”(“FCCG”) in New York state court for an indemnification claim (which we refer to as the(the “NY case”) stemming from an earlier lawsuit in Georgia regarding a certain lease portfolio formerly managed by a former FCCG subsidiary. In February 2018, SBN obtained a final judgment in the NY case for a total of $0.7$0.7 million, which included $0.2$0.2 million in interest dating back to March 2012. SBN then obtained a sister state judgment in Los Angeles Superior Court, Case No. BS172606 (which we refer to as the(the “California case”), which included the $0.7$0.7 million judgment from the NY case, plus additional statutory interest and fees, for a total judgment of $0.7$0.7 million. In May 2018, SBN filed a cost memo, requesting an additional $12,411$12,411 in interest to be added to the judgment in the California case, for a total of $0.7$0.7 million. In May 31, 2019, the parties agreed to settle the matter for $0.6$0.6 million, which required the immediate payment of $0.1$0.1 million, and the balance to be paid in August 2019. FCCG wired $0.1$0.1 million to SBN in May 2019, but has not yet paid the remaining balance of $0.5$0.5 million. The parties have not entered into a formal settlement agreement, and they have not yet discussed the terms for the payment of the remaining balance.

The Company is involved in other claims and legal proceedings from time-to-time that arise in the ordinary course of business.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 effect on its business, financial condition, results of operations, liquidity or capital resources.

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As of Jun 26, 2022, the Company had accrued an aggregate of $5.1 million for the specific matters mentioned above and claims and legal proceedings involving franchisees as of that date.

Note 20.

NOTE 17. GEOGRAPHIC INFORMATION AND MAJOR FRANCHISEES

Revenue

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

SCHEDULE OF REVENUES BY GEOGRAPHIC AREA

  Thirteen Weeks Ended  Twenty-six Weeks Ended 
  June 27, 2021  June 28, 2020  June 27, 2021  June 28, 2020 
United States $6,316  $2,564  $11,146  $6,273 
Other countries  1,966   543   3,785   1,257 
Total revenue $8,282  $3,107  $14,931  $7,530 

 Thirteen Weeks EndedTwenty-Six Weeks Ended
June 26, 2022June 27, 2021June 26, 2022June 27, 2021
United States$100.5 $6.3 $195.8 $11.1 
Other countries2.3 2.0 4.4 3.8 
Total revenue$102.8 $8.3 $200.2 $14.9 
Revenue is shown based on the geographic location of our company-owned and franchisees’ restaurants. All assets are located in the United States.












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During the twenty-six weeks ended June 26, 2022 and June 27, 2021, and June 28, 2020, no individual franchisee accounted for more than 10% of the Company’s revenue.

revenue.

NOTE 21. 18. SUBSEQUENT EVENTS

Management has evaluated all events and transactions that occurred subsequent to June 27, 202126, 2022 through the date of issuance of these condensed consolidated financial statements. During this period, the Company did not have any significant subsequent events exceptother than as follows:disclosed in Note 11.



Acquisition










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Table of Global Franchise GroupContents

On July 22, 2021, the Company completed the acquisition of LS GFG Holdings Inc. (“GFG”), a franchisor and operator of a portfolio of five quick service restaurant concepts (Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker), for a total purchase price of $442.5 million, comprised of $350.0 million in cash, $67.5 million in shares of the Company’s Series B Cumulative Preferred Stock and $25.0 million in shares of the Company’s Common Stock, subject to certain customary adjustments, including with respect to working capital, to be finalized no later than 90 days after closing.

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

SCHEDULE OF SECURITIZATION TRANSACTION OF NOTES

Closing

Date

 Class  Seniority 

Principal

Balance

  Coupon  

Weighted

Average

Life

(Years)

  

Non-Call

Period

(Months)

  

Anticipated

Call Date

 

Final Legal

Maturity

Date

7/22/2021  A-2  Senior $209,000,000   6.00%  2.01   6  7/25/2023 7/25/2051
7/22/2021  B-2  Senior Subordinated $84,000,000   7.00%  2.01   6  7/25/2023 7/25/2051
7/22/2021  M-2  Subordinated $57,000,000   9.50%  2.01   6  7/25/2023 7/25/2051

In connection with the acquisition of GFG, on July 22, 2021, the Company issued 3,089,245 and 1,964,865 shares of Series B Cumulative Preferred Stock and Common Stock, respectively. Additionally, on July 22, 2021, the Company entered into a put/call agreement with the GFG sellers, pursuant to which the Company may purchase or the GFG Sellers may require the Company to purchase 3,089,245 shares of Series B Cumulative Preferred Stock for $67.5 million plus accrued but unpaid dividends on or before April 22, 2022.

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

The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the twenty-six weeks ended June 27, 202126, 2022 and June 28, 2020,27, 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,”“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, 202123, 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 revenue. While the disruption to our business from the COVID-19 pandemic is currently expected to be temporary, there is a great deal of uncertainty around the severity and duration of the disruption, and also the longer-term effects on our business and economic growth and consumer demand in the U.S. and worldwide. The effects of COVID-19 may materially adversely affect our business, results of operations, liquidity and ability to service our existing debt, particularly if these effects continue in place for a significant amount of time. If additional information becomes available regarding the potential impact and the duration of the negative financial effects of the current pandemic, the Company may determine that additional impairment adjustment to the recorded value of trademarks, goodwill and other intangible assets may be necessary.

Executive Overview

Business overview

FAT Brands Inc. is a leading multi-brand restaurant franchising company that develops, markets, and acquires primarily quick-service, fast casual and casual dining concepts restaurant concepts around the world. Organized in March 2017 asAs of June 26, 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 subsidiaryStick, 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 sharesJune 26, 2022, the Company had 2,354 locations. Of this amount, 2,261 stores were franchised, representing approximately 96% 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.

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total restaurants.

As a franchisor, we

We generally do not own or operate restaurant locations, but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties. This asset light franchisor model provides the opportunity for strong profit margins and an attractive free cash flow profile while minimizing restaurant operating company risk, such as long-term real estate commitments or capital investments. Our scalable management platform enables us to add new stores and restaurant concepts to our portfolio with minimal incremental corporate overhead cost, while taking advantage of significant corporate overhead synergies. The acquisition of additional brands and restaurant concepts as well as expansion of our existing brands are key elements of our growth strategy.


As










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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, Ponderosasale of food and Bonanza Steakhouses, Elevation Burgerbeverages at our company restaurants and Yalla Mediterranean. Combined, these brandsthe collection of royalties, franchise approximately 700 restaurant locations, including units under construction.

fees and advertising revenue from sales of food and beverages at our 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 and twenty-six weeks ended June 27, 202126, 2022 and June 28, 202027, 2021.
(.in thousands

)

(In thousands)

  Thirteen Weeks Ended  Twenty-six Weeks Ended 
  

June 27,

2021

  

June 28,

2020

  

July 27,

2021

  

June 28,

2020

 
Statements of operations data:                
                 
Revenue                
Royalties $6,161  $2,213  $11,057  $5,522 
Franchise fees  482   273   1,022   449 
Advertising fees  1,370   613   2,560   1,544 
Restaurant sales  234   -   234   - 
Management fees and other income  35   8   58   15 
Total revenue  8,282   3,107   14,931   7,530 
                 
Costs and expenses                
General and administrative expense  5,483   4,104   10,408   7,636 
Restaurant operating expenses  244   -   244   - 
Advertising expenses  1,367   613   2,560   1,544 
Impairment of assets  -   3,174   -   3,174 
Refranchising restaurant (gain) loss  (856)  1,006   (429)  1,544 
Total costs and expenses  6,238   8,897   12,783   13,898 
                 
Income (loss) from operations  2,044   (5,790)  2,148   (6,368)
                 
Other (expense) income, net  (9,967)  450   (12,632)  (1,639)
                 
Loss before income tax expense  (7,923)  (5,340)  (10,484)  (8,007)
                 
Income tax benefit  (1,992)  (1,089)  (2,121)  (1,386)
                 
Net loss  (5,931)  (4,251)  (8,363)  (6,621)
Less: Net loss attributable to noncontrolling interest  (5)  -   (5)  - 
Net loss attributable to FAT Brands Inc. $(5,926) $(4,251) $(8,358) $(6,621)

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 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 26, 2022June 27, 2021June 26, 2022 June 27, 2021
Statements of operations data:
Revenue
Royalties$21,665 $6,161 $42,563 $11,057 
Restaurant sales60,044 234 118,121 234 
Advertising fees9,568 1,370 18,929 2,560 
Factory revenues8,570 — 16,749 — 
Franchise fees1,295 482 2,009 1,022 
Management fees and other income1,643 35 1,817 58 
Total revenue102,785 8,282 200,188 14,931 
Costs and expenses  
General and administrative expense20,841 5,097 45,437 9,624 
Cost of restaurant and factory revenues49,846 244 104,644 244 
Depreciation and amortization6,711 386 13,181 784 
Refranchising loss (gain)453 (856)1,001 (429)
Acquisition costs135 917 383 932 
Advertising fees11,596 1,367 21,853 2,560 
Total costs and expenses89,582 7,155 186,499 13,715 
Income from operations13,203 1,127 13,689 1,216 
Total other (expense) income, net(21,642)(9,050)(41,359)(11,700)
Loss before income tax expense(8,439)(7,923)(27,670)(10,484)
Income tax (benefit) provision(251)(1,992)4,273 (2,121)
Net loss(8,188)(5,931)(31,943)(8,363)
Less: Net loss attributable to noncontrolling interest— (5)— (5)
Net loss attributable to FAT Brands Inc.$(8,188)$(5,926)$(31,943)$(8,358)













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For the twenty-six weeks ended June 27, 202126, 2022 and June 28, 2020:

27, 2021:

Revenue - Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and other revenue. Total revenue increased $7.4$185.3 million, or 98.3%1,241%, in the first two quarters of 2021,2022, to $14.9$200.2 million compared to $7.5$14.9 million in the same period of 2020.2021. The increase reflects revenue from Johnny Rockets, which was acquired during the third quarteracquisition of 2020,GFG in 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 expenses – Costs and expenses consist primarily of general and administrative costs, cost of restaurant and factory revenues, net refranchising (gains) losses and advertising expense impairment charges and refranchising restaurant losses.expense. Costs and expenses decreased $1.1increased$172.8 million, or 8.0%1,260%, in the first two quarters of 20212022 to $12.8$186.5 million compared to the same period in the prior year, period.primarily due to the 2021 Acquisitions.

General and administrative expenses increased $2.8$35.8 million, or 36.3%372%, in the first two quarters of 20212022 compared to the same period in the prior year, period, primarily due to higher compensation cost as we filled out the management team2021 Acquisitions and increased compensation costs, professional fees.fees related to pending litigation and government investigations, and travel, reflecting the significant expansion of the organization.

Advertising expenses

Cost of restaurant and factory revenues totaled $104.6 million for the first two quarters of 2022 and was related to the operations of the company-owned restaurant locations and the dough factory operated by GFG associated with the 2021 Acquisitions, partially offset by amounts claimed under the business relief provision under the CARES Act known as the Employee Retention Credit , a refundable payroll tax credit of qualified wages paid during 2020 and 2021.
Depreciation and amortization increased $1.0$12.4 million, or 65.8%,1,581% in the first two quarters of 2022 compared to the same period in the prior year, primarily due to depreciation of company-owned restaurant property and equipment and amortizing intangible assets related to the 2021 Acquisitions.
Refranchising losses in the first half of 2021 compared to the prior year. These expenses vary in relation to the advertising revenue and have been affected by the acquisition of Johnny Rockets and the increase in customer activity as the recovery from COVID continues.

We recorded non-cash goodwill and tradename impairment charges of $1.52022 were $1.0 million and $1.7 million, respectively, relating to the Ponderosawere comprised restaurant costs and Bonanza brands during the first halfexpenses, net of 2020. There were no impairment charges recorded during the first half of 2021.

food sales. Refranchising gains in the first half of 2021 were $0.4 million and were comprised of $1.1 million in net gains related to refranchised restaurants, partially offset by $0.4 million in restaurant operating costs, net of food sales, of $0.7 million. Refranchising lossessales.

Advertising expenses increased $19.3 million in the first halftwo quarters of 2020 were2022 compared to 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 two quarters of 2022 and 2021 was $41.4 million and $11.7 million, respectively, primarily comprised of restaurant operating costs, net interest expense of food sales, of $1.7$44.7 million net of $0.2and $5.4 million, in net gains related to refranchised restaurants.

Other (Expense) Income – respectively. Other expense, net for the first half of 2021 was $12.6 million andalso consisted primarily of $5.4 million in net interest expense and a $6.4 million net loss on the extinguishment of debt. Other expense for the first two quarters of 2020 was $1.6 million and consisted primarily of $2.8 million of net interest expense, partially offset by a $1.3 million change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock.

Income Tax Benefittax (benefits) provision benefit – The effective rate was (15.4)% and 20.2% for the first two quarters of 2022 and 2021, comparedrespectively. The difference in effective rate was primarily due to 17.3% for the comparable periodincreases in 2020.

our valuation allowance.

For the thirteen weeks ended June 27, 202126, 2022 and June 28, 2020:

27, 2021:

Revenue –- Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and other revenue. Total revenue increased $5.2$94.5 million, or 166.6%1,141%, in the second quarter of 2021,2022, to $8.3$102.8 million compared to $3.1$8.3 million in the same period of 2020.2021. The increase reflects revenue from Johnny Rockets, which was acquired during the third quarteracquisition of 2020,GFG in 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 decreased $2.7– Costs and expenses consist of general and administrative costs, cost of restaurant and factory revenues, net refranchising (gains) losses and advertising expense. Costs and expenses increased$82.4 million, or 30.0%1,152%, in the second quarters of 2022 to $6.2$89.6 million compared to the same period in the prior year, primarily due to the 2021 Acquisitions.

General and administrative expenses increased $15.7 million, or 309%, in the second quarters of 2022 compared to the same period in the prior year, primarily due to the 2021 Acquisitions and increased compensation costs, professional fees related to pending litigation and government investigations, and travel, reflecting the significant expansion of the organization.












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Cost of restaurant and factory revenues totaled $49.8 million for the second quarter of 2022 and was related to the operations of the company-owned restaurant locations and the dough factory operated by GFG associated with the 2021 Acquisitions, partially offset by amounts claimed under the business relief provision under the CARES Act known as the Employee Retention Credit, a refundable payroll tax credit of qualified wages paid during 2020 and 2021.
Depreciation and amortization increased $6.3 million, or 1,639% in the second quarter of 20212022 compared to the same period in the prior year, period.

Generalprimarily due to depreciation of company-owned restaurant property and administrative expenses increased $1.4 million, or 33.6%,equipment and amortizing intangible assets related to the 2021 Acquisitions.

Refranchising losses in the second quarter of 2021 compared to the prior year period, primarily due to higher compensation as we filled out the management team and increased professional fees.

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

We recorded non-cash goodwill and tradename impairment charges of $1.52022 were $0.5 million and $1.7 million, respectively, relating to the Ponderosawere comprised restaurant costs and Bonanza brands during the first halfexpenses, net of 2020. There were no impairment charges recorded during the first half of 2021.

food sales. Refranchising gains in the second quarter of 2021 were $0.9 million and were comprised of $1.1 million in net gains related to refranchised restaurants, partially offset by restaurant operating costs, net of food sales, of $0.2 million. Refranchising lossesmillion in the second quarter of 2020 were comprised of restaurant operating costs, net of food sales.

Other (Expense) Income –

Advertising expenses increased $10.2 million in the second quarter of 2022 compared to 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 second quarter of 2022 and 2021 was $21.6 million and $9.1 million, respectively, primarily comprised of net interest expense of $23.7 million and $2.7 million, respectively. Other expense, net for the second quarter of 2021 was $10.0 million andalso consisted primarily of interest expense of $2.7 million and a $6.4 million net loss on the extinguishment of debt. Other income for the second quarter of 2020 was $0.5 million and consisted primarily of a $1.3 million change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock, partially offset by net interest expense of $0.8 million.

Income Tax Benefit – The effective tax rate was 3.0% and 25.1% for the second quarter of 2022 and 2021, comparedrespectively. The difference in effective rate was primarily due to 20.4% for the comparable periodincreases in 2020.our valuation 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 twenty-six weeks ended June 27, 2021first two quarters of 2022 consisted of net proceeds from financing activities.

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 tomay 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 completed the issuance and sale in a private offering (the “Offering”)

We have liabilities of three tranches of fixed rate secured notes. Proceeds of the Offering were used$135.0 million relating to repay in full its 2020 Securitization Notes as well as fees and expenses related to the Offering, resulting in net proceeds to the Company of approximately $57 million.

On June 22, 2021, we closed a second underwritten public offering of 460,000 shares of 8.25%put options held by others on our Series B Cumulative Preferred Stock at a pricedue in 2022. The Company has contractual options pursuant to the public of $20.00 per share. The net proceedsput/call agreements to extend this repayment via incremental interest payments and there are capital market options that the Company totaled $8.3 million, after deducting $0.9 million in underwriting discounts and other offering expenses.

In addition to the liquidity provided by these capital market transactions, we have seen improvement in our operating performance subsequent to December 27, 2020, as COVID-19 vaccinations have become more prevalent in the United States and federal, state and local restrictions have eased in many, but not all, of the markets where our franchisees operate.may consider. We believe that we will be in compliance with our debt covenants and have sufficient sources of cashliquidity to meet our liquidity needs and capital resource requirements for at least the next twelve months.

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months primarily through currently available cash and cash equivalents, cash flows from operations and access to the capital markets.

Comparison of Cash Flows

Our cash and restricted cash balance was $54.0$51.4 million as of June 27, 2021,26, 2022, compared to $7.2$99.9 million as of December 27, 2020.26, 2021.












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The following table summarize key components of our condensed consolidated cash flows for the twenty-six26 weeks ended June 27, 202126, 2022 and June 28, 2020:

27, 2021:

For the Twenty-sixTwenty-Six Weeks Ended
(

(In thousands)in millions

)

  June 27, 2021  June 28, 2020 
       
Net cash used in operating activities $(4,932) $(3,994)
Net cash provided by (used in) investing activities  221   (6,326)
Net cash provided by financing activities  51,520   13,783 
Increase in cash flows $46,809  $3,463 

June 26, 2022 June 27, 2021
Net cash used in operating activities$(28.0)$(4.9)
Net cash (used in) provided by investing activities(9.3)0.2 
Net cash (used in) provided by financing activities(11.2)51.5 
Net cash flows$(48.5)$46.8 
Operating Activities

Net cash used in operating activities increased $1.0 million in the first half of 2021 compared to 2020. There were variations in the components of the cash from operations between the two periods. Our net loss in 2021 was $10.5 million compared to $6.6 million in 2020. The net positive adjustments to reconcile these net losses to net cash used in operations were $3.3 million in 2021 compared to $2.6 million in 2020. The primary components of the adjustments to reconcile the net loss to net cash used in operations for each year were as follows:

For the first two quarters of 2021:

●A positive adjustment to reconcile cash used in operations due to a net loss on extinguishment of debt in the amount of $4.9 million,
●A negative adjustment to reconcile cash used in operations due to an increase in deferred income taxes of $3.0 million,
●A positive adjustment to reconcile cash used in operations due to an increase in accrued expense of $2.1 million,
●A negative adjustment to reconcile cash used in operations due to a recognized gain on sale of refranchised assets in the amount of $1.1 million and
●A negative adjustment to reconcile cash used in operations due to an increase in accounts receivable of $1.4 million.

For the first two quarters of 2020:

●A positive adjustment to reconcile cash used in operations due to non-cash impairment charges in the amount of $3.2 million,
●A negative adjustment to reconcile cash used in operations due to an increase in accrued interest receivable from affiliates in the amount of $1.6 million,
●A positive adjustment to reconcile cash used in operations due to a provision for bad debt in the amount of $1.1 million,
●A negative adjustment to reconcile cash used in operations due to the decrease in the fair value of a derivative liability in the amount of $1.3 million and
●A negative adjustment to reconcile cash used in operations due to an increase in deferred tax assets of $1.5 million.

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Investing Activities

Net cash provided by investing activities was $0.2 million in the first half of 2021, compared to net cash used in investing activities of $6.3 million in the first half of 2020. This was primarily due to a decrease in the advances to non-consolidated affiliates.

Financing Activities

Net cash from financing activities was $51.5$23.1 million in the first two quarters of 2022 compared to 2021, primarily due to higher debt service costs associated with our securitizations and by changes in working capital.

Investing Activities
Net cash used in investing activities was $9.3 million in the first two quarters of 2022, compared to net cash provided by investing activities of $0.2 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 $11.2 million for the first two quarters of 2022 and was primarily comprised of $140.8 million in net proceeds from the issuance of the 2021-1 Securitization Notesdividends paid on our Class A and $8.3 million in net proceeds from the issuance ofClass B common stock and our Series B Cumulative Preferred Shares, partially offset by the repayment of $92.6 million of prior debt, $4.4 million of common and preferred stock dividends and $1.1 million of cash payments to repay acquisition purchase price payables.

Stock.

Dividends

On April 20, 2021,12, 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, 2021June 1, 2022 to stockholders of record as of May 3, 2021. The amount of the dividend totaled $1.6 million.

On June 1, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on June 21, 2021 to stockholders of record as of June 14, 2021,16, 2022, for a total of $1.6$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 April 26, 2021 (the “Closing Date”), FAT Brands Royalty I, LLC, a Delaware limited liability company (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the Offering of three tranches of fixed rate senior secured notes (collectively, the “2021 Securitization Notes”) as follows:

Closing

Date

 Class Seniority 

Principal

Balance

  Coupon  

Weighted

Average

Life

(Years)

  

Non-Call

Period

(Months)

  

Anticipated

Call Date

 

Final Legal

Maturity

Date

4/26/2021 A-2 Senior $97,104,000   4.75%  2.25   6  7/25/2023 4/25/2051
4/26/2021 B-2 Senior Subordinated $32,368,000   8.00%  2.25   6  7/25/2023 4/25/2051
4/26/2021 M-2 Subordinated $15,000,000   9.00%  2.25   6  7/25/2023 4/25/2051

Net proceeds from the issuance of the 2021 Securitization Notes totaled $140.8 million, which consisted of the combined face amount of $144.5 million (net of debt offering costs of $3.0 million and original issue discount of $0.7 million).

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

Capital Expenditures
As of June 27, 2021, we were in compliance with these covenants.

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

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

Note Public
Rating		 Seniority Issue Amount  Coupon  First Call Date Final Legal Maturity Date
               
Series A-2 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
Series M-2 N/A Subordinated $40,000,000   9.75% 4/27/2021 4/27/2026

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Capital Expenditures

As of June 27, 2021,26, 2022, we do not have any material commitments for capital expenditures.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 27, 2020.26, 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 may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended December 27, 2020.26, 2021.












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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controlsDisclosure Controls and procedures

Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of June 27, 2021,26, 2022, have concluded that, in regard to the segregation of duties and the financial close process, our disclosure controls and procedures were not effective.

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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

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 twenty-sixthirteen weeks ended June 27, 202126, 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
For a description of our material pending legal proceedings, please see Note 16,

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

On June 10, 2021, plaintiffs James Harris and Adam Vignola, putative stockholders of the Company, filed a derivative action in Delaware nominally on the Company’s behalf against the Company’s current directors and our current and former majority stockholders alleging claims of breach of fiduciary duty, unjust enrichment and waste arising out of the Company’s December 2020 merger with Fog Cutter Capital Group, Inc. Mr. Vignola was previously involved in litigation against the Company, having filed a putative class action lawsuit relating to the Company’s 2017 initial public offering,condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which lawsuit was voluntarily dismissedNote is incorporated by stipulationreference in 2020. The defendants dispute the allegations of the new lawsuit and intend to vigorously defend against the claims. However, this matter is in the early stages and we cannot predict the outcome of this lawsuit. Subject to certain limitations, we are obligated to indemnify our directors in connection with the lawsuit and any related litigation or settlements amounts, which may be time-consuming, result in significant expense and divert the attention and resources of our management. An unfavorable outcome may exceed coverage provided under our insurance policies, could have an adverse effect on our financial condition and results of operations and could harm our reputation.Item 1.

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

In 2012 and 2013, two property owners in Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and our subsidiary Fog Cutter Capital Group Inc. (now known as Fog Cutter Acquisition, LLC), for alleged environmental contamination on their properties, stemming from dry cleaning operations on one of the properties. The property owners seek damages in the range of $12 million to $22 million. From 2002 to 2008, a former Fog Cutter subsidiary managed a lease portfolio, which included the subject property. Fog Cutter denies any liability, although it did not timely respond to one of the property owners’ complaints and several of the defendants’ cross-complaints and thus is in default. The parties are currently conducting discovery, and the matter is scheduled for trial for November 2021. The Company is unable to predict the ultimate outcome of this matter, however, reserves have been recorded on the balance sheet relating to this litigation. There can be no assurance that the defendants will be successful in defending against these actions.

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

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

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

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

On June 21, 2021, the Company agreed to issue 62,500 shares of common stock in partial satisfaction of the purchase price for the acquisition of Yalla Mediterranean. Such issuance of securities was exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereunder and Rule 506 promulgated under Regulation D thereunder.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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None.

ITEM 6. EXHIBITS
Exhibit
Number
Incorporated By Reference to
Filed
Herewith
DescriptionFormExhibitFiling Date
10.1Letter Agreement, dated March 30, 2022, by and between FAT Brands Inc. and Kenneth J. Kuick8-K10.14/05/2022
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.INSInline XBRL Instance DocumentX (Furnished)
101.SCHInline XBRL Taxonomy Extension Schema DocumentX (Furnished)
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX (Furnished)
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX (Furnished)


Exhibit   Incorporated By Reference toFiled
Number Description Form Exhibit Filing Date Herewith
           
2.1 Stock Purchase Agreement, dated June 26, 2021, by and among FAT Brands Inc., LS GFG Holdings Inc., and LS Global Franchise L.P. 8-K 2.1 06/28/2021  
3.1 Certificate of Elimination of Series A-1 Fixed Rate Cumulative Preferred Stock, filed with the Delaware Secretary of State on June 9, 2021 8-K 3.1 06/15/2021  
3.2 Certificate of Increase of Series B Cumulative Preferred Stock, filed with the Delaware Secretary of State on June 9, 2021 8-K 3.2 06/15/2021  
4.1 Base Indenture, dated March 6, 2020, and amended and restated as of April 26, 2021, by and between FAT Brands Royalty I, LLC and UMB Bank, N.A., as trustee and securities intermediary. 8-K 4.1 04/26/2021  
4.2 Series 2021-1 Supplement to the Base Indenture, dated April 26, 2021, by and between FAT Brands Royalty I, LLC and UMB Bank, N.A., as trustee. 8-K 4.2 04/26/2021  
10.1 Guarantee and Collateral Agreement, dated April 26, 2021, by and among each of the Securitization Entities, as Guarantors, in favor of UMB Bank, N.A., as Trustee. 8-K 10.1 04/26/2021  
10.2 Management Agreement, dated March 6, 2020, and amended and restated as of April 26, 2021, by and among FAT Brands Inc., FAT Brands Royalty I, LLC, each of the Securitization Entities and UMB Bank, N.A., as Trustee. 8-K 10.2 04/26/2021  
10.3 Separation Agreement, by and between FAT Brands Inc. and Rebecca D. Hershinger 8-K/A 99.1 06/30/2021  
31.1 Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X
31.2 Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X
32.1 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002       X
101.INS Inline XBRL Instance Document       X (Furnished)
101.SCH Inline XBRL Taxonomy Extension Schema Document       X (Furnished)
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document       X (Furnished)
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document       X (Furnished)
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document       X (Furnished)
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document       X (Furnished)











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Table of Contents
37
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX (Furnished)
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX (Furnished)

SIGNATURE

SIGNATURES

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

FAT BRANDS INC.
August 6, 2021July 29, 2022By/s/ Kenneth J. Kuick
Kenneth J. Kuick
Chief Financial Officer
(Principal Financial and Accounting Officer)


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