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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2017

25, 2022

OR

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

Commission file number 001-38250

fat-20221225_g1.jpg

FAT Brands Inc.

(Exact name of registrant as specified in its charter)

Delaware08-2130269
Delaware82-1302696
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)

9720 Wilshire Blvd., Suite 500

Beverly Hills, CA 90212

(Address of principal executive offices, including zip code)

(310) 402-0600

319-1850

(Registrant’s telephone number, including area code)

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

Common Stock, $.0001 par value, registered on the NASDAQ Capital Market



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Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareFATThe Nasdaq Stock Market LLC
Class B Common Stock, par value $0.0001 per shareFATBBThe Nasdaq Stock Market LLC
Series B Cumulative Preferred Stock, par value $0.0001 per shareFATBPThe Nasdaq Stock Market LLC
Warrants to purchase Class A Common StockFATBWThe Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ]¨ No [X]

x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [  ]¨ No [X]

x

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

¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]x No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. [  ]

¨

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

Large accelerated filer¨[  ]Accelerated filer[  ]¨
Non-accelerated filerx[  ]  (Do not check if a smaller reporting company)Smaller reporting company[X]x
Emerging growth company¨[X]

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

¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨

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

x

The aggregate market value of voting common stock held by non-affiliated stockholders as of June 26, 2022 was approximately $53.7 million.
As of June 25, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, there was no public market for the registrant’s common equity.

As of March 30, 2018,February 17, 2023, there were 10,000,00015,316,720 shares of Class A common stock outstanding

and 1,270,805 shares of Class B common stock outstanding.




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FAT BRANDS INC.

FORM 10-K

INDEX

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PART II25
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Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained herein and certain statements contained in future filings by the Company with the SEC may not be based on historical facts and are “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. All statements other than statements of historical facts contained in this Form 10-K may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding expected new franchisees, brands, store openings and future capital expenditures are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.

Forward-looking statements are subject to significant business, economic and competitive risks, uncertainties and contingencies including, but not limited to, the impact of the current novel coronavirus pandemic (“COVID-19”), many of which are difficult to predict and beyond our control, which could cause our actual results to differ materially from the results expressed or implied in such forward-looking statements. These and other risks, uncertainties and contingencies are described in this Annual Report on Form 10-K, including under “Item 1A. Risk Factors”, and the other reports that we file with the SEC from time to time.

These forward-looking statements speak only as of the date of this Form 10-K. Except as may be required by law, the Company does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions that may be made to any Forward-Looking Statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

The following discussion and analysis should be read in conjunction with the Financial Statements of FAT Brands Inc. and the notes thereto included elsewhere in this filing. References in this filing to “the Company,” “we,” “our,” and “us” refer to FAT Brands Inc. and its subsidiaries unless the context indicates otherwise.

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PART I

ITEM 1. BUSINESS

Business Overview

FAT Brands Inc. is a leading multi-brand restaurant franchising company that develops, markets, acquires and acquires predominantlymanages quick service, fast casual, casual dining and polished casual dining restaurant concepts around the world. AsWe operate primarily as a franchisor of restaurants, where we generally do not own or operate the restaurant locations but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties. This “asset light” franchisor model provides us with the opportunity for strong profit margins and an attractive free cash flow profile while minimizing large capital investment and much of the restaurant operating company risk. risk, such as long-term real estate commitments or capital investments. For some of our brands, we also directly own and operate restaurant locations, in addition to franchising restaurants.

Our scalable management platform enables us to add new franchise locationsstores and restaurant concepts to our portfolio with minimal incremental corporate overhead cost, while taking advantage of significant operatingcorporate overhead synergies. The expansion of our existing brands as well as the acquisition of additional brands and restaurant concepts as well as expansion of our existing brands, are key elements of our growth strategy.

FAT Brands Inc. was formed on March 21, 2017 as In addition to our restaurant operations, we own and operate a wholly owned subsidiary of Fog Cutter Capital Group Inc. (“FCCG”). On October 20, 2017, we completedmanufacturing and production facility in Atlanta, Georgia, which supplies our initial public offeringfranchisees with cookie dough, pretzel dry mix and issued 2,000,000 additional shares of our common stock at an offering price of $12.00 per share, for an aggregate amount of $24,000,000 (the “Offering”). The net proceeds of the Offering were approximately $20,930,000 after deducting the selling agent fees and offering expenses. The shares associated with the Offering constitute 20 percent of our currently outstanding common stock. Our common stock trades on the Nasdaq Capital Market under the symbol “FAT.”

Concurrent with our initial public offering on October 20, 2017, two subsidiaries of FCCG, Fatburger North America, Inc. (“Fatburger”) and Buffalo’s Franchise Concepts, Inc. (“Buffalo’s”), were contributed to us by FCCG in exchange for a $30,000,000 note payable (the “Related Party Debt”). FCCG also contributed to us the newly acquired operating subsidiaries of Homestyle Dining LLC: Ponderosa Franchising Company, Bonanza Restaurant Company, Ponderosa International Development, Inc. and Puerto Rico Ponderosa, Inc. (collectively, “Ponderosa”). These subsidiaries conduct the worldwide franchising of the Ponderosa Steakhouse Restaurants and the Bonanza Steakhouse Restaurants. We provided $10,550,000 of the net proceeds from the Offering to FCCG to consummate the acquisition of Homestyle Dining LLC.

Effective with our initial public offering and the transactions that followed, our operating segments are:

(i)The Fatburger Franchise Division which includes our worldwide operations of the Fatburger restaurant concept.
(ii)The Buffalo’s Franchise Division which includes our worldwide operations of the Buffalo’s Cafe and Buffalo’s Express concepts.
(iii)The Ponderosa Franchise Division which includes our worldwide operations of the Ponderosa and Bonanza Steakhouse concepts.

Fatburger.Founded in Los Angeles, California in 1947, Fatburger (The Last Great Hamburger StandTM) has, throughout its history, maintained its reputation as an iconic, all-American, Hollywood favorite hamburger restaurant serving a variety of freshly made-to-order, customizable, big, juicy, and tasty Fatburgers, Turkeyburgers, Chicken Sandwiches, Veggieburgers, French fries, onion rings, soft-drinks and milkshakes. With a legacy spanning over 70 years, Fatburger’s dedication to superior quality inspires robust loyalty amongst its customer base and has long appealed to American cultural and social leaders. We have counted many celebrities and athletes as past franchisees and customers, and we believe this prestige has been a principal driver of the brand’s strong growth. Fatburger offers a premier dining experience, demonstrating the same dedication to serving gourmet, homemade, custom-built burgers as it has since 1947. other ancillary products.


As of December 31, 2017, there were 154 franchised and sub-franchised Fatburger locations across 5 states and 16 countries.

Buffalo’s Cafe. Established in Roswell, Georgia in 1985, Buffalo’s Cafe (Where Everyone is FamilyTM) is a family-themed casual dining concept known for its chicken wings and 13 distinctive homemade wing sauces, burgers, wraps, steaks, salads, and other classic American cuisine. Featuring a full bar and table service, Buffalo’s Cafe offers a distinctive dining experience affording friends and family the flexibility to share an intimate dinner together or to casually watch sporting events while enjoying extensive menu offerings. After FCCG acquired the Buffalo’s Cafe brand in 2011, Buffalo’s Express was developed and launched as a fast-casual, smaller footprint variant of Buffalo’s Cafe offering a limited version of the full menu with an emphasis on chicken wings, wraps and salads. Current Buffalo’s Express outlets are co-branded with Fatburger locations, providing25, 2022, our franchisees with complementary concepts that share kitchen space and result in a higher average check (compared to stand-alone Fatburger locations). As of December 31, 2017, there were 17 franchised Buffalo’s Cafe and 76 co-branded Fatburger / Buffalo’s Express locations globally.

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Ponderosa & Bonanza Steakhouse. Ponderosa Steakhouse, founded in 1965, and Bonanza Steakhouse, founded in 1963, offer the quintessential American steakhouse experience, for which there is strong and growing demand in international markets, particularly in Asia and the Middle East. Ponderosa and Bonanza Steakhouses offer guests a high-quality buffet and broad array of great tasting, affordably-priced steak, chicken and seafood entrées. Buffets at Ponderosa and Bonanza Steakhouses feature a large variety of all you can eat salads, soups, appetizers, vegetables, breads, hot main courses and desserts. An additional variation of the brand, Bonanza Steak & BBQ, offers a full-service steakhouse with fresh farm-to-table salad bar and a menu showcase of USDA flame-grilled steaks and house-smoked BBQ, with contemporized interpretations of traditional American classics. As of December 31, 2017, there were 97 Ponderosa and 18 Bonanza restaurants operating under franchise and sub-franchise agreements in 18 states in the United States, Canada, Puerto Rico, the United Arab Emirates, Egypt, Qatar and Taiwan.

We intend to acquire other restaurant franchising concepts that will allow us to offer additional food categories and expand our geographic footprint. In evaluating potential acquisitions, we specifically seek concepts with the following characteristics:

●established, widely-recognized brands;
●steady cash flows;
●track records of long-term, sustainable operating performance;
●good relationships with franchisees;
●sustainable operating performance;
●geographic diversification; and
●growth potential, both geographically and through co-branding initiatives across our portfolio.

We approach acquisitions from a value perspective, seeking valuations of approximately six to eight times the target’s 12-month forward cash flow to ensure that acquisitions are immediately accretive to our earnings. Leveraging our management platform, we expect to achieve cost synergies post-acquisition by reducing the corporate overhead of the acquired company – most notably in the legal, accounting and finance functions. Adjusted for these cost synergies, we believe that we will have the opportunity to acquire complementary restaurant brands with an effective value in excess of the purchase price. We also plan to grow the top line revenues of newly acquired brands through support from our management and systems platform, including public relations, marketing and advertising, supply chain assistance, site selection analysis, staff training and operational oversight and support.

Our franchisee base consisted of 119more than 750 franchisees, aswho operated an aggregate of December 31, 2017. Of these franchisees, 99 operate in North Americaapproximately 2,200 restaurants, including restaurants under construction.Additionally, we directly owned and 44 own multiple restaurant locations. System wide, our franchisees operated than 286approximately 130 restaurants as of December 31, 2017 (235such date.System wide sales of whichour franchised and owned locations during fiscal 2022 were located in North America), with store level sales in excess of $298 million in 2017. As of December 31, 2017, we had a total of 318 new unit development commitments (174 located in North America) which remain to be completed.

approximately $2.2 billion.

The FAT Brands Difference – Fresh. Authentic. Tasty.

Our name represents the values that we embrace as a company and the food that we provide to customers – Fresh. Authentic. TastyFresh. Authentic. Tasty (which we refer to as “FAT”). The success of our franchisor model is tied to consistent delivery by our restaurant operators of freshly prepared, made-to-order food that our customers desire. With the input of our customers and franchisees, we continually strive to keep a fresh perspective on our brands by enhancing our existing menu offerings and introducing appealing new menu items. When enhancing our offerings, we ensure that any changes are consistent with the core identity and attributes of our brands, although we do not intend to adapt our brands to be all things to all people. In conjunction with our restaurant operators (which means the individuals who manage and/or own our franchised restaurants), we are committed to delivering authentic, consistent brand experiences that have strong brand identity with customers. Ultimately, we understand that we are only as good as the last meal served, and we are dedicated to having our franchisees consistently deliver tasty, high-quality food and positive guest experiences in their restaurants.

In pursuing acquisitions

Our Concepts

As of December 25, 2022, we were the owner and entering newfranchisor of the following restaurant brands we are committed to instilling our FAT Brands values into new restaurant concepts. As our restaurant portfolio continues to grow, we believe that both our franchiseesin four main categories – Quick Service, Fast Casual, Casual Dining and diners will recognize and value this ongoing commitment as they enjoy a wider concept offering.

Polished Casual Dining.

Quick Service

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Round Table Pizza. Round Table Pizza is the franchisor of quick service restaurants located primarily in California and the western United States. Round Table pizzas are made with fresh dough and offered in a variety of original flavors and pizza combinations. Customers also have the option to create their own pizzas. Round Table Pizza includes three restaurant formats – Traditional, Clubhouse and Delivery Only.
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Marble Slab Creamery. Marble Slab Creamery is a purveyor of hand-mixed ice cream. Founded in 1983, Marble Slab was an innovator of the frozen slab technique where customers select a variety of items to be mixed into their ice cream or frozen yogurt on a chilled marble slab. Marble Slab ice cream is made in small batches in franchise locations using ingredients from around the world and dairy from local farms. Marble Slab has locations in the United States, Canada, Bahrain, Bangladesh, Guam, Kuwait, Pakistan, Puerto Rico and Saudi Arabia.
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Great American Cookies. Great American Cookies (which we refer to as “GAC”) was founded in Atlanta, Georgia in 1977 as a single store which relied upon a single chocolate chip cookie recipe. In 1978, GAC began its franchise operations and introduced a complete line of cookies and brownies. Over the last 30 years, GAC further increased its presence in malls throughout the United States and significantly expanded its product offerings. GAC is known for its signature Cookie Cakes, signature flavors and menu of gourmet products baked fresh in store. GAC has franchised stores in the United States, Bahrain, Guam and Saudi Arabia.
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Hot Dog on a Stick. Hot Dog on a Stick (which we refer to as “HDOS”) is the franchisor of quick service restaurants primarily located in regional malls in California and the western United States. HDOS founder Dave Barnham opened his first hot dog stand in Santa Monica, California in 1946. HDOS offers its turkey frank dipped in batter and cooked in canola oil, along with fresh squeezed lemonade, hot dog in a bun, cheese on a stick, funnel cake sticks and french fries.
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Pretzelmaker. Pretzelmaker and Pretzel Time are franchised concepts that specialize in offering hand-rolled soft pretzels, innovative soft pretzel products, dipping sauces and beverages. Retail locations are primarily located in shopping malls and other types of shopping centers. The brands were founded independently of each other in 1991, united under common ownership in 1998, and consolidated in 2008 to become the new Pretzelmaker.
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Fazoli’s. Founded in 1988 in Lexington, Kentucky, Fazoli’s is an Italian restaurant chain known for its fast and fresh premium quality Italian food, including freshly prepared pasta entrees, Submarinos® sandwiches, salads, pizzas, desserts and unlimited signature breadsticks.


Fast Casual

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Fatburger. Founded in Los Angeles, California in 1947, Fatburger (The Last Great Hamburger Stand) has, throughout its history, maintained its reputation as an iconic, all-American, Hollywood favorite hamburger restaurant serving a variety of freshly made-to-order and customizable Fatburgers, Turkeyburgers, Chicken Sandwiches, Impossible™ Burgers, Veggieburgers, french fries, onion rings, soft-drinks and milkshakes.
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Johnny Rockets. Founded in 1986 on iconic Melrose Avenue in Los Angeles, California, Johnny Rockets is a world-renowned, international restaurant franchise that offers high quality, innovative menu items including Certified Angus Beef® cooked-to-order hamburgers, Boca Burger®, chicken sandwiches, crispy fries and rich, delicious hand-spun shakes and malts. This dynamic lifestyle brand offers friendly service and upbeat music contributing to the chain’s signature atmosphere of relaxed, casual fun.
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Elevation Burger. Established in Northern Virginia in 2002, Elevation Burger is a fast-casual burger, fries and shakes chain that provides its customers with healthier, “elevated” food options. Serving grass-fed beef, organic chicken and french fries cooked using a proprietary olive oil-based frying method, Elevation maintains environmentally friendly operating practices, including responsible sourcing of ingredients, robust recycling programs intended to reduce its carbon footprint, and store décor constructed of eco-friendly materials.
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Yalla Mediterranean. Founded in 2014, Yalla Mediterranean is a Los Angeles, California based restaurant chain specializing in authentic, healthful, Mediterranean cuisine with an environmentally conscience and focus on sustainability. The word “yalla”, which means “let’s go”, is embraced in every aspect of Yalla Mediterranean’s culture and is a key component of our concept. Yalla Mediterranean offers a healthful Mediterranean menu of wraps, plates and bowls in a fast-casual setting, with cuisine prepared fresh daily using, GMO-free, local ingredients for a menu that includes vegetarian, vegan, gluten-free and dairy-free options accommodating customers with a wide variety of dietary needs and preferences. The Yalla Mediterranean brand demonstrates its commitment to the environment by using responsibly sourced proteins and utensils, bowls and serving trays made from compostable materials. Due primarily to the COVID-19 pandemic and the emphasis on catering orders, all Yalla Mediterranean stores were closed during the pandemic. We are currently planning to redesign and reintroduce the brand with a rollout of new stores.

Casual Dining
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Buffalo’s Cafe and Buffalo’s Express. Established in Roswell, Georgia in 1985, Buffalo’s Cafe (Where Everyone is Family) is a family-themed casual dining concept known for its chicken wings and 13 distinctive homemade wing sauces, burgers, wraps, steaks, salads and other classic American cuisine. Featuring a full bar and table service, Buffalo’s Cafe offers a distinctive dining experience affording friends and family the flexibility to share an intimate dinner together or to casually watch sporting events while enjoying extensive menu offerings. Beginning in 2011, Buffalo’s Express was developed and launched as a fast-casual, smaller footprint variant of Buffalo’s Cafe offering a limited version of the full menu with an emphasis on chicken wings, wraps and salads. Current Buffalo’s Express outlets are co-branded with Fatburger locations, providing our franchisees with complementary concepts that share kitchen space and result in a higher average unit volume (compared to stand-alone Fatburger locations).
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Hurricane Grill & Wings. Founded in Fort Pierce, Florida in 1995, Hurricane Grill & Wings is a tropical beach themed casual dining restaurant known for its fresh, jumbo, chicken wings, 35 signature sauces, burgers, bowls, tacos, salads and sides. Featuring a full bar and table service, Hurricane Grill & Wings’ laid-back, casual, atmosphere affords family and friends the flexibility to enjoy dining experiences together regardless of the occasion. The acquisition of Hurricane Grill & Wings has been complementary to FAT Brands’ existing portfolio chicken wing brands, Buffalo’s Cafe and Buffalo’s Express.
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Ponderosa Steakhouse / Bonanza Steakhouse. Ponderosa Steakhouse, founded in 1965, and Bonanza Steakhouse, founded in 1963, offer the quintessential American steakhouse experience, for which there is strong and growing demand in international markets, particularly in Asia and the Middle East. Ponderosa and Bonanza Steakhouses offer guests a high-quality buffet and broad array of great tasting, affordably priced steak, chicken and seafood entrées. Buffets at Ponderosa and Bonanza Steakhouses feature a large variety of all you can eat salads, soups, appetizers, vegetables, breads, hot main courses and desserts. An additional variation of the brand, Bonanza Steak & BBQ, offers a full-service steakhouse with fresh farm-to-table salad bar and a menu showcasing flame-grilled USDA steaks and house-smoked BBQ, with contemporized interpretations of traditional American classics.
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Native Grill & Wings. Based in Chandler, Arizona, Native Grill & Wings is a family-friendly sports grill with locations in Arizona, Illinois and Texas. Native Grill & Wings serves over 20 wing flavors that guests can order by the individual wing, as well as an extensive menu of pizza, burgers, sandwiches and salads.

Polished Casual Dining
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Twin Peaks. Founded in 2005 in Dallas, Texas, Twin Peaks is a leading sports lodge-themed restaurant chain known for its scratch made food, 29-degree cold beer and all-female wait staff. Each Twin Peaks restaurant features a sports viewing experience in a comfortable mountain lodge atmosphere with a customized sports programming package provided by DirecTV. Menu items include smashed and seared to order burgers, in-house smoked ribs, street tacos and hand-breaded chicken wings. We currently franchise, and also directly own and operate, Twin Peaks restaurants in various states in the United States, and we have two international franchised Twin Peaks restaurants in Mexico City, Mexico.
Our Competitive Strengths

We believe that our competitive strengths include:

●Management Platform Built for Growth. We have developed a robust and comprehensive management and systems platform that supports the expansion of our existing brands while enabling the accretive and efficient acquisition and integration of additional restaurant concepts. We dedicate our considerable resources and industry knowledge to promote the success of our franchisees, offering them multiple support services such as public relations, marketing and advertising, supply chain assistance, site selection analysis, staff training and operational oversight and support. Furthermore, our platform is scalable and adaptable, allowing us to incorporate new concepts into the FAT Brands family with minimal incremental corporate costs. We intend to grow our existing brands as well as make strategic and opportunistic acquisitions that complement our existing portfolio of concepts providing an entrance into targeted restaurant segments. We believe that our platform is a key differentiator in pursuing this strategy.
●Lean Business Model Driving High Free Cash Flow Conversion. By franchising our restaurant concepts to owner / operators, we maintain a lean business model requiring minimal capital expenditures. The multi-brand franchisor model also enables us to efficiently scale the number of restaurant locations with very limited incremental corporate overhead and minimal exposure to store-level risk,
•Management Team Designed to Support Multiple Brands and Categories. As our business has expanded to 17 brands, we have developed a robust and comprehensive management and systems platform designed to support the expansion of our existing brands while enabling for the accretive and efficient acquisition and integration of additional restaurant concepts. We have distinct teams of managers focused on four main categories – Quick Service, Fast Casual, Casual Dining and Polished Casual Dining. Our platform is scalable and adaptable, allowing us to incorporate growth in existing brands and new concepts into the FAT Brands family with minimal incremental corporate costs.
•Strong Brands Aligned with FAT Brands Vision. We have an enviable track record of delivering Fresh, Authentic, and Tasty meals across our franchise system, with leading brands in four categories. Our Fatburger,
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Round Table Pizza, Twin Peaks, Johnny Rockets, Fazoli's and Buffalo’s concepts have built distinctive brand identities within their respective categories, providing made-to-order, high-quality food at competitive prices. The Ponderosa and Bonanza brands deliver an authentic American steakhouse experience. Hurricane Grill & Wings and Native Grill & Wings offer customers fresh chicken wings with an assortment of sauces and rubs in a casual dining atmosphere. Yalla Mediterranean offers a healthful Mediterranean menu of wraps, plates, and bowls in a fast-casual setting. Elevation Burger was the first organic burger chain, serving premium grass-fed beef patties and heart-healthy olive oil fries in a family and eco-friendly environment. Maintaining alignment with the FAT Brands vision across an expanding platform, we believe that our concepts appeal to a broad base of domestic and global consumers.
•Ability to Cross-Sell Multiple Brands from the FAT Brands Portfolio. Our ability to easily and efficiently cross-sell to our existing franchisees new brands from our portfolio affords us the ability to grow more quickly and satisfy our existing franchisees’ demands to expand their operations. By having the ability to offer our franchisees a variety of restaurant concepts in multiple categories, our existing franchisees are able to acquire the rights to a well-rounded portfolio of FAT Brands concept offerings to strategically satisfy their respective market demands where opportunities are available. We have developed a pipeline of more than 1,000 restaurants under development driven in part by our diverse and attractive portfolio of brands.
•Asset Light Business Model Driving High Free Cash Flow Conversion. We operate primarily as a franchisor of restaurants, where we generally do not own or operate the restaurant locations but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties based on their sales. This "asset light" franchisor model provides us with the opportunity for strong profit margins and an attractive free cash flow profile while minimizing restaurant operating company risks, such as long-term real estate commitments, capital investments and increases in employee wage costs. For some of our brands, we also directly own and operate restaurant locations.
•Robust Franchisee Support. Our franchisees are our primary customers and we dedicate considerable resources and industry knowledge to promote their success. We offer our franchisees multiple support services such as public relations, supply chain assistance, site selection analysis, staff training and operational oversight and support. We develop and produce most marketing initiatives for our brands in-house, including advertising campaigns, product placements and social media / digital marketing. We have developed a diverse and loyal base of more than 750 franchisees with restaurants located in 40 countries, including 48 states within the United States, without any excessive market concentration among the franchisees.
Our multi-brand approach also gives us the organizational depth to provide a host of services to our franchisees, which we believe enhances their financial and operational performance. As a result, new store growth and accelerating financial performance of the FAT Brands network drive increases in our franchise fee and royalty revenue streams while expanding profit and free cash flow margins.
●Strong Brands Aligned with FAT Brands Vision. We have an enviable track record of delivering Fresh, Authentic, and Tasty meals across our franchise system. Our Fatburger and Buffalo’s concepts have built distinctive brand identities within their respective segments, providing made-to-order, high-quality food at competitive prices. The Ponderosa and Bonanza brands deliver an authentic American steakhouse experience with which customers identify. By maintaining alignment with the FAT Brands vision across an expanding platform, we believe that our concepts will appeal to a broad base of domestic and global consumers.
●Experienced and Diverse Global Franchisee Network. We have new restaurant commitments of over 300 locations across our brands.  We anticipate that our current franchisees will open more than 30 new restaurants annually for at least the next four years. The acquisition of additional restaurant franchisors will also increase the number of restaurants operated by our existing franchisee network. Additionally, our franchise development team has built an attractive pipeline of new potential franchisees, with many experienced restaurant operators and new entrepreneurs eager to join the FAT Brands family.

●Ability to Cross-Sell Existing Franchisees Concepts from the FAT Brands Portfolio. Our ability to easily, and efficiently, cross-sell our existing franchisees new brands from our FAT Brands portfolio affords us the ability to grow more quickly and satisfy our existing franchisees’ demands to expand their organizations. By having the ability to offer our franchisees a variety of concepts (i.e., a fast-casual better-burger concept, a fast-casual chicken wing concept, a casual dining concept and steakhouse concepts) from the FAT Brands portfolio, our existing franchisees are able to acquire the rights to, and develop, their respective markets with a well-rounded portfolio of FAT Brands concept offerings affording them the ability to strategically satisfy their respective market demands by developing our various concepts where opportunities are available.
●Seasoned and Passionate Management Team.Our management team and employees are critical to our success. Our senior leadership team has more than 200 years of combined experience in the restaurant industry, and many have been a part of our team since the acquisition of the Fatburger brand in 2003. We believe that our management team has the track record and vision to leverage the FAT Brands platform to achieve significant future growth. In addition, through their holdings in FCCG, our senior executives own a significant equity interest in the company, ensuring long-term commitment and alignment with our public shareholders. Our management team is complemented by an accomplished Board of Directors.

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Growth Strategy

The principal elements of our growth strategy include:

●

Opportunistically Acquire New Brands. Our management platform was developed to cost-effectively and seamlessly scale with new restaurant concept acquisitions. The recent acquisition of the Ponderosa and Bonanza brands is a continuation of this growth strategy. We have identified food categories that appeal to a broad international base of customers, targeting the chicken, pizza, coffee, sandwich and dessert segments for future growth. We have developed a strong and actionable pipeline of potential acquisition opportunities to achieve our objectives. We seek concepts with established, widely-recognized brands; steady cash flows; track records of long-term, good relationships with franchisees; sustainable operating performance; geographic diversification; and growth potential, both geographically and through co-branding initiatives across our portfolio. We approach acquisitions from a value perspective, targeting modest multiples of franchise-level cash flow valuations to ensure that acquisitions are immediately accretive to our earnings prior to anticipated synergies.

On November 14, 2017, we announced that we had entered into a Membership Interest Purchase Agreement (the “Agreement”) to purchase all of the right, title and interest in and to the membership interests of Hurricane AMT, LLC, a Florida limited liability corporation (“Hurricane”) for a purchase price of $12,500,000. Hurricane is the franchisor of Hurricane Grill & Wings and Hurricane BTW Restaurants. The original Hurricane Grill & Wings opened in Fort Pierce, Fla., in 1995 and has expanded to over 60 restaurant locations in Alabama, Arizona, Colorado, Florida, Georgia, Kansas, New York, and Texas.We intend to finance this and future acquisitions through a combination of borrowings or by issuing new equity securities, including preferred stock, if available on terms satisfactory to us. We are also in discussions with other potential acquisition targets. However, there can be no assurance that we will consummate these acquisitions or acquire any additional restaurant brands, or obtain financing for such acquisitions on acceptable terms, if at all.

●Accelerate Same-Store Sales Growth. Same-store sales growth reflects the change in year-over-year sales for the comparable store base, which we define as the number of stores open for at least one full fiscal year. To optimize restaurant performance, we have embraced a multi-faceted same-store sales growth strategy. We utilize customer feedback and closely analyze sales data to introduce, test and perfect existing and new menu items. In addition, we regularly utilize public relations and experiential marketing, which we leverage via social media and targeted digital advertising to expand the reach of our brands and to drive traffic to our stores. Furthermore, we have embraced emerging technology to develop our own brand-specific mobile applications, allowing guests to find restaurants, order online, earn rewards and join our e-marketing providers. We have also partnered with third-party delivery service providers, including UberEATS, Grub Hub, Amazon Restaurants and Postmates, which provide online and app-based delivery services and constitute a new sales channel for our existing locations. Finally, many of our franchisees are pursuing a robust capital expenditure program to remodel legacy restaurants and to opportunistically co-brand them with our Buffalo’s Express and / or Fat Bar concepts (serving beer, wine, spirits and cocktails).

●Drive Store Growth through Co-Branding.We franchise co-branded Fatburger / Buffalo’s Express locations, giving franchisees the flexibility of offering multiple concepts, while sharing kitchen space, resulting in a higher average check (compared to stand-alone Fatburger locations). Franchisees benefit by serving a broader customer base, and we estimate that co-branding results in a 20%-30% increase in average unit volume compared to stand-alone locations with minimal incremental cost to franchisees. Our acquisition strategy reinforces the importance of co-branding, as we expect to offer each of the complementary brands that we acquire to our existing franchisees on a co-branded basis.
●Extend Brands into New Segments. We have a strong track record of extending our brands into new segments, and we believe that we have a significant opportunity to capture new markets by strategically adapting our concepts while reinforcing the brand identity. In addition to dramatically expanding the traditional Buffalo’s Cafe customer base through Fatburger / Buffalo’s Express co-branding, we have also begun evaluating opportunities to leverage the Buffalo’s brand by promoting Buffalo’s Express on a stand-alone basis. Furthermore, we also recently began the roll-out of Fat Bars (serving beer, wine, spirits and cocktails), which we are opportunistically introducing to select existing Fatburger locations on a modular basis. Similarly, we plan to create smaller-scale, fast casual Ponderosa and Bonanza concepts, to drive new store growth, particularly internationally.
●Continue Expanding FAT Brands Internationally. We have a significant global presence, with international franchised stores in Bahrain, Canada, China, Egypt, Fiji, India, Indonesia, Iraq, Kuwait, Malaysia, Oman, Pakistan, Panama, Philippines, Qatar, Saudi Arabia, Taiwan, Tunisia, the United Arab Emirates, and the United Kingdom. We have also recently selected a local franchisee in Japan, where we expect to open new stores in the near future. We believe that the appeal of our Fresh, Authentic, and Tasty concepts is global, and we are targeting further penetration of Middle Eastern and Asian markets, particularly through leveraging the Buffalo’s and Ponderosa brands.
●Attract New Franchisees in Existing and Unpenetrated Markets. In addition to the large pipeline of new store commitments from current franchisees, we believe the existing markets for Fatburger, Buffalo’s Cafe, Buffalo’s Express, and Ponderosa and Bonanza locations are far from saturated and can support a significant increase in units. Furthermore, new franchisee relationships represent the optimal way for our brands to penetrate geographic markets where we do not currently operate. In many cases, prospective franchisees have experience in and knowledge of markets where we are not currently active, facilitating a smoother brand introduction than we or our existing franchisees could achieve independently. We generate franchisee leads through various channels, including franchisee referrals, traditional and non-traditional franchise brokers and broker networks, franchise development advertising, and franchise trade shows and conventions.

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•Organically Grow New Store Pipeline and Attract New Franchisees. We have developed a pipeline of more than 1,000 restaurants under development among our existing and newly acquired franchisees. We also believe that the worldwide markets for our brands are far from saturated and can support a significant increase in units through new franchisee relationships. Additionally, we are seeing strong new franchisee activity as well as continued demand from our existing franchise partners to develop other brands within our portfolio. In many cases, prospective franchisees have experience in and knowledge of markets where we are not currently active, facilitating a smoother brand introduction than we or our existing franchisees could achieve independently.

•Expand Our Factory Business. We operate a manufacturing facility in Atlanta, Georgia that supplies batter and pretzel mix to certain of our quick service restaurant brands and operates at approximately 1/3 capacity. We are executing a strategy to expand the facility's production by offering batter to other brand categories within our portfolio and by entering into third-party manufacturing contracts.
•Capitalize on Growth Opportunities in our Polished Casual Dining Category. Twin Peaks is a leading sports lodge-themed restaurant chain known for its scratch made food, 29-degree cold beer and all-female wait staff. Twin Peaks has grown from 85 units to 95 units since our acquisition of the brand in October 2021. We will pursue the continued growth of this brand through additional company-owned and franchised units.
•Acquire New Brands that Enhance Existing Categories. Our management platform was designed and developed to cost-effectively and seamlessly scale with new restaurant concept acquisitions, particularly those in our existing restaurant categories. We may acquire additional categories of restaurant brands that appeal to a broad base of U.S. and
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international customers and that would be accretive to our existing portfolio of brands, including restaurants focused on salads, sandwiches, health and organic foods, coffee and dessert outlets and sports bars.
•Accelerate Same-Store Sales Growth. Same-store sales growth reflects the change in year-over-year sales for the comparable store base, which we define as the number of stores open for at least one full fiscal year. To optimize restaurant performance, we have embraced a multi-faceted same-store sales growth strategy. We utilize customer feedback and closely analyze sales data to introduce, test and improve existing and add new menu items. In addition, we regularly utilize public relations and experiential marketing, which we leverage via social media and targeted digital advertising to expand the reach of our brands and to drive traffic to our stores. Furthermore, we have embraced emerging technology and worked with the "Olo" platform to develop our own brand-specific mobile applications, allowing guests to find restaurants, order online, earn rewards and join our e-marketing providers. We have also partnered with third-party delivery service providers, including UberEATS, Grub Hub, DoorDash and Postmates, which provide online and app-based delivery services and constitute a sales channel for our existing locations. Finally, many of our franchisees are pursuing a capital expenditure program to remodel legacy restaurants and to opportunistically co-brand them with our concepts.

•Driving Store Growth Through Co-Branding. We franchise co-branded Fatburger / Buffalo’s Express locations, Johnny Rockets / Hurricane Grill and Wings locations, Great American Cookies / Marble Slab Creamery locations and Pretzel Maker / Great American Cookie locations. Additionally, we tri-brand Fat Burger / Buffalo's Express / Hot Dog on a Stick locations and Great American Cookies / Marble Slab Creamery / Pretzel Maker locations. Each co-brand and tri-brand giving franchisees the flexibility of offering multiple concepts, while sharing kitchen space, resulting in a higher average check (compared to stand-alone Fatburger locations). Franchisees benefit by serving a broader customer base, and we estimate that co-branding and tri-branding results in a 20%-30% increase in average unit volume compared to stand-alone locations with minimal incremental cost to franchisees. Our acquisition strategy reinforces the importance of co-branding, as we expect to offer each of the complementary brands that we acquire to our existing franchisees on a co-branded basis.

•Optimize Capital Structure. In 2021, we funded our acquisition of restaurant brands primarily through the issuances of notes under four separate whole-business securitization facilities, which significantly reduced our net cost of capital compared with acquisitions that we consummated in prior years. In the future, we plan to refinance these notes and may seek an investment rating on a portion of the notes in order to further reduce our cost of capital.

•Continue Expanding FAT Brands Internationally. We have a significant global presence, with franchised stores in 40 countries, including 48 states within the United States. We believe that the appeal of our Fresh, Authentic, and Tasty concepts is global, and we are targeting further penetration of Middle Eastern and Asian markets, particularly through expanding and number of units of several of our existing brands.

•Acquire New Brands that Enhance Existing Categories. Our management platform was designed and developed to cost-effectively and seamlessly scale with new restaurant concept acquisitions, particularly those in our existing restaurant categories. We have identified additional categories of potential acquisitions that appeal to a broad base of U.S. and international customers and that would be accretive to our existing portfolio of brands, including restaurants focused on salads, sandwiches, health and organic foods, coffee and dessert outlets and sports bars.
Franchise Program – FAT Brands

General.We utilize a franchise development strategy as our primary method for new store growth by leveraging the interest of our existing franchisees and those potential franchisees with an entrepreneurial spirit looking to launch their own business. We have a rigorous franchisee qualification and selection process to ensure that each franchisee meets our strict brand standards.

Fatburger


Franchise Agreements. For Fatburger locations, the Our current franchise agreement providesagreements generally provide for an initial franchise fee of $50,000 per store ($65,000 per store internationally) and a royalty fee of 2%ranging from $0 to 6% of net sales on a 15-year term. For 2017, the average royalty rate was 5.0%. In addition, the franchisee must also pay an advertising fee of approximately 3% of net sales on local marketing and approximately 1% of net sales on international marketing.

Buffalo’s Franchise Agreements. For Buffalo’s Cafe and Buffalo’s Express locations, the current franchise agreement provides for an initial franchise fee of $50,000 per store, and a typical royalty fee of 2.5%between 0.75% to 6%7.0% of gross sales on a 15-year term. For 2017, the average royalty rate was 3.9%.net sales. In addition, the Buffalo’s Cafe franchisee agrees tofranchisees typically pay an advertising fee of 2% ofbased on net sales onfor local marketing and 2% of net sales to the Buffalo’s Cafe advertising fund. For Buffalo’s Express locations, the franchisee pays approximately 1% of net sales on local store marketing and approximately 3% of net sales to the Buffalo’s Express advertising fund.

Ponderosa Franchise Agreements. For Ponderosa locations, the current franchise agreement provides for an initial franchise fee of $40,000 per store and a royalty fee of 0.75% to 4% of net sales on a 15-year term. For 2017, the average royalty rate was 2.8%. In addition, the franchisee must also pay an advertising fee of approximately 0.5% of net sales to a pooled advertising fund.

Bonanza Franchise Agreements. For Bonanza locations, the current franchise agreement provides for an initial franchise fee of $40,000 per store and a royalty fee of 0.75% to 4% of net sales on a 15-year term. For 2017, the average royalty rate was 1.9%. In addition, the franchisee must also pay an advertising fee of 0.5% of net sales to a pooled advertising fund.

brand marketing.

Development Agreements. WeFor some of our brands, we use development agreements to facilitate the planned expansion of Fatburger and Buffalo’sour restaurants through single and multiple unit development. During 2017, almost all of our new Fatburger and Buffalo’s openings occurred as a result of existing development agreements. Each development agreement gives a developer the exclusive right to construct, own and operate Fatburger or Buffalo’s stores within a defined area. In exchange, the franchisee agrees to open a minimum number of stores in the area in a prescribed time period. Franchisees that enter into development agreements are required to pay a fee, which is credited against franchise fees due when the store is opened in the future. Franchisees may forfeit such fees and lose their rights to future development if they do not maintain the required schedulestore opening schedule.
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Franchisee Support – FAT Brands

Marketing

Our Fresh, Authentic and Tasty values are the anchor that inspires our marketing efforts. Our resolve to maintain our premium positioning, derived from the FAT Brands’ values, is reinforced by our management platform, capital light business model, experienced and diverse global franchisee network and seasoned and passionate management team. Although our marketing and advertising programs are concept-specific, we believe that our patronsrestaurant customers appreciate the value of their experiences visiting our establishments and, thus, the core of our marketing strategy is to engage and dialogue with customers at our restaurant locations as well as through social media.

Our Fresh, Authentic and Tasty values are an invitation for our guestsrestaurant customers to align with FAT Brands’ commitment to consistently deliver freshly prepared, made-to-order food that restaurant customers desire. We are dedicated to keeping a fresh perspective on our concepts, perfecting our existing menu offerings as well as introducing appealing new items. We ensure that any changes are consistent with the core identity of our brands, and we will not adapt our brands to be all things to all people.

Our marketing initiatives include a robust mix of local community marketing, in-store campaigns, product placements, partnerships, promotions, social media, influencer marketing, traditional media and word of mouth advertising. Corresponding with the evolutionary shift in how restaurant customers receive content and engage with media and brands today, we have also dramatically increased our focus on mobile, social, and digital advertising to leverage the content we generate from public relations and experiential marketing in order to better connect with restaurant customers, sharing information about new menu offerings, promotions, new store openings and other relevant FAT Brands information. Currently, across our brands, we have over 43,500 Twitter followers, 68,000 Instagram followers and over 1,000,000 Facebook likes,. We communicate with restaurant customers in creative and organic ways that fortifywe believe fortifies our connections with them and increase brand awareness.

Site Selection and Development.

Development

Our franchisees work alongside our corporate real estate committeefranchise development department during the search, review, leasing and development process for a new restaurant location. Typically, it takes between 60 and 90 days from the time we sign an agreement with a franchisee to the momentuntil that franchisee signs a lease. When selecting a location, our team aggressively seeksassists franchisees in seeking locations with the following site parameters:

●Average Daily Traffic: 35,000+ people
●Access: Easy, distinguishable, and preferably with signaled entry and intersection; two-to-three curb cuts to center and entry from two streets
●Activity Generators: Going home traffic side, easily accessible for lunchtime traffic (pedestrian and automobile), high-frequency specialty retail and storefront urban corridors with convenient parking
●Lease Terms: Five-year minimum with four five-year options; fixed rates preferred
●Visibility: Site and signage must be highly visible from street and/or traffic generators, ideally visible from at least 500 feet in two directions

based on a variety of factors, including but not limited to traffic patterns, access, visibility, building constraints, competition, activity generators and lease terms.

Supply Chain Assistance

FAT Brands has always beenis committed to seeking out and working with best-in-class suppliers and distribution networks.networks on behalf of our franchisees. Our Fresh, Authentic and Tasty vision guides us in how we source and develop our ingredients, always looking for the best ways to provide top quality food that is as competitively priced as possible for our franchisees and their customers. We utilize a third-party purchasing and consulting company that provides distribution, rebate collection, product negotiations, audits and sourcing services focusing on negotiating distributor, vendor and manufacturer contracts, thereby ensuring that our brands receive meaningful buying power for our franchisees.
Our Supply Chain team has developed a reliable supply chain and continues to focus on identifying additional back-ups to avoid or minimize any possible interruption of service and product globally. We have a regional strategy for ground beef supply to ensure that we are always serving our proprietary blend of freshly ground and never frozen beef in our stores in the continental United States. Internationally, we utilize the same strategy market-by-market in each country in which our franchisees operate. Only when a fresh never frozen beef option is unavailable do we procure frozen beef, which is then freshly ground in stores. Domestically, we have the same, Southern California based, beef supplier for all of our U.S. Fatburger locations. We have the same, South East United States based, beef supplier for Buffalo’s Cafe. Ponderosa and Bonanza Steakhouses utilize contracted beef suppliers. Internationally, we have a select group of beef suppliers providing product to our franchisees market-by-market. Additionally, we utilize the same procurement strategiesglobally for our poultry (chicken and turkey), veggie and hotdog offerings.

franchisees. Domestically, FAT Brands has distribution agreements with broadline national distributors as well as regional providers. Internationally, our franchisees have distribution agreements with different providers market-by-market. We utilize distribution centers operated by our distributors. Our broadline national distributors are the main purchasing link in the United States among many of our suppliers, and distribute most of our dry, refrigerated and frozen goods, non-alcoholic beverages, paper goods and cleaning supplies. Internationally, distributors are also used to distributeprovide the majority of products to our franchisees.

Food Safety and Quality Assurance. Food safety is aone of our top prioritypriorities of FAT Brands. As such, we maintain rigorous safety standards for our menu offerings. We have carefully selected preferred suppliers that adhere to our safety standards, and our franchisees are required to source their ingredients from these approved suppliers. Furthermore, our commitment to food safety is strengthened through the direct relationship between our Supply Chain and Field Consultant Assistance teams.

Management Information Systems.Systems
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FAT Brands restaurants utilize a variety of back-office, computerized and manual, point-of-salespoint-of-sale systems (NCR and Micros) and tools, which we believe are scalable to support our growth plans.tools. We utilize these systems following a multi-faceted approach to monitor restaurants operational performance, food safety, quality control, customer feedback and profitability.

The point-of-sale systems are designed specifically for the restaurant industry and we use many customized features to evaluate and increase operational performance, provide data analysis, marketing promotional tracking, guest and table management, high-speed credit card and gift card processing, daily transaction data, daily sales information, product mix, average transaction size, order modes, revenue centers and other key business intelligence data. Utilizing these point-of-sale systems back-end, web-based, enterprise level, software solution dashboards, our home office and Franchise Operations Consultant Support staff are provided with real-time quick access to detailed business data which allows for our home office and Franchise Operations Consultant Support staff to closely, and remotely, monitor stores performance and assist in providing focused and timely support to our franchisees. Furthermore, these systems supply sales, bank deposit and variance data to our accounting department on a daily basis, and we use this data to generate daily sales information and weekly consolidated reports regarding sales and other key measures for each restaurant with final reports following the end of each period.

In addition to utilizing these point-of-salespoint-of-sale systems, FAT Brands utilizes The Redbook Digital (and manual) Management Systemsystems which providesprovide detailed, real-time (and historical) operational data for all locations, allowing our management team to track product inventories, equipment temperatures, repair and maintenance schedules, intra-shift team communications, consistency in following standard operating procedures and tracking of tasks. FAT Brands also utilizes HotSchedules which is a web-based employee scheduling software program providing franchisees, and their management teams, increased flexibility and awareness of scheduling needs allowing them to efficiently, and appropriately, manage their labor costs and store staffing requirements/needs. Lastly, FAT Brands utilizes a proprietary customer feedback system allowing customers to provide feedback in real-time to our entire management team, franchisees and store managers.

Field Consultant Assistance.

Assistance

In conjunction with utilizing the FAT Brands Management Information Systems, FAT Brands has a team of dedicated Franchise Operations Consultant Support staff who oversee designated market areas and specific subsets of restaurants. Our Franchise Operations Consultant Support staff work in the field daily with franchisees, and their management teams, to ensure that the integrity of all FAT Brands concepts are upheld and that franchisees are utilizing the tools and systems FAT Brands requires in order to provide input to our franchisees to assist them to optimize and accelerate franchiseetheir profitability. FAT Brands Franchise Operations Consultant Support staff responsibilities include the following, many of which are performed on a rotating basis (but are not limited to):

●Conducting announced and un-announced store visits and evaluations
●Continuous training and re-training of new and existing franchise operations
●Conducting quarterly workshops for franchisees and their management teams
●Development and collection of monthly profit and loss statements for each store
●Store set-up, training, oversight and support for pre- and post- new store openings
●Training, oversight and implementation of in-store marketing initiatives
●Inspections of equipment, temperatures, food-handling procedures, customer service, products in store, cleanliness, and team member attitude

•Conducting announced and unannounced store visits and evaluations;
•Continuous training and re-training of new and existing franchise operations;
•Conducting quarterly workshops for franchisees and their management teams;
•Development and collection of monthly profit and loss statements for each store;

•Store set-up, training, oversight and support for pre- and post- new store openings;

•Training, oversight and implementation of in-store marketing initiatives; and

•Inspections of equipment, temperatures, food-handling procedures, customer service, products in store, cleanliness, and team member attitude.
Training, Pre-Opening Assistance and Opening Support

FAT Brands offers Executive level and Operational level training programs to its franchisees, pre-opening assistance and opening assistance. Once open, FAT Brands constantlycontinually provides ongoing operational and marketing support to our franchisees by assistingwith the intention of offering advice to their management teams inthat they can use if they choose to more effectively operatingoperate their restaurants and increasing their stores financial profitability.

Competition

As a franchisor, our most important customers are our franchisees, who own

Our franchised and operate FAT Brands restaurants. Our direct competitors for franchisees include well-established national, regional or local franchisors with franchises in the geographies or restaurant segments in which we operate or in which we intend to operate.

Our franchiseescompany owned restaurants compete in the quick service, fast casual, casual and polished casual dining segmentscategories of the restaurant industry, a highly competitive industry in terms of price, service, location, and food quality.

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The restaurant industry is often affected by changes in consumer trends, economic conditions, demographics, traffic patterns, and concern about the nutritional content of fast casual foods.food. Furthermore, there are many well-established competitors with substantially greater financial resources than the Company's, including a number ofseveral national, international, regional and local fast casual, casual dining,store franchisors and convenience stores.operators. The restaurant industry also has few barriers to entry and new competitors may emerge at any time.

Food Safety

Food safety is a top priority. As such, we maintain rigorous safety standards for each menu item. We have carefully selected preferred food suppliers that adhere

Seasonality and Effects of Weather
While some of our brands are subject to seasonal fluctuations in their sales and may be affected by inclement weather, our safety standards, and our franchisees are required to source their ingredients from these approved suppliers.

Seasonality

Our franchisees havebusiness overall does not historically experiencedexperience significant seasonal variability in theirits financial performance.

Intellectual Property

Upon completion Holidays and severe weather in certain regions, including hurricanes, tornados, thunderstorms, snow and ice storms, prolonged extreme temperatures and similar conditions, may impact restaurant sales volumes in some of the Reorganization Transactions,markets in which we willoperate. In addition, the risk of increasingly severe weather due to climate change or the risk that those events happen more frequently could increasingly affect our operations in the future.

Intellectual Property
We own, domestically and own or be in the process of transferring to us internationally, valuable intellectual property including trademarks, service marks, trade secrets and other proprietary information including the “Fatburger,” “Buffalo’s Café,”related to our restaurant and “Buffalo’s Express”corporate brands. This intellectual property includes logos and trademarks which are of material importance to our business. After completion of the Ponderosa Acquisition, we will own the “Ponderosa Steakhouse,” “Bonanza Steakhouse,” “Bonanza Steak & BBQ” and “Cole’s Backyard Grill” logos and trademarks. Depending on the jurisdiction, trademarks and service marks generally are valid as long as they are used and/or registered.

Employees

As of December 31, 2017, We seek to actively protect and defend our company, including FAT Brands Inc.intellectual property from infringement and its subsidiaries, employed approximately 30 people. In addition,misuse.

Human Capital Resources
We believe that our franchisees for our Fatburger and Buffalo’s Cafe | Express stores employed approximately 5,000 people, none of whomemployees are critical to our knowledge represented bysuccess and seek to provide a labor union or covered by a collective bargaining agreement.working environment which encourages personal growth and success in our workforce. We believe that we and our franchisees have good relations with our employees and offer competitive compensation and benefits customary to our industry. Our benefits package for qualified employees includes employer paid health insurance and opportunities for stock-based incentives.Our restaurant employees receive continuing training and have the opportunity to advance in responsibility and leadership.
We believe that communication is key to the effectiveness of our workforce and schedule regular weekly conference calls with all of our corporate employees, updating them on the direction of the business, important developments within our company and the industry and key milestones to be achieved. We also encourage our employees to be involved in their communities and directly operate two charities - The Seeds of Compassion Fund, Inc., a charitable foundation that provides disaster relief to local communities, and FAT Brands Foundation, a charitable foundation that was organized and seeded by FAT Brands and which seeks additional contributions from our employees, franchise partners and brand partners. From time to time, we also sponsor meal events for first responders and medical professionals during local disasters.
As of December 25, 2022, we had approximately 5,400 employees, including approximately 1,100 full time employees.

This amount includes approximately 825 full time and 4,300 part time employees at restaurants which we own and operate.We have a diverse workforce and recently appointed an executive level Diversity, Equity & Inclusion Officer. As an equal opportunity employer, all qualified applicants receive consideration without regard to race, national origin, gender, gender identity, sexual orientation, protected veteran status, disability, age or any other legally protected status.

Government Regulation

U.S. Operations. Our U.S. operations are subject to various federal, state and local laws affecting our business, primarily laws and regulations concerning the franchisor/franchisee relationship, marketing, food labeling, labor and employment, sanitation and safety.safety and anti-bribery and anti-corruption laws. Various federal and state labor laws, along with rules and regulations, govern our relationship with our employees, including such matters as minimum wage, overtime, tip credits, health insurance, working conditions, safety and work eligibility requirements. Each of our franchised and company owned restaurants in the U.S. must comply with licensing and regulation by a number of governmental authorities, which include health, sanitation, safety, fire and zoning agencies in the state and/or municipality in which the restaurant is located. In addition, alcoholic beverage control regulations require each of our restaurants which sells alcohol to apply to a federal and state authority and, in certain locations, municipal authorities for a license and permit to sell alcoholic beverages on and off-premises. Typically, licenses must be renewed annually and may be revoked or suspended for cause by such authority at any time. To date, we have not been materially adversely affected by such licensing and regulation or by any difficulty, delay or failure to obtain required licenses or approvals.

International Operations. Our restaurants outside the U.S. are subject to national and local laws and regulations which in general are similar to those affecting U.S. restaurants. The restaurants outside the U.S. are also subject to tariffs and
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regulations on imported commodities and equipment and laws regulating foreign investment, as well as anti-bribery and anti-corruption laws.

See “Risk Factors” for a discussion of risks relating to federal, state, local and international regulation of our business.

Our Corporate Information

FAT Brands Inc. was formed as a Delaware corporation on March 21, 2017. Our corporate headquarters are located at 9720 Wilshire Blvd., Suite 500, Beverly Hills, California 90212. Our main telephone number is (310) 402-0600.319-1850. Our principal Internet website address is www.fatbrands.com. The information on our website is not incorporated by reference into, or a part of, this Annual Report.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the Securities and Exchange Commission (the “SEC”). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements and other information with the SEC. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549, and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this Annual Report. Further, our references to the URLs for these websites are intended to be inactive textual references only. We also make the documents listed above available without charge through the Investor Relations Section of our website atwww.fatbrands.com.

ITEM 1A. RISK FACTORS

Except for the historical information contained herein or incorporated by reference, this report and the information incorporated by reference contain forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results could differ materially from those discussed in this report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the following section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this report and in any documents incorporated in this report by reference.

You should carefully consider carefully the following risk factors and in the other information included or incorporated in this report. If any of the following risks, either alone or taken together, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment.

Risks Related to Our Franchised Business and Industry

Model

Our operating and financial results and growth strategies are closely tied to the success of our franchisees.

Our

Most of our restaurants are operated by our franchisees, which makes us dependent on the financial success and cooperation of our franchisees. We have limited control over how our franchisees’ businesses are run, and the inability of franchisees to operate successfully could adversely affect our operating and financial results through decreased royalty payments. If our franchisees incur too much debt, if their operating expenses or commodity prices increase or if economic or sales trends deteriorate such that they are unable to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or bankruptcy. If a significant franchisee or a significant number of our franchisees become financially distressed, our operating and financial results could be impacted through reduced or delayed royalty payments. Our success also depends on the willingness and ability of our franchisees to implement major initiatives, which may include financial investment. Our franchisees may be unable to successfully implement strategies that we believe are necessary for their further growth, which in turn may harm the growth prospects and financial condition of the company. Additionally, the failure of our franchisees to focus on the fundamentals of restaurant operations, such as quality service and cleanliness (even if such failures do not rise to the level of breaching the related franchise documents), could have a negative impact on our business.

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Our franchisees could take actions that could harm our business and may not accurately report sales.

Our franchisees are contractually obligated to operate their restaurants in accordance with the operations, safety, and health standards set forth in our agreements with them and applicable laws. However, although we will attempt to properly train and support all our franchisees, they are independent third parties whom we do not control. The franchisees own, operate, and oversee the daily operations of their restaurants, and their employees are not our employees. Accordingly, their actions are outside of our control. Although we have developed criteria to evaluate and screen prospective franchisees, we cannot be certain that our franchisees will have the business acumen or financial resources necessary to operate successful franchises at their approved locations, and state franchise laws may limit our ability to terminate or not renew these franchise agreements. Moreover, despite our training, support and monitoring, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements or may not hire and adequately train qualified managers and other restaurant personnel. The failure of our franchisees to operate their franchises in accordance with our standards or applicable law, actions taken by their employees or a negative publicity event at one of our franchised restaurants or involving one of our franchisees could have a material adverse effect on our reputation, our brands, our ability to attract prospective franchisees, our company-owned restaurants, and our business, financial condition or results of operations.

Franchisees typically use a point of sale, or POS, cash register system to record all sales transactions at the restaurant. We require franchisees to use a specific brand or model of hardware or software components for their restaurant system. Currently, franchisees report sales manually and electronically, but we do not have the ability to verify all sales data electronically by accessing their POS cash register systems. We have the right under our franchise agreement to audit franchisees to verify sales information provided to us, and we have the ability to indirectly verify sales based on purchasing information.information but this cannot be done economically across all franchisees. However, franchisees may underreport sales, which would reduce royalty income otherwise payable to us and adversely affect our operating and financial results.

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If we fail to identify, recruit and contract with a sufficient number of qualified franchisees, our ability to open new franchised restaurants and increase our revenues could be materially adversely affected.

The opening of additional franchised restaurants depends, in part, upon the availability of prospective franchisees who meet our criteria. Most of our franchisees open and operate multiple restaurants, and our growth strategy requires us to identify, recruit and contract with a significant number of new franchisees each year. We may not be able to identify, recruit or contract with suitable franchisees in our target markets on a timely basis or at all. In addition, our franchisees may not have access to the financial or management resources that they need to open the restaurants contemplated by their agreements with us, or they may elect to cease restaurant development for other reasons. If we are unable to recruit suitable franchisees or if franchisees are unable or unwilling to open new restaurants as planned, our growth may be slower than anticipated, which could materially adversely affect our ability to increase our revenues and materially adversely affect our business, financial condition and results of operations.

If we fail to open new domestic and international franchisee-owned restaurants on a timely basis, our ability to increase our revenues could be materially adversely affected.

A significant component of our growth strategy includes the opening of new domestic and international franchised restaurants. Our franchisees face many challenges associated with opening new restaurants, including:

●identification and availability of suitable restaurant locations with the appropriate size, visibility, traffic patterns, local residential neighborhoods, local retail and business attractions and infrastructure that will drive high levels of customer traffic and sales per restaurant;
●competition with other restaurants and retail concepts for potential restaurant sites and anticipated commercial, residential and infrastructure development near new or potential restaurants;
●ability to negotiate acceptable lease arrangements;
●availability of financing and ability to negotiate acceptable financing terms;
●recruiting, hiring and training of qualified personnel;
●construction and development cost management;
●completing their construction activities on a timely basis;
●obtaining all necessary governmental licenses, permits and approvals and complying with local, state and federal laws and regulations to open, construct or remodel and operate our franchised restaurants;
●unforeseen engineering or environmental problems with the leased premises;
●avoiding the impact of adverse weather during the construction period; and
●other unanticipated increases in costs, delays or cost overruns.

•identification and availability of suitable restaurant locations with the appropriate size; visibility; traffic patterns; local residential neighborhood, retail and business attractions; and infrastructure that will drive high levels of customer traffic and sales per restaurant;
•competition with other restaurants and retail concepts for potential restaurant sites and anticipated commercial, residential and infrastructure development near new or potential restaurants;
•ability to negotiate acceptable lease arrangements;
•availability of financing and ability to negotiate acceptable financing terms;
•recruiting, hiring and training of qualified personnel;
•construction and development cost management;
•completing their construction activities on a timely basis;
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•obtaining all necessary governmental licenses, permits and approvals and complying with local, state and federal laws and regulations to open, construct or remodel and operate our franchised restaurants;
•unforeseen engineering or environmental problems with the leased premises;
•avoiding the impact of adverse weather during the construction period; and
•other unanticipated increases in costs, delays or cost overruns.
As a result of these challenges, our franchisees may not be able to open new restaurants as quickly as planned or at all. Our franchisees have experienced, and expect to continue to experience, delays in restaurant openings from time to time and have abandoned plans to open restaurants in various markets on occasion. Any delays or failures to open new restaurants by our franchisees could materially and adversely affect our growth strategy and our results of operations.

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Negative publicity relating to one of our franchised restaurants could reduce sales at some or all of our other franchised restaurants.

Our strategy includes pursuing opportunistic acquisitionssuccess is dependent in part upon our ability to maintain and enhance the value of additionalour brands, consumers’ connection to our brands and wepositive relationships with our franchisees. We may, not find suitable acquisition candidates or successfully operate or integrate any brands that we may acquire.

As part of our strategy, we intend to opportunistically acquire new brands and restaurant concepts. Although we believe that opportunities for future acquisitions may be available from time to time, competition for acquisition candidatesbe faced with negative publicity relating to food quality, public health concerns, restaurant facilities, customer complaints or litigation alleging illness or injury, health inspection scores, integrity of our franchisees or their suppliers’ food processing, employee relationships or other matters, regardless of whether the allegations are valid or whether or not the Company is held to be responsible. The negative impact of adverse publicity relating to one franchised restaurant may existextend far beyond that restaurant or franchisee involved to affect some or all our other franchised restaurants. The risk of negative publicity is particularly great with respect to our franchised restaurants because we are limited in the manner in which we can control a franchisee’s operations and messaging, especially on a real-time basis. The considerable expansion in the use of social media over recent years can further amplify any negative publicity that could be generated by such incidents. A similar risk exists with respect to unrelated food service businesses, if consumers associate those businesses with our own or franchised operations. Additionally, employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. A significant increase in the future. Consequently, there may be fewer acquisition opportunities available to us as well as higher acquisition prices. There can be no assurance that we will be able to identify, acquire, manage or successfully integrate additional brands or restaurant concepts without substantial costs, delays or operational or financial problems.

The difficulties of integration include coordinating and consolidating geographically separated systems and facilities, integrating the management and personnel of the acquired brands, maintaining employee morale and retaining key employees, implementing our management information systems and financial accounting and reporting systems, establishing and maintaining effective internal control over financial reporting, and implementing operational procedures and disciplines to control costs and increase profitability.

In the event we are able to acquire additional brands or restaurant concepts, the integration and operation of such acquisitions may place significant demands on our management, which could adversely affect our ability to manage our existing restaurants. In addition, we may be required to obtain additional financing to fund future acquisitions, but there can be no assurance that we will be able to obtain additional financing on acceptable terms or at all.

We may not achieve our target development goals and the addition of new franchised restaurants may not be profitable.

Our growth strategy depends in part on our ability to add franchisees and our franchisees’ ability to increase our net restaurant count in domestic and foreign markets. The successful development and retention of new restaurants depends in large part on our ability to attract franchisee investment commitments and the ability of our franchisees to open new restaurants and operate these restaurants profitably. We cannot guarantee that we or our current or future franchisees will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, there is no assurance that any new restaurant will produce operating results similar to those of our franchisees’ existing restaurants.

Expansion into target markets could also be affected by our franchisees’ ability to obtain financing to construct and open new restaurants. If it becomes more difficult or more expensive for our franchisees to obtain financing to develop new restaurants, the expected growth of our system could slow and our future revenues and operating cash flows could be adversely impacted.

Opening new franchise restaurants in existing markets and aggressive development could cannibalize existing sales and may negatively affect sales at existing franchised restaurants.

We intend to continue opening new franchised restaurants in our existing markets as a core part of our growth strategy. Expansion in existing markets may be affected by local economic and market conditions. Further, the customer target area of our franchisees’ restaurants varies by location, depending on a number of factors, including population density, other local retail and business attractions, area demographics and geography. As a result, the opening of a new restaurant inthese claims or near markets in which our franchisees’ restaurants already exist could adversely affect the sales of these existing franchised restaurants. Our franchisees may selectively open new restaurants in and around areas of existing franchised restaurants. Sales cannibalization between restaurants may become significantan increase in the future as we continue to expand our operations and could affect sales growth, which could, in turn, materially adversely affectnumber of successful claims would have a material adverse effect on our business, financial condition orand results of operations. There can be no assurance that sales cannibalization will not occurConsumer demand for our products and our brands’ value could diminish significantly if any such incidents or become more significantother matters create negative publicity or otherwise erode consumer confidence in the future as we increaseus or our presence in existing markets.

The number of new franchised restaurants that actually open in the future may differ materially from the number of signed commitments from potential new franchisees.

The number of new franchised restaurants that actually open in the future may differ materially from the number of signed commitments from potential new franchisees. Historically, a portion of our commitments sold have not ultimately opened as new franchised restaurants. The historic conversion rate of signed commitments to new franchised locations may not be indicative of the conversion rates we will experience in the future and the total number of new franchised restaurants actually opened in the future may differ materially from the number of signed commitments disclosed at any point in time.

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Termination of development agreements with certain franchisees could adversely impact our revenues.

We enter into development agreements with certain franchisees that plan to open multiple restaurants in a designated area. These franchisees are granted certain rights with respect to specified territories, and at their discretion, these franchisees may open more restaurants than specified in their agreements. The termination of development agreements with a franchisee or a lack of expansion by these franchisees couldproducts, which would likely result in the delay of the development of franchised restaurants, discontinuation or an interruption in the operation of one of our brands in a particular market or markets. We may not be able to find another operator to resume development activities in such market or markets. While termination of development agreements may result in a short-term recognition of forfeited deposits as revenue, any such delay, discontinuation or interruption would result in a delay in, or loss of, long-term royalty income to us by way of reducedlower sales and could materially and adversely affecthave a material adverse effect on our business, financial condition orand results of operations.

Our brandsbrands’ value may be limited or diluted through franchisee and third-party activity.

Although we monitor and regulate certain aspects of franchisee activities throughunder the terms of our franchise agreements, franchisees or other third parties may refer to or make statements about our brands that do not make proper use of our trademarks or required designations, that improperly alter trademarks or branding, or that are critical of our brands or place our brands in a context that may tarnish our reputation. This may result in dilution of, or harm to, our intellectual property or the value of our brands. Franchisee noncompliance with the terms and conditions of our franchise agreements may reduce the overall goodwill of our brands, whether through the failure to meet health and safety standards, engage in quality control or maintain product consistency, or through the participation in improper or objectionable business practices. Moreover, unauthorized third parties may use our intellectual property to trade on the goodwill of our brands, resulting in consumer confusion or dilution.dilution of our brands’ value. Any reduction of our brands’ goodwill, consumer confusion, or reputational dilution is likely to impact sales, and could materially and adversely impact our business and results of operations.

Risks Relating to Our Business and Operations
We have significant outstanding indebtedness under our whole-business securitization facilities, which require that we generate sufficient cash flow to satisfy the payment and other obligations under the terms of our debt and exposes us to the risk of default and lender remedies.
We have financed our acquisitions and operations through the issuance of notes by four special purpose, wholly-owned financing subsidiaries, which own substantially all of our operations. The Company acts as the manager of each of these subsidiaries under a Management Agreement and performs management, franchising, distribution, intellectual property and operational functions on behalf of the subsidiaries for which it receives a management fee. The aggregate principal balance of
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the indebtedness under our whole-business securitization facilities was $1.0 billion as of December 25, 2022. Subject to contractual restrictions, we and our financing subsidiaries may incur additional indebtedness for various purposes, including to fund future acquisitions, the construction of company-owned restaurants and operational needs. The terms of our outstanding indebtedness provide for significant principal and interest payments, and subjects us to certain financial and non-financial covenants, including a debt service coverage ratio calculation, as defined in the applicable Indentures for these facilities. If certain covenants are not met, the indebtedness under these facilities may become partially or fully due and payable on an accelerated schedule.  Our ability to meet the payment obligations under our debt depends on our ability to generate significant cash flow in the future. We cannot assure you that our business will generate cash flow from operations, or that other capital will be available to us, in amounts sufficient to enable us to meet our payment obligations under our Indentures and to fund our other liquidity needs. If we are not able to generate sufficient cash flow to service these obligations, we may need to refinance or restructure our debt, sell unencumbered assets (if any) or seek to raise additional capital. If we are unable to implement one or more of these options, we may not be able to meet these payment obligations, and the imposition of remedies by the note holders could materially and adversely affect our business, financial condition and liquidity.
We may pursue opportunistic acquisitions of additional brands, and we may not find suitable acquisition candidates or successfully operate or integrate any brands that we may acquire.
As part of our growth strategy, we may opportunistically acquire new brands and restaurant concepts. Although we believe that opportunities for future acquisitions may be available from time to time, competition for acquisition candidates may exist or increase in the future. Consequently, there may be fewer acquisition opportunities available to us as well as higher acquisition prices. There can be no assurance that we will be able to identify, acquire, manage or successfully integrate additional brands or restaurant concepts (including brands and concepts that we have already acquired) without substantial costs, delays or operational or financial problems.
The difficulties of integration include coordinating and consolidating geographically separated systems and facilities, integrating the management and personnel of the acquired brands, maintaining employee morale and retaining key employees, implementing our management information systems and financial accounting and reporting systems, establishing and maintaining effective internal control over financial reporting, and implementing operational procedures and disciplines to control costs and increase profitability.
In the event we are able to acquire additional brands or restaurant concepts, the integration and operation of such acquisitions may place significant demands on our management, which could adversely affect our ability to manage our existing restaurants. In addition, we may be required to obtain additional financing to fund future acquisitions, but there can be no assurance that we will be able to obtain additional financing on acceptable terms or at all.
Health concerns arising from outbreaks of diseases, other than COVID-19, may have an adverse effect on our business.

The outbreak of the COVID-19 pandemic in March 2020 had a number of adverse effects on our business and that of our franchisees, including temporary and permanent closures of restaurant locations, reduced or modified store operating hours, difficulties in staffing restaurants and supply chain disruptions. While the disruptions to our business from the COVID-19 pandemic have mostly subsided, the resurgence of COVID-19 or its variants, as well as an outbreak of other widespread health epidemics or pandemics, could cause a closure of restaurants and disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.

Furthermore, since diseases may be transmitted through human contact, the risk of contracting diseases could cause employees or guests to avoid gathering in public places, which could adversely affect restaurant guest traffic or the ability to adequately staff our restaurants. We could also be adversely affected if jurisdictions in which our restaurants operate impose mandatory closures, seek voluntary closures or impose restrictions on operations of restaurants. Even if such measures are not implemented and a virus or other disease, the perceived risk of infection or health risk may adversely affect our business.
Food safety and foodborne illness concerns may have an adverse effect on our business.

Foodborne illnesses, such as E. coli, hepatitis A, trichinosis and salmonella, occur or may occur within our system from time to time. In addition, food safety issues such as food tampering, contamination and adulteration occur or may occur within our system from time to time. Any report or publicity linking one of our franchisee’s restaurants, or linking our competitors or our industry generally, to instances of foodborne illness or food safety issues could adversely affect our brands and reputations as well as our revenues and profits, and possibly lead to product liability claims, litigation and damages. If a customer of one of our franchisees’ restaurants becomes ill as a result of food safety issues, restaurants in our system may be temporarily closed, which would decrease our revenues. In addition, instances or allegations of foodborne illness or food safety issues, real or perceived, involving our franchised restaurants, restaurants of competitors, or suppliers or distributors (regardless
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of whether we use or have used those suppliers or distributors), or otherwise involving the types of food served at our franchisees’ restaurants, could result in negative publicity that could adversely affect our revenues or the sales of our franchisees. Additionally, allegations of foodborne illness or food safety issues could result in litigation involving us and our franchisees. The occurrence of foodborne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, which could result in disruptions in our supply chain and/or lower revenues and margins for us and our franchisees.
The sale of alcoholic beverages at Twin Peaks Restaurants subjects us to additional regulations and potential liability.

The Twin Peaks restaurants that we own and operate sell alcoholic beverages, and we are therefore required to comply with the alcohol licensing requirements of the federal government, states and municipalities where such restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, the licenses are renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If we fail to comply with federal, state or local regulations, such licenses may be revoked and our Twin Peaks restaurants may be forced to terminate the sale of alcoholic beverages. Any termination of the sale of alcoholic beverages could have a significant negative impact on our revenues. Similarly, any reduction in state blood alcohol content limits on drivers, or laws relating to vehicle interlocking devices, could also have a significant negative impact on revenues of the Twin Peaks restaurants.

In certain states in which Twin Peaks restaurants are situated, we may be subject to dram shop statutes. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual. Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes. Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, results of operations or financial condition. Regardless of whether any claims against us or our Twin Peaks operations are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from operations and hurt our financial performance. A judgment significantly in excess of insurance coverage or not covered by insurance could have a material adverse effect on our business, results of operations and financial condition. Adverse publicity resulting from these allegations may materially affect us and the Twin Peaks restaurants. In addition, it may not be possible to obtain adequate levels of insurance coverage in the future for alcohol related claims, and such coverage may not be available for reasonable insurance premiums.
Our success depends substantially on our corporate reputation and on the value and perception of our brands.

Our success depends in large part upon our and our franchisees’ ability to maintain and enhance the value of our brands and our customers’ loyalty to our brands. Brand value is based in part on consumer perceptions on a variety of subjective qualities. Business incidents, whether isolated or recurring, and whether originating from us, franchisees, competitors, suppliers or distributors, can significantly reduce brand value and consumer trust, particularly if the incidents receive considerable publicity or result in litigation. For example, our brands could be damaged by claims or perceptions about the quality or safety of our products or the quality or reputation of our suppliers, distributors or franchisees, regardless of whether such claims or perceptions are true. Similarly, entities in our supply chain may engage in conduct, including alleged human rights abuses or environmental wrongdoing, and any such conduct could damage our or our brands’ reputations. Any such incidents (even if resulting from actions of a competitor or franchisee) could cause a decline directly or indirectly in consumer confidence in, or the perception of, our brands and/or our products and reduce consumer demand for our products, which would likely result in lower revenues and profits. Additionally, our corporate reputation could suffer from a real or perceived failure of corporate governance or misconduct by a company officer, or an employee or representative of us or a franchisee.

Our success depends in part upon successful advertising and marketing campaigns and franchisee support of such advertising and marketing campaigns.

We believe our brands are critical to our business. We expend resources in our marketing efforts using a variety of media, including social media. We expect to continue to conduct brand awareness programs and customer initiatives to attract and retain customers. Additionally, some of our competitors have greater financial resources, which enable them to spend significantly more on marketing and advertising than us. Should our competitors increase spending on marketing and advertising, or should our advertising and promotions be less effective than our competitors, our business, financial condition and results of operations could be materially adversely affected.

The support of our franchisees is critical for the success of our advertising and marketing campaigns we seek to undertake, and the successful execution of these campaigns will depend on our ability to maintain alignment with our franchisees. Our franchisees are required to spend approximately 1%-3% of net sales directly on local advertising or contribute to a local fund managed by franchisees in certain market areas to fund the purchase of advertising media. Our franchisees are also required to contribute 1% of their net sales to a national fund to support the development of new products, brand development and national marketing programs. In addition, we, our franchisees and other third parties have contributed additional advertising funds in the past. While we maintain control over advertising and marketing materials and can mandate certain strategic initiatives pursuant to our franchise agreements, we need the active support of our franchisees if the implementation of these initiatives is to be successful. Additional advertising funds are not contractually required, and we, our franchisees and other third parties may choose to discontinue contributing additional funds in the future. Any significant decreases in our advertising and marketing funds or financial support for advertising activities could significantly curtail our marketing efforts, which may in turn materially adversely affect our business, financial condition and results of operations.

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Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could adversely impact our business.

In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat platforms, social media websites, and other forms of Internet based communications which allow individuals access to a broad audience of consumers and other interested persons. The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests and/or may be inaccurate. The dissemination of information via social media could harm our business, reputation, financial condition, and results of operations, regardless of the information’s accuracy. The damage may be immediate without affording us an opportunity for redress or correction.

In addition, social media is frequently used to communicate with our customers and the public in general. Failure by us to use social media effectively or appropriately, particularly as compared to our brands’ respective competitors, could lead to a decline in brand value, customer visits and revenue. Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our brands, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information. The inappropriate use of social media by our customers or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation and adversely affect our results of operations.

Negative publicity relating to one of our franchised restaurants could reduce sales at some or all of our other franchised restaurants.

Our success is dependent in part upon our ability to maintain and enhance the value of our brands, consumers’ connection to our brands and positive relationships with our franchisees. We may, from time to time, be faced with negative publicity relating to food quality, public health concerns, restaurant facilities, customer complaints or litigation alleging illness or injury, health inspection scores, integrity of our franchisees or their suppliers’ food processing, employee relationships or other matters, regardless of whether the allegations are valid or whether we are held to be responsible. The negative impact of adverse publicity relating to one franchised restaurant may extend far beyond that restaurant or franchisee involved to affect some or all of our other franchised restaurants. The risk of negative publicity is particularly great with respect to our franchised restaurants because we are limited in the manner in which we can regulate them, especially on a real-time basis. The considerable expansion in the use of social media over recent years can further amplify any negative publicity that could be generated by such incidents. A similar risk exists with respect to unrelated food service businesses, if consumers associate those businesses with our own operations. Additionally, employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. A significant increase in the number of these claims or an increase in the number of successful claims would have a material adverse effect on our business, financial condition and results of operations. Consumer demand for our products and our brands’ value could diminish significantly if any such incidents or other matters create negative publicity or otherwise erode consumer confidence in us or our products, which would likely result in lower sales and could have a material adverse effect on our business, financial condition and results of operations.

Failure to protect our service marks or other intellectual property could harm our business.

We regard our Fatburger®, Buffalo’s Cafe®, Ponderosa® and Bonanza® service marks, and other service marks and trademarks related to our franchise restaurant businesses, as having significant value and being importantcritical importance to our future operations and marketing efforts. We rely on a combination of protections provided by contracts, copyrights, patents, trademarks, service marks and other common law rights, such as trade secret and unfair competition laws, to protect our franchised restaurants and services from infringement. We have registered certain trademarks and service marks in the U.S. and foreign jurisdictions. However, from time to time we become aware of names and marks identical or confusingly similar to our service marks being used by other persons. Although our policy is to oppose any such infringement, further or unknown unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and adversely affect our business. In addition, effective intellectual property protection may not be available in every
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country in which our franchisees have, or intend to open or franchise, a restaurant. There can be no assurance that these protections will be adequate and defending or enforcing our service marks and other intellectual property could result in the expenditure of significant resources. We may also face claims of infringement that could interfere with the use of the proprietary knowhow,know how, concepts, recipes, or trade secrets used in our business. Defending against such claims may be costly, and we may be prohibited from using such proprietary information in the future or forced to pay damages, royalties, or other fees for using such proprietary information, any of which could negatively affect our business, reputation, financial condition, and results of operations.

If our franchisees are unable to protect their customers’ credit card data and other personal information, our franchisees could be exposed to data loss, litigation, and liability, and our reputation could be significantly harmed.

Privacy protection is increasingly demanding, and the use of electronic payment methods and collection of other personal information expose our franchisees to increased risk of privacy and/or security breaches as well as other risks. The majority of our franchisees’ restaurant sales are by credit or debit cards. In connection with credit or debit card transactions in-restaurant, our franchisees collect and transmit confidential information by way of secure private retail networks. Additionally, our franchisees collect and store personal information from individuals, including their customers and employees.

Although our franchisees use secure private networks to transmit confidential information and debit card sales, their security measures and those of technology vendors may not effectively prohibit others from obtaining improper access to this information. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often difficult to detect for long periods of time, which may cause a breach to go undetected for an extensive period of time. Advances in computer and software capabilities, new tools, and other developments may increase the risk of such a breach. Further, the systems currently used for transmission and approval of electronic payment transactions, and the technology utilized in electronic payment themselves, all of which can put electronic payment at risk, are determined and controlled by the payment card industry, not by us, through enforcement of compliance with the Payment Card Industry-Data Security Standards. Our franchisees must abide by the Payment Card Industry-Data Security Standards, as modified from time to time, in order to accept electronic payment transactions. Furthermore, the payment card industry is requiring vendors to become compatible with smart chip technology for payment cards, referred to as EMV-Compliant, or else bear full responsibility for certain fraud losses, referred to as the EMV Liability Shift, which could adversely affect our business. To become EMV-Compliant, merchants must utilize EMV-Compliant payment card terminals at the point of sale and also obtain a variety of certifications. The EMV Liability Shift became effective on October 1, 2015.

If a person is able to circumvent our franchisees’ security measures or those of third parties, he or she could destroy or steal valuable information or disrupt our operations. Our franchisees may become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and our franchisees may also be subject to lawsuits or other proceedings relating to these types of incidents. Any such claim or proceeding could cause our franchisees to incur significant unplanned expenses, which could have an adverse impact on our financial condition, results of operations and cash flows. Further, adverse publicity resulting from these allegations could significantly harm our reputation and may have a material adverse effect on us and our franchisees’ business.

We and our franchisees rely on computer systems to process transactions and manage our business, and a disruption or a failure of such systems or technology could harm our ability to effectively manage our business.

Network and information technology systems are integral to our business. We utilize various computer systems, including our franchisee reporting system, by which our franchisees report their weekly sales and pay their corresponding royalty fees and required advertising fund contributions. When sales are reported by a franchisee, a withdrawal for the authorized amount is initiated from the franchisee’s bank on a set date each week based on gross sales during the week ended the prior Sunday. This system is critical to our ability to accurately track sales and compute royalties and advertising fund contributions and receive timely payments due from our franchisees. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could have a material adverse effect on our business and subject us to litigation or actions by regulatory authorities. Despite the implementation of protective measures, our systems are subject to damage and/or interruption as a result of power outages, computer and network failures, computer viruses and other disruptive software, security breaches, catastrophic events, and improper usage by employees. Such events could result in a material disruption in operations, a need for a costly repair, upgrade or replacement of systems, or a decrease in, or in the collection of, royalties and advertising fund contributions paid to us by our franchisees. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability which could materially affect our results of operations. It is also critical that we establish and maintain certain licensing and software agreements for the software we use in our day-to-day operations. A failure to procure or maintain these licenses could have a material adverse effect on our business operations.

We

Our business may engagebe adversely affected by cybersecurity incidents, which result in litigationunauthorized access, theft, modification or destruction of confidential information that is stored in our systems or by third parties on our behalf.
Cybersecurity incidents or other unauthorized access to systems may result in disruption to our operations, corruption or theft of critical data, confidential information or intellectual property. As reliance on technology continues to grow and more business activities have shifted online, the risk associated with any cybersecurity incidents have grown. While we and our franchisees.

Although we believe we generally enjoy a positive working relationship withthird-party vendors have implemented security systems and infrastructure to prevent, detect and/or mitigate the vast majorityrisk of unauthorized access to technology systems or platforms, there can be no assurance that these measures will be effective. Any cybersecurity or similar incident involving confidential information of our business, our franchisees the natureor our restaurant customers could result in negative publicity, damage to our reputation, a loss of the franchisor-franchisee relationship may give rise to litigation with our franchisees. In the ordinary course of business, we are the subject of complaints or litigation from franchisees, usually related to alleged breaches of contract or wrongful termination under the franchise arrangements. We may also engage in future litigation with franchisees to enforce the termsrevenues, disruption of our franchise agreementsbusiness, litigation and compliance with our brand standards as determined necessaryregulatory actions. Additional capital investments might be required to protect our brands, the consistencyremediate any problems, infringements, misappropriations or other third-party claims.

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Table of our products and the customer experience. We may also engage in future litigation with franchisees to enforce our contractual indemnification rights if we are brought into a matter involving a third party due to the franchisee’s alleged acts or omissions. In addition, we may be subject to claims by our franchisees relating to our franchise disclosure document, including claims based on financial information contained in our franchise disclosure document. Engaging in such litigation may be costly and time-consuming and may distract management and materially adversely affect our relationships with franchisees and our ability to attract new franchisees. Any negative outcome of these or any other claims could materially adversely affect our results of operations as well as our ability to expand our franchise system and may damage our reputation and brands. Furthermore, existing and future franchise-related legislation could subject us to additional litigation risk in the event we terminate or fail to renew a franchise relationship.

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Contents

The retail food industry in which we operate is highly competitive.

The retail food industry in which we operate is highly competitive with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. If consumer or dietary preferences change, if our marketing efforts are unsuccessful, or if our franchisees’ restaurants are unable to compete successfully with other retail food outlets in new and existing markets, our business could be adversely affected. We also face growing competition as a result of convergence in grocery, convenience, deli and restaurant services, including the offering by the grocery industry of convenient meals, including pizzas and entrees with side dishes. Competition from delivery aggregators and other food delivery services has also increased in recent years, particularly in urbanized areas. Increased competition could have an adverse effect on our sales, profitability or development plans, which could harm our financial condition and operating results.

Shortages

Supply chain shortages or interruptions in the availability and delivery of food and other supplies may increase costs or reduce revenues.


The food products sold by our franchisees and in our company-owned restaurants, and the raw materials used in their these restaurants, are sourced from a variety of domestic and international suppliers.vendors, suppliers and distributors. We, along with our franchisees, are also dependent upon third parties to make frequent deliveries of food products and supplies that meet our specifications at competitive prices. Shortages or interruptions in the supply of food items, raw materials and other supplies to our franchisees’ restaurants could adversely affect the availability, quality and cost of items we use and the operations of our franchisees’ and company-owned restaurants. If such shortages result in increased cost of food items and supplies, we and our franchisees may not be able to pass along all of such increased costs to restaurant customers.

Such shortages or disruptions could be caused by inclement weather, natural disasters, increased demand, problems in production or distribution, restrictions on imports or exports, the inability of vendors to obtain credit, political instability in the countries in which suppliers and distributors are located, the financial instability of suppliers and distributors, suppliers’ or distributors’ failure to meet our standards, product quality issues, inflation, the price of gasoline, other factors relating to the suppliers and distributors and the countries in which they are located, food safety warnings or advisories or the prospect of such pronouncements, the cancellation of supply or distribution agreements or an inability to renew such arrangements or to find replacements on commercially reasonable terms, or other conditions beyond our control or the control of our franchisees.

franchisees or us. Increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have a significant impact on the price, availability and timing of delivery of some of our ingredients. If inflation in food ingredients or supplies persists, our financial condition and business operations could be adversely impacted.


A shortage or interruption in the availability of certain food products, raw materials or supplies could increase costs and limit the availability of products critical to our franchisees’ and company-owned restaurant operations, which in turn could lead to restaurant closures and/or a decrease in sales and therefore , and a reduction in our revenues and royalty fees paid to us. In addition, failure by a key supplier or distributor to our franchisees to meet its service requirements could lead to a disruption of service or supply until a new supplier or distributor is engaged, and any disruption could have an adverse effect on our franchisees and therefore our business. See “Business—Supply Chain.Chain Assistance.”

An

Climate change and the shift to more sustainable business practices could negatively affect our business or damage our reputation.
Climate change may increase the risk of severe weather or the risk that those events happen more frequently, which could cause negatively affect restaurant sales volumes in food pricessome of the markets in which we operate and may have an adverse impact onresult in decreased availability or less favorable pricing for certain commodities used in our and our franchisees’ profit margins.

Our franchisees’ restaurants depend on reliable sources of large quantities of raw materialsproducts, such as protein (including beef, chicken and poultry), cheese, oil, flourdairy. In addition, climate change may increase the frequency or severity of natural disasters and vegetables (including potatoesother extreme weather conditions, which could disrupt our supply chain generally or otherwise impact demand for our products. Also, concern over climate change and lettuce). Raw materials purchased for useother sustainable business practices may result in new or increased legal and regulatory requirements or generally accepted business practices, which could significantly increase our franchisees’ restaurants are subject to price volatility caused by any fluctuation in aggregate supply and demand,costs. Legislative, regulatory or other external conditions, such as weather conditionsefforts to combat climate change or natural events or disasters that affect expected harvests of such raw materials. As a result, the historical prices of raw materials used in the operation of our franchisees’ restaurants have fluctuated. We cannot assure you that we or our franchisees will continue to be able to purchase raw materials at reasonable prices, or that prices of raw materials will remain stable in the future. In addition, a significant increase in gasoline pricesother environmental concerns could result in the imposition of fuel surcharges by our distributors.

Because our franchisees provide competitively priced food, we may not have the ability to pass through to customers the full amount of any commodity price increases. If we and our franchisees are unable to managefuture increases in the cost of raw materials, or to increase the prices of products proportionately, it may have an adverse impact on ourtaxes, transportation and our franchisees’ profit margins and their ability to remain in business,utilities, which would adverselycould affect our results of operations.

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operations and necessitate future investments in facilities and equipment. In addition, a failure to reduce our greenhouse gas emissions or adopt other sustainable business practices or the perception of a failure to act responsibly with respect to the environment or to effectively respond to regulatory requirements concerning climate change or
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Food safety


other sustainable business practices can lead to adverse publicity, diminish the value of our brands and foodborne illness concerns may haveresult in an adverse effect on our business.

Foodborne illnesses, such as E. coli, hepatitis A, trichinosis and salmonella, occur or may occur within our system from time to time. In addition, food safety issues such as food tampering, contamination and adulteration occur or may occur within our system from time to time. Any report or publicity linking one of our franchisee’s restaurants, or linking our competitors or our industry generally, to instances of foodborne illness or food safety issues could adversely affect our brands and reputations as well as our revenues and profits, and possibly lead to product liability claims, litigation and damages. If a customer of one of our franchisees’ restaurants becomes ill as a result of food safety issues, restaurants in our system may be temporarily closed, which would decrease our revenues. In addition, instances or allegations of foodborne illness or food safety issues, real or perceived, involving our franchised restaurants, restaurants of competitors, or suppliers or distributors (regardless of whether we use or have used those suppliers or distributors), or otherwise involving the types of food served at our franchisees’ restaurants, could result in negative publicity that could adversely affect our revenues or the sales of our franchisees. The occurrence of foodborne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, which could result in disruptions in our supply chain and/or lower margins for us and our franchisees.

Health concerns arising from outbreaks of viruses or other diseases may have an adverse effect on our business.

Our business could be materially and adversely affected by the outbreak of a widespread health epidemic. The occurrence of such an outbreak of an epidemic illness or other adverse public health developments could materially disrupt our business and operations. Such events could also significantly impact our industry and cause a temporary closure of restaurants, which would severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.

Furthermore, viruses may be transmitted through human contact, and the risk of contracting viruses could cause employees or guests to avoid gathering in public places, which could adversely affect restaurant guest traffic or the ability to adequately staff franchised restaurants. We could also be adversely affected if jurisdictions in which our franchisees’ restaurants operate impose mandatory closures, seek voluntary closures or impose restrictions on operations of restaurants. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may affect our business.

New information or attitudes regarding diet and health could result in changes in regulations and consumer consumption habits that could adversely affect our results of operations.

Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new information regarding the health effects of consuming certain menu offerings. These changes have resulted in, and may continue to result in, laws and regulations requiring us to disclose the nutritional content of our food offerings, and they have resulted, and may continue to result in, laws and regulations affecting permissible ingredients and menu offerings. For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose to consumers certain nutritional information or have enacted legislation restricting the use of certain types of ingredients in restaurants. These requirements may be different or inconsistent with requirements under the Patient Protection and Affordable Care Act of 2010 (which we refer to as the “PPACA”), which establishes a uniform, federal requirement for certain restaurants to post nutritional information on their menus. Specifically, the PPACA requires chain restaurants with 20 or more locations operating under the same name and offering substantially the same menus to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake. These inconsistencies could be challenging for us to comply with in an efficient manner. The PPACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this information upon request. An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could negatively influence the demand for our products and materially adversely affect our business, financial condition and results of operations.

Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming. Additionally, if consumer health regulations or consumer eating habits change significantly, we may be required to modify or discontinue certain menu items, and we may experience higher costs associated with the implementation of those changes. We cannot predict the impact of the new nutrition labeling requirements under the PPACA until final regulations are promulgated. The risks and costs associated with nutritional disclosures on our menus could also impact our operations, particularly given differences among applicable legal requirements and practices within the restaurant industry with respect to testing and disclosure, ordinary variations in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of nutritional information obtained from third-party suppliers.

Our business may be adversely impacted by changes in consumer discretionary spending, and general economic conditions.

conditions, or consumer behavior.

Purchases at our franchisees’ restaurants are generally discretionary for consumers and, therefore, our results of operations are susceptible to economic slowdowns and recessions. Our results of operations are dependent upon discretionary spending by consumerscustomers of our franchisees’ restaurants, which may be affected by general economic conditions globally or in one or more of the markets we serve. Some of the factors that impact discretionary consumer spending include unemployment rates, fluctuations in the level of disposable income, the price of gasoline, stock market performance, and changes in the level of consumer confidence.confidence, and long-term changes in consumer behavior related to social distancing behaviors resulting from COVID-19 or other widespread health events. These and other macroeconomic factors could have an adverse effect on sales at our franchisees’ restaurants, which could lead to an adverse effect on our profitability or development plans and harm our financial condition and operating results.

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Our expansion into international markets exposes us to a number of risks that may differ in each country where we have franchised restaurants.

We currently have franchised restaurants in Canada, China, UAE,40 countries, including 48 states within the United Kingdom, Kuwait, Saudi Arabia, Panama, Bahrain, Egypt, Iraq, Pakistan, Philippines, Indonesia, Malaysia, QatarStates, and Tunisia, andwe plan to continue to grow internationally. Expansion in international markets may be affected by local economic and market as well as geopolitical conditions. Therefore, as we expand internationally, our franchisees may not experience the operating margins we expect, and our growth and our results of operations and growth may be materially and adversely affected. Our financial condition and results of operations may be adversely affected if global markets in which our franchised restaurants compete are affected by changes in political, economic or other factors. These factors, over which neither our franchisees nor we have control, may include:

●recessionary or expansive trends in international markets;
●changing labor conditions and difficulties in staffing and managing our foreign operations;
●increases in the taxes we pay and other changes in applicable tax laws;
●legal and regulatory changes, and the burdens and costs of our compliance with a variety of foreign laws;
●changes in inflation rates;
●include such issues as (but not limited to):
•recessionary or expansive trends in international markets;
•changing labor conditions and difficulties in staffing and managing our foreign operations;
•increases in the taxes we pay and other changes in applicable tax laws;
•legal and regulatory changes, and the burdens and costs of our compliance with a variety of foreign laws;
•changes in inflation rates;
•changes in exchange rates and the imposition of restrictions on currency conversion or the transfer of funds;
●difficulty in protecting our brand, reputation and intellectual property;
●difficulty in collecting our royalties and longer payment cycles;
●expropriation of private enterprises;
●increases in anti-American sentiment and the identification of our brands as American brands;
●political and economic instability; and
●other external factors.

Our international operations subject us to risks that could negatively affect our business.

A significant portion of our franchised restaurants are operated in countries and territories outside of the United States, including in emerging markets, and we intend to continue expansion of our international operations. As a result, our business is increasingly exposed to risks inherent in international operations. These risks, which can vary substantially by country, include political instability, corruption and social and ethnic unrest, as well as changes in economic conditions (including consumer spending, unemployment levels and wage and commodity inflation), the regulatory environment, income and non-income based tax rates and laws, foreign exchange control regimes, consumer preferences and the laws and policies that govern foreign investment in countries where our franchised restaurants are operated. In addition, our franchisees do business in jurisdictions that may be subject to trade or economic sanction regimes. Any failure to comply with such sanction regimes or other similar laws or regulations could result in the assessment of damages, the imposition of penalties, suspensionrestrictions on currency conversion or the transfer of business licenses, or a cessationfunds;

•difficulty in protecting our brand, reputation and intellectual property;
•difficulty in collecting our royalties and longer payment cycles;
•expropriation of operations at our franchisees’ businesses, as well as damage to our and our brands’ images and reputations, all of which could harm our profitability.

Foreign currency risks and foreign exchange controls could adversely affect our financial results.

Our results of operationsprivate enterprises;

•increases in anti-American sentiment and the valueidentification of our foreign assets are affected by fluctuations in currency exchange rates, which may adversely affect reported earnings. More specifically, an increase in the value of the U.S. dollar relative to brands as American brands;
•political and economic instability; and
•other currencies could have an adverse effect on our reported earnings. Our Canadian franchisees pay us franchise fees as a percentage of sales denominated in Canadian dollars, which are then converted to U.S. dollars at the prevailing exchange rate. This exposes us to risk of an increase in the value of the U.S. dollar relative to the Canadian dollar. There can be no assurance as to the future effect of any changes in currency exchange rates on our results of operations, financial condition or cash flows.

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external factors.

We depend on key executive management.

We depend on the leadership and experience of our relatively small number of key executive management personnel, and in particular key executive management, particularly our Chief Executive Officer, Andrew Wiederhorn.personnel. The loss of the services of any of our executive management members could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. We do not maintain key manperson life insurance policies on any of our executive officers.officers other than Andrew Wiederhorn. We believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in our industry. Our inability to meet our executive staffing requirements in the future could impair our growth and harm our business.

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Labor shortages or difficulty finding qualified employees could slow our growth, harm our business and reduce our profitability.

Restaurant operations are highly service oriented, and our success depends in part upon our franchisees’ and our ability to attract, retain and motivate a sufficient number of qualified employees, including restaurant managers and other crew members. The market for qualified employees in our industry is very competitive. Any future inability to recruit and retain qualified individuals may delay the planned openings of new restaurants by us and our franchisees and could adversely impact our existing franchised and company owned restaurants. Any such delays, material increases in employee turnover rate in existing franchised restaurants or widespread employee dissatisfaction could have a material adverse effect on our and our franchisees’ business and results of operations.

In addition, strikes, work slowdowns or other job actions may become more common in the United States. Although none of the employees employed by our franchisees or by us are represented by a labor union or are covered by a collective bargaining agreement, in the event of a strike, work slowdown or other labor unrest, the ability to adequately staff our restaurants could be impaired, which could result in reduced revenue and customer claims, and may distract our management from focusing on our business and strategic priorities.

Changes in labor and other operating costs could adversely affect our results of operations.

An increase in the costs of employee wages, benefits and insurance (including workers’ compensation, general liability, property and health) could result from government imposition of higher minimum wages or from general economic or competitive conditions. In addition, competition for qualified employees could compel our franchisees to pay higher wages to attract or retain key crew members, which could result in higher labor costs and decreased profitability. Any increase in labor expenses, as well as increases in general operating costs such as rent and energy, could adversely affect our franchisees’ profit margins, their sales volumes and their ability to remain in business, which would adversely affect our results of operations.

A broader standard for determining joint employer status

Risks Related to Government Regulation and Litigation
The Company faces risks related to pending government investigations.
The government investigations mentioned below in Item 3, Legal Proceedings present certain risks. At this stage, we are not able to reasonably estimate the outcome or duration of these investigations, nor can we predict what consequences any investigation may have on us, including significant legal and accounting expenses. Moreover, there could be developments of which we are not aware, which could result in further proceedings against our Company, Mr. Wiederhorn and our other directors, officers and employees. These matters may also divert management's attention from other business concerns, or result in the loss of the services of Mr. Wiederhorn or our other directors, officers or employees, which could harm the business and could result in reputational damage. Any proceedings commenced against us or Mr. Wiederhorn by a regulatory agency could result in administrative orders, the imposition of penalties and/or fines, and the imposition of sanctions against us, Mr. Wiederhorn and other of our current or former officers, directors and employees.
These investigations, the results of the investigations or remedial actions that we have taken or may take as a result of such investigations may materially adversely affect our business, financial condition and reputation. If we are subject to adverse findings resulting from the U.S. Attorney or SEC investigations, or from our own independent investigations, we could be required to pay damages and/or penalties or have other remedies imposed on us, and the Company or our officers, directors or employees may be subject to additional civil litigation against the Company or our officers and directors regarding such matters.
We maintain director and officer liability insurance for losses or advancement of defense costs in the event legal actions are brought against the Company's directors, officers or employees for alleged wrongful acts in their capacity as directors, officers or employees. Such insurance contains certain customary exclusions that may make it unavailable to the Company or our directors and officers in the event it is needed; and, in any case, such insurance may not be adequate to fully protect the Company against liability for the conduct of its directors, officers or employees or the Company's indemnification obligations to its directors and officers.
We are a party to stockholder litigation which could negatively impact our business, operating results and financial condition.
We may incur additional costs in connection with the defense or settlement of existing and any future stockholder litigation, including the stockholder litigation that has been brought against us and certain of our directors. See "Part I, Item 3. Legal Proceedings" below. Subject to certain limitations, we are obligated to indemnify our directors in connection with the
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litigation and any related litigation or settlement amounts, which may be time-consuming, result in significant expense and divert the attention and resources of our management away from our operating business matters. An unfavorable financial outcome that exceeds coverage provided under our insurance policies, could have an adverse effect on our financial condition and results of operations and increasecould harm our liabilities resulting from actions by our franchisees.

In 2015, the National Labor Relations Board (which we refer to as the “NLRB”) adopted a new and broader standard for determining when two or more otherwise unrelated employers may be found to be a joint employer of the same employees under the National Labor Relations Act. In addition, the general counsel’s office of the NLRB has issued complaints naming McDonald’s Corporation as a joint employer of workers at its franchisees for alleged violations of the U.S. Fair Labor Standards Act. In June 2017, the U.S. Department of Labor announced the rescission of these guidelines. However, there can be no assurance that future changes in law, regulation or policy will cause us or our franchisees to be liable or held responsible for unfair labor practices, violations of wage and hour laws, or other violations or require our franchises to conduct collective bargaining negotiations regarding employees of our franchisees. Further, there is no assurance that we or our franchisees will not receive similar complaints as McDonald’s Corporation in the future, which could result in legal proceedings based on the actions of our franchisees. In such events, our operating expenses may increase as a result of required modifications to our business practices, increased litigation, governmental investigations or proceedings, administrative enforcement actions, fines and civil liability.

reputation.

We could be party to litigation that could adversely affect us by increasing our expenses, diverting management attention or subjecting us to significant monetary damages and other remedies.

We may become involved in legal proceedings involving consumer, employment, real estate related, tort, intellectual property, breach of contract, securities, derivative and other litigation. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may not be accurately estimated. Regardless of whether any such claims have merit, or whether we are ultimately held liable or settle, such litigation may be expensive to defend and may divert resources and management attention away from our operations and negatively impact reported earnings. With respect to insured claims, a judgment for monetary damages in excess of any insurance coverage could adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also adversely affect our reputation, which in turn could adversely affect our results of operations.

In addition, the restaurant industry around the world has been subject

Our subsidiary Fog Cutter Acquisition, LLC is a party to claims that relateenvironmental litigation which could result in significant legal expenses whether or not it is resolved favorably.
As described in this Annual Report under “Item 3. Legal Proceedings”, our subsidiary Fog Cutter Capital Group Inc. (now known as Fog Cutter Acquisition, LLC), is a party to the nutritional contentlitigation entitled Stratford Holding LLC v. Foot Locker Retail Inc. for alleged environmental contamination stemming from dry cleaning operations on a property which was included in a lease portfolio managed by a former subsidiary of food products, as well as claims that the menus and practices of restaurant chains have led to customer health issues, including weight gain and other adverse effects. These concerns could lead to an increaseFog Cutter. The property owners seek damages in the regulationrange of $12 million to $22 million in the aggregate from all defendants. The Company is unable to predict the ultimate outcome of this matter, and reserves have been recorded on the balance sheet relating to this litigation. There can be no assurance that Fog Cutter Acquisition, LLC will be successful in defending against this action, and an unfavorable outcome in excess of the content or marketing ofreserves could have a material adverse effect on our products. We may also be subject to such claims in the future and, even if we are not, publicity about these matters (particularly directed at the quick service and fast casual segments of the retail food industry) may harm our reputation and adversely affect our business, financial condition and results of operations.

Changes in, or noncompliance with, governmental regulations may adversely affect our business operations, growth prospects or financial condition.

We and our franchisees are subject to numerous laws and regulations around the world. These laws change regularly and are increasingly complex. For example, we and our franchisees are subject to:

●The Americans with Disabilities Act in the U.S. and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas.
●The U.S. Fair Labor Standards Act, which governs matters such as minimum wages, overtime and other working conditions, as well as family leave mandates and a variety of similar state laws that govern these and other employment law matters.
●Laws and regulations in government mandated health care benefits such as the Patient Protection and Affordable Care Act.
●Laws and regulations relating to nutritional content, nutritional labeling, product safety, product marketing and menu labeling.
●Laws relating to state and local licensing.
●Laws relating to the relationship between franchisors and franchisees.
●Laws and regulations relating to health, sanitation, food, workplace safety, child labor, including laws prohibiting the use of certain “hazardous equipment” by employees younger than the age of 18 years of age, and fire safety and prevention.
●Laws and regulations relating to union organizing rights and activities.
●Laws relating to information security, privacy, cashless payments, and consumer protection.
●Laws relating to currency conversion or exchange.
●Laws relating to international trade and sanctions.
●Tax laws and regulations.
●Antibribery and anticorruption laws.
●Environmental laws and regulations.
●Federal and state immigration laws and regulations in the U.S.

to laws and regulations such as (but not limited to):

•Government orders regarding the response to health and other public safety concerns such as the various restrictions on business operations relating to the COVID-19 pandemic being experienced in 2020;
•The Americans with Disabilities Act in the U.S. and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas;
•The U.S. Fair Labor Standards Act, which governs matters such as minimum wages, overtime and other working conditions, as well as family leave mandates and a variety of similar state laws that govern these and other employment law matters;
•Laws and regulations in government mandated health care benefits such as the Patient Protection and Affordable Care Act;
•Laws and regulations relating to nutritional content, nutritional labeling, product safety, product marketing and menu labeling;
•Laws relating to state and local licensing;
•Laws relating to the relationship between franchisors and franchisees;
•Laws and regulations relating to health, sanitation, food, workplace safety, child labor, including laws prohibiting the use of certain “hazardous equipment” by employees younger than the age of 18 years of age, and fire safety and prevention;
•Laws and regulations relating to union organizing rights and activities;
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•Laws relating to information security, privacy, cashless payments, and consumer protection;
•Laws relating to currency conversion or exchange;
•Laws relating to international trade and sanctions;
•Tax laws and regulations;
•Antibribery and anticorruption laws;
•Environmental laws and regulations; and
•Federal and state immigration laws and regulations in the U.S.
Compliance with new or existing laws and regulations could impact our operations. The compliance costs associated with these laws and regulations could be substantial. Any failure or alleged failure to comply with these laws or regulations by our franchisees or indirectly by us could adversely affect our reputation, international expansion efforts, growth prospects and financial results or result in, among other things, litigation, revocation of required licenses, internal investigations, governmental investigations or proceedings, administrative enforcement actions, fines and civil and criminal liability. Publicity relating to any such noncompliance could also harm our reputation and adversely affect our revenues.

In addition, if any governmental authority were to adopt and implement a broader standard for determining when two or more otherwise unrelated employers may be found to be a joint employer of the same employees under laws such as the National Labor Relations Act in a manner that is applied generally to franchise relationships (which broader standards in the past have been adopted by U.S. governmental agencies such as the National Labor Relations Board), this could cause us to be liable or held responsible for unfair labor practices and other violations of our franchisees. Further, a California law enacted in 2019 adopted an employment classification test to be used when determining employee or independent contractor status which establishes a high threshold to obtain independent contractor status. These laws and any similar laws enacted at the federal, state or local level, could increase our and our franchisees’ labor costs and decrease profitability or could cause employees of our franchisees to be deemed to be our employees.
In January 2022, the California State Assembly passed Assembly Bill (AB) No. 257, the Fast Food Accountability and Standards Recovery Act (FAST Recovery Act), and Governor Gavin Newsom signed the bill into law on September 5, 2022. The FAST Recovery Act provides increased rights to the state’s fast-food workers. The FAST Recovery Act is poised to create the Fast Food Sector Council within the California Department of Industrial Relations (DIR). Under the law, the Fast Food Sector Council will establish specific new minimum standards on wages, maximum working hours, and working conditions related to the health, safety, and welfare of fast-food restaurant workers at restaurants with at least 100 establishments nationwide. The FAST Recovery Act will also, among other things, institute statutory requirements aimed at expanding fast-food franchisors’ liability for certain acts of its franchisees. In January 2023, the implementation of the FAST Recovery Act was enjoined by a court pending the results of a statewide effort to overturn the FAST Recovery Act through a referendum on the California ballot in November 2024. If and when the referendum challenging AB 257 qualifies for the ballot, the law will be put on hold until the vote in November 2024. If an when it is sustained and implemented in its current form, the FAST Recovery Act is likely to increase our franchisees’ labor and compliance costs and decrease profitability at our California restaurants.
Failure to comply with antibribery or anticorruption laws could adversely affect our business operations.

The U.S. Foreign Corrupt Practices Act and other similar applicable laws prohibiting bribery of government officials and other corrupt practices are the subject of increasing emphasis and enforcement around the world. Although we have implemented policies and procedures designed to promote compliance with these laws, there can be no assurance that our employees, contractors, agents, franchisees or other third parties will not take actions in violation of our policies or applicable law, particularly as we expand our operations in emerging markets and elsewhere. Any such violations or suspected violations could subject us to civil or criminal penalties, including substantial fines and significant investigation costs, and could also materially damage our reputation, brands, international expansion efforts and growth prospects, business and operating results. Publicity relating to any noncompliance or alleged noncompliance could also harm our reputation and adversely affect our revenues and results of operations.

Tax matters, including changes in tax rates, disagreements with taxing authorities and imposition of new taxes could impact our results of operations and financial condition.

We are subject to income taxes as well as non-income-based taxes, such as payroll, sales, use, value added, net worth, property, withholding and franchise taxes in both the U.S. and various foreign jurisdictions. We are also subject to regular reviews, examinations and audits by the U.S. Internal Revenue Service (which we refer to as the “IRS”) and other taxing authorities with respect to such income and non-income-based taxes inside and outside of the U.S. If the IRS or another taxing authority disagrees with our tax positions, we could face additional tax liabilities, including interest and penalties. Payment of such additional amounts upon final settlement or adjudication of any disputes could have a material impact on our results of operations and financial position.

In addition, we are directly and indirectly affected by new tax legislation and regulation and the interpretation of tax laws and regulations worldwide. Changes in legislation, regulation or interpretation of existing laws and regulations in the U.S. and other jurisdictions where we are subject to taxation could increase our taxes and have an adverse effect on our operating results and financial condition.

Conflict or terrorism could negatively affect our business.

We cannot predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against any foreign state or group located in a foreign state or heightened security requirements on local, regional, national or international economies or consumer confidence. Such events could negatively affect our business, including by reducing customer traffic or the availability of commodities.

Risks Related to Our CompanyClass A Common Stock and Our Organizational Structure

We are included in FCCG’s consolidated group for federal income tax purposes and, as a result, may be liable for any shortfall in FCCG’s federal income tax payments

For so long as FCCG continues to own at least 80% of the total voting power and value of our capital stock, we will be included in FCCG’s consolidated group for federal income tax purposes. By virtue of its controlling ownership and the Tax Sharing Agreement that we have with FCCG, FCCG effectively controls all of our tax decisions. Moreover, notwithstanding the Tax Sharing Agreement, federal tax law provides that each member of a consolidated group is jointly and severally liable for the group’s entire federal income tax obligation. Thus, to the extent FCCG or other members of the group fail to make any federal income tax payments required of them by law, we are liable for the shortfall. Similar principles generally apply for income tax purposes in some state, local and foreign jurisdictions.

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We are controlled by FCCG,Fog Cutter Holdings LLC, whose interests may differ from those of our public stockholders.

FCCG


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Fog Cutter Holdings LLC controls approximately 80%55.2% of the combined voting power of our Common Stock and will, for the foreseeable future, havehas significant influence over our corporate management and affairs and beis able to control virtually all matters requiring stockholder approval. FCCG is able to, subject to applicable law, elect a majorityapproval, including election of the members of our Board of Directorsdirectors and control actions to be taken by us, including amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets.transactions. It is possible that the interests of FCCGFog Cutter Holdings LLC may, in some circumstances, conflict with our interests and the interests of our other stockholders. For example, FCCG may

The dual class structure of our Common Stock concentrates voting control with current holders of Class B Common Stock, and limits the ability of holders of our Class A Common Stock to influence corporate matters.

Our Class B Common Stock has 2,000 votes per share, and our Class A Common Stock has one vote per share. The holders of Class B Common Stock collectively will likely be able to control all matters submitted to our stockholders for approval even if additional shares of Class A Common Stock are issued. This concentrated control will limit the ability of holders of our Class A Common Stock to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A Common Stock could be adversely affected.

We have different tax positions from us, especially in lightnot elected to take advantage of the Tax Sharing Agreement, that could influence its decisions regarding whether and when“controlled company” exemption to dispose of assets, whether and when to incur new or refinance existing indebtedness. In addition, the determination of future tax reporting positions, the structuring of future transactions and the handling of any future challenges by any taxing authority to our tax reporting positions may take into consideration FCCG’s tax or other considerations, which may differ from the considerations of us or our other stockholders.

corporate governance rules for companies listed on The Nasdaq Capital Market.

Our anti-takeover provisions could prevent or delay a change in control of our company, even if such change in control would be beneficial to our stockholders.

Provisions of our amended and restated certificate of incorporation and bylaws as well as provisions of Delaware law could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such change in control would be beneficial to our stockholders. These provisions include:

●net operating loss protective provisions, which require that any person wishing to become a “5% shareholder” (as defined in our certificate of incorporation) must first obtain a waiver from our board of directors, and any person that is already a “5% shareholder” of ours cannot make any additional purchases of our stock without a waiver from our board of directors;
●authorizing the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt;
●limiting the ability of stockholders to call special meetings or amend our bylaws;

●providing for a classified board of directors with staggered, three-year terms;
●requiring all stockholder actions to be taken at a meeting of our stockholders; and
●establishing advance notice and duration of ownership requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

•dual class structure of our Common Stock, which concentrates voting control with the current holders of Class B Common Stock;
•net operating loss protective provisions, which require that any person wishing to become a “5% shareholder” (as defined in our certificate of incorporation) must first obtain a waiver from our Board of Directors, and any person that is already a “5% shareholder” of ours cannot make any additional purchases of our stock without a waiver from our board of directors;
•authorizing the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt;
•limiting the ability of stockholders to call special meetings or amend our bylaws;
•requiring all stockholder actions to be taken at a meeting of our stockholders; and
•establishing advance notice and duration of ownership requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
These provisions could also discourage proxy contests and make it more difficult for minority stockholders to elect directors of their choosing and cause us to take other corporate actions they desire. In addition, because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team.

In addition, the Delaware General Corporation Law, or the DGCL, to which we are subject, prohibits us, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets or business combinations with any stockholder or group of stockholders who owns at least 15% of our common stock.

We may continue to issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Common Stock, which could depress the price of our Common Stock.

Our amended and restated certificate of incorporation authorizes us to issue one or more series of preferred stock. Our board of directors has the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. OurWe may authorize or issue shares of preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Common Stock. To date we have authorized and outstanding shares of Series B Preferred Stock,
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which have liquidation and dividend rights superior to the rights of our Common Stock. The potential issuance of preferred stock may also delay or prevent a change in control of us, discourage bids for our Common Stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our Common Stock.

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The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

Our amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or the bylaws or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought only in the Court of Chancery in the State of Delaware. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

A limited public trading market may cause volatility in the price of our Common Stock.

There can be no assurance that our Common Stock will continue to be quoted on NASDAQ or that a meaningful, consistent and liquid trading market will develop. As a result, our stockholders may not be able to sell or liquidate their holdings in a timely manner or at the then-prevailing trading price of our Common Stock. In addition, sales of substantial amounts of our Common Stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a short time and our stockholders could suffer losses or be unable to liquidate their holdings.

If our operating and financial performance in any given period does not meet the guidance that we provide to the public, our stock price may decline.

We may provide public guidance on our expected operating and financial results for future periods. Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in our public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts or if we reduce our guidance for future periods, the market price of our Class A Common Stock or Class B Common Stock may decline as well.

Our ability to pay regular dividends to our stockholders is subject to the discretion of our Board of Directors and may be limited by our holding company structure and applicable provisions of Delaware law.

Subject to certain conditions and limitations,

While we expect to payhave paid cash or stock dividends to the holders of our Common Stock on a quarterly basis. Ourin each fiscal year since 2018 and our Series B Preferred Stock since it was first issued, our board of directors may, in its sole discretion, decrease the amount or frequency of cash or stock dividends or discontinue the payment of dividends entirely. In addition, as a holding company, we will be dependent upon the ability of our operating subsidiaries to generate earnings and positive cash flows and distribute them to us so that we may pay cash dividends to our stockholders. Our ability to pay cash dividends will be subject to our consolidated operating results, cash assets and requirements and financial condition, the applicable provisions of Delaware law which may limit the amount of funds available for distribution to our stockholders, our compliance with covenants and financial ratios related to existing or future indebtedness, and our other agreements with third parties. In addition, each of the companies in the corporate chain must manage its assets, liabilities and working capital in order to meet all of its cash obligations, including the payment of dividends or distributions.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters, including our principal administrative, sales and marketing, customer support, and research and development operations, are located in Beverly Hills, California, where we currently lease and occupy 5,478comprising approximately 13,000 square feet of space, pursuant to a lease that expires on September 29, 2025, as well as an additional approximately 3,000 square feet of additional space pursuant to a lease amendment that expires on February 29, 2024.

Our subsidiary, GFG Management, LLC, leases an approximately 16,000 square foot warehouse location in Atlanta, GA under a lease expiring on May 31, 2024.
Our subsidiary, GAC Supply, LLC, owns and operates an approximately 40,000 square foot manufacturing and production facility in Atlanta, Georgia and the underlying real property, which supplies our franchisees with cookie dough, pretzel dry mix and other ancillary products.

Our subsidiary, Twin Restaurant Holding, LLC, leases offices in Dallas, TX comprising approximately 8,300 square feet under a lease expiring on April 30, 2020.

2025.

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Our subsidiary, Fazoli's Holdings, LLC, leases offices located in Lexington, KY comprising approximately 19,200 square feet under a lease expiring on April 30, 2027.

Our subsidiary, Native Grill & Wings Franchising, LLC, leases offices located in Chandler, AZ comprising 5,825 square feet under a lease expiring on October 31, 2024. Such offices have been sub-leased for the duration of the remaining lease term.

In addition to the above locations, certain of our subsidiaries directly own and operate restaurant locations, substantially all of which are located in leased premises. As of December 25, 2022, we owned and operated 126 restaurant locations. The leases have remaining terms ranging from 1 month to 23.9 years.

We believe that all our existing facilities are in good operating condition and adequate to meet our current and foreseeable needs.

ITEM 3. LEGAL PROCEEDINGS

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 against the Company’s directors (Squire Junger, James Neuhauser, Edward Rensi and Andrew Wiederhorn (the “Individual Defendants”)), and the Company’s majority stockholders, Fog Cutter Holdings, LLC and Fog Cutter Capital Group, Inc. (collectively with the Individual Defendants, “Defendants”). Plaintiffs assert claims of breach of fiduciary duty, unjust enrichment and waste of corporate assets arising out of the Company’s December 2020 merger with Fog Cutter Capital Group, Inc. Defendants filed a motion to dismiss Plaintiffs’ complaint, which the Court denied in an oral ruling on February 11, 2022 and subsequent written order on May 25, 2022. On April 7, 2022, the Court entered a Scheduling Order setting forth the key dates and deadlines that will govern the litigation, including a discovery cutoff of March 24, 2023 and trial date of February 5-9, 2024. To date, the parties have engaged in substantial written discovery, though no depositions have been taken. On February 3, 2023, the Company’s board of directors appointed a Special Litigation Committee ("SLC"), which retained independent counsel and moved for a six-month stay of the action pending resolution of the SLC's investigation. On February 17, 2023, the Court granted the SLC’s motion to stay. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. 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 defense costs for the lawsuit and any related litigation, which may exceed coverage provided under our insurance policies, and thus could have an adverse effect on our financial condition and results of operations. The lawsuit and any related litigation also may be time-consuming and divert the attention and resources of our management.

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"). Argument on the Motion was heard on November 17, 2022 and again on February 23, 2023, and the Court took its decision under advisement. To date, the Court has not issued a ruling on the Motion, nor has the Court issued a scheduling order in this matter. 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 defense costs for the lawsuit and any related litigation, which may exceed coverage provided under our insurance policies, and thus could have an adverse effect on our financial condition and results of operations. The lawsuit and any related litigation also may be time-consuming and divert the attention and resources of our management.

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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. 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 could engage in voluntary mediation. In August 2022, after mediation, the Company reached an agreement in principle to settle this matter for a cash payment by the Company of $2.5 million and issuance of $0.5 million in Class A common stock. The Stipulation of Settlement and other documents pertinent to the settlement, along with a motion for preliminary approval thereof, were filed with the court on September 23, 2022. The Court granted the motion for preliminary approval on November 8, 2022, and on January 31, 2023, plaintiffs moved for final approval of the settlement and certification of the settlement class. The hearing on the motion for final approval is set for February 28, 2023, at 9:00 am PT. Upon final approval by the court, the settlement will provide a full release of all claims by the settlement class members against all defendants, including the Company and the named officers and directors, will expressly deny any liability, wrongdoing or responsibility by any of the defendants, and will result in the dismissal of the litigation with prejudice.

Government Investigations

In December 2021, the U.S. Attorney’s Office for the Central District of California (the “U.S. Attorney”) and the U.S. Securities and Exchange Commission (the “SEC”) informed the Company that they had opened investigations relating to the Company and our Chief Executive Officer, Andrew Wiederhorn, and were formally seeking documents and materials concerning, among other things, the Company’s December 2020 merger with Fog Cutter Capital Group Inc., transactions between those entities and Mr. Wiederhorn, as well as compensation, extensions of credit and other benefits or payments received by Mr. Wiederhorn or his family from those entities. Our Board of Directors has formed a Special Review Committee (the “SRC”) comprised of directors other than Mr. Wiederhorn to oversee a review of the issues raised by the U.S. Attorney and SEC investigations, reach findings and make a recommendation to the Board with respect to these matters. The SRC is authorized to review such documents and interview such persons, and retain legal counsel and other consultants on behalf of the Company, as the SRC deems necessary or appropriate to complete its review. The Company intends to cooperate with the U.S. Attorney and the SEC regarding these matters and is continuing to actively respond to inquiries and requests from the U.S. Attorney and the SEC. We believe that the Company is not currently a target of the U.S. Attorney’s investigation. At this stage, we are not able to reasonably estimate or predict the outcome or duration of either of the U.S. Attorney’s or the SEC’s 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)
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 October 2023. The Company is unable to predict the ultimate outcome of this matter, however, reserves have been recorded on the balance sheet relating to this litigation. There can be no assurance that the defendants will be successful in defending against these actions.
SBN FCCG LLC v FCCGI (Los Angeles Superior Court, Case No. BS172606)
SBN FCCG LLC (“SBN”) filed a complaint against Fog Cutter Capital Group, Inc. (“FCCG”) in New York state court for an indemnification claim (the “NY case”) stemming from an earlier lawsuit in Georgia regarding a certain lease portfolio formerly managed by a former FCCG subsidiary, Fog Cap Retail Investors LLC ("Fog Cap"). In February 2018, SBN obtained
26

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 (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.
SBN FCCG LLC v FCCGI (Supreme Court of the State of New York, County of New York, Index No. 650197/2023)

On January 13, 2023, SBN filed another complaint against FCCG in New York state court for an indemnification claim stemming from a lawsuit in Oklahoma City regarding the same lease portfolio formerly managed by Fog Cap, and a bankruptcy proceedings involving Fog Cap. SBN alleges that under a February 2008 stock purchase agreement, Fog Cutter is required to indemnify SBN and its affiliates. According to the complaint, SBN has, at the time of filing the complaint, incurred costs subject to indemnification of approximately $12 million. SBN has not yet served the complaint on FCCG. We are unable at this time to express any opinion as to the outcome of this matter or as to the possible range of loss, if any.
The Company is involved in variousother claims and legal proceedings occurringfrom time-to-time that arise in the ordinary course of business, which weincluding those involving the Company’s franchisees. The Company does not believe that the ultimate resolution of these actions will not have a material adverse effect on our consolidatedits business, financial condition, or results of operations.

operations, liquidity or capital resources. As of December 25, 2022 and December 26, 2021, 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.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Trading

Market and Historical Prices

Beginning October 23, 2017, our common stock,Information

Our Class A Common Stock, par value $0.0001 per share, (the “Common Stock”), was quotedis traded on the NASDAQ Capital Market. The approximate number of holders of record (not including beneficial owners whose shares are held in street name) ofMarket under the ticker symbols “FAT” and our common stock was 1,472 as of December 11, 2017.

The following table sets forth the high and low sales prices for our common stock as quotedClass B Common Stock, par value $0.0001 per share, is traded on the NASDAQ as applicable, for the period indicated since our stock has been publicly traded.

2017 High  Low 
Fourth quarter $13.990  $7.520 

Dividends

During the year ended December 31, 2017, we did not declare or pay any distributions to shareholders. However, on February 8, 2018, our Board of Directors declared an initial quarterly dividend of $0.12 per share of common stock, payable on April 16, 2018 to stockholders of record as of the close of business on March 30, 2018. We also intend to launch a Dividend Reinvestment Plan (“DRIP”), under which interested stockholders may reinvest all or a portion of their cash dividends in additional common shares of FAT Brands without paying any brokerage commission or service charge. The DRIP will be administered by our transfer agent. FCCG, our largest shareholder, intends to reinvest its cash dividend in the Company, thereby allowing us to retain capital to continue our growth plans.

We intend to declare quarterly dividends to holders of common stock. However, the declaration and payment of future dividends will be at the sole discretion of the board of directors and may be discontinued at any time. In determining the amount of any future dividends, the board of directors will take into account: (i) our consolidated financial results, available cash, future cash requirements and capital requirements, (ii) any contractual, legal, tax or regulatory restrictions on the payment of dividends to stockholders, (iii) general economic and business conditions, and (iv) any other factors that the board of directors may deem relevant. The ability to pay dividends may also be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of the Company or its subsidiaries.

Equity Compensation Plan Information

The2017 Omnibus Equity Incentive 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 purpose of the Plan is to help attract, motivate and retain qualified personnel and thereby enhance stockholder value. The Plan allows for the board of directors to award stock incentives to substantially all employees as a retention incentive and to ensure that employees’ compensation incentives are aligned with stock price performance. The Plan provides a maximum of 1,000,000 shares available for grant.

On October 20, 2017, the Company granted stock options to purchase 337,500 shares under the Plan to directors and employees, each with an exercise price equal to $12.00 per share and subject to a three-year vesting requirement, with one-third of the options vesting each year. In addition, 30,000 options were granted to non-employee consultants under the same terms. Prior to December 31, 2017, options to purchase 5,000 shares were cancelled and became available for grant.

The information presented in the table below is as of December 31, 2017.

Plan category 

Number of securities to be issued

upon exercise of outstanding options, warrants and rights

  Weighted-average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 
  (a)  (b)  (c) 
Equity compensation plans approved by security holders  362,500  $12.00   637,500 
Equity compensation plans not approved by security holders  -   -   - 
Total  362,500  $12.00   637,500 

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The information above does not include warrants to purchase 80,000 shares of our common stock issued to the selling agent in connection with the Offering which are exercisable over a five-year period at $15.00 per share beginning April 20, 2018.

Issuer Purchases of Equity Securities

We do not have a program in place to repurchase our own securities and as of December 31, 2017, we have not repurchased any of our equity securities.

Use of Proceeds

On October 20, 2017, we completed our initial public offering under Regulation A of the Securities Act of 1933, as amended, and issued 2,000,000 shares of our common stock at an offering price of $12.00 per share, for an aggregate amount of $24,000,000 (the “Offering”). The net proceeds of the Offering were approximately $20,930,000 after deducting the selling agent fees and offering expenses. None of these expenses consisted of payments made by us to directors, officers or persons owning 10% or more of our common stock or to their associates, or to our affiliates.

The Offering was consummated pursuant to our Offering Statement on Form 1-A (File No.024-10737), which was qualified by the Securities and Exchange Commission on October 20, 2017.

The net proceeds from the Offering were utilized as follows: (i) $10,550,000 to fund the acquisition of Ponderosa Franchising Company and Bonanza Restaurant Company, and (ii) $9,500,000 to repay a portion of the Related Party Debt owed to FCCG, which used this payment primarily to repay indebtedness that it previously incurred in acquiring Buffalo’s Franchise Concepts, Inc.

ITEM 6. SELECTED FINANCIAL DATA.

The following table presents selected combined financial data for FAT Brands and its subsidiaries. Both Fatburger and Buffalo’s were historically under common control of FCCG and are the predecessors of FAT Brands for financial reporting purposes. The financial data presented below was compiled by combining the audited financial information of Fatburger and Buffalo’s for the 2015 and 2016 fiscal years. The 2017 fiscal year data is comprised of a combination of the audited financial information of Fatburger and Buffalo’s for the period from December 26, 2016 through October 19, 2017, and the audited consolidated financial statements of FAT Brands Inc. for the period beginning March 21, 2017 (inception) through December 31, 2017, which includes the operating results of Fatburger, Buffalo’s and Ponderosa for the period from October 20, 2017 (acquisition) through December 31, 2017.

Dollars in thousands (except per share data)

  Fiscal Year Ended  Fiscal Year Ended  Fiscal Year Ended 
  December 31, 2017  December 25, 2016  December 27, 2015 
Statement of operations data:            
             
Revenues            
Royalties $6,846  $5,981  $6,461 
Franchise fees  2,402   4,005   3,012 
Management fee  61   74   83 
Total revenues  9,309   10,060   9,556 
             
Selling, general and administrative expenses  4,621   3,596   3,322 
             
Income from operations  4,687   6,464   6,234 
             
Other income (expense)  (77)  36   85 
             
Income before income tax expense  4,611   6,500   6,319 
             
Income tax expense  2,105   2,297   2,811 
             
Net income $2,506  $4,203  $3,508 
             
EBITDA (1) $4,839  $6,500  $6,329 
             
Net income per common share data: (2)            
Weighted average shares of Common Stock outstanding:            
Basic and diluted  8,505,263   8,000,000   8,000,000 
             
Pro forma net income available to Common Stock per share:            
Basic and diluted $0.29  $0.53  $0.44 
             
Balance sheet data:            
             
Total assets $

29,236

  $22,368  $22,976 
Due from affiliates $7,963  $11,654  $10,584 
Long-term obligations $18,125  $-  $- 
Stockholders’ equity $2,009  $14,814  $12,510 
Dividends declared per common share $-  $n/a  $n/a 

Notes to Selected Financial Data:

(1) EBITDA is defined as earnings before interest, taxes, depreciation and amortization. We use the term EBITDA, as opposed to income from operations, as it is widely used by analysts, investors and other interested parties to evaluate companies in our industry. We believe that EBITDA is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate to business performance.EBITDA is not a GAAP measure of our financial performance or liquidity and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash flows from operations as measures of liquidity, or any other performance measure derived in accordance with GAAP.

A reconciliation of net income to EBITDA is set forth below:

  Fiscal Year Ended  Fiscal Year Ended  Fiscal Year Ended 
  December 31, 2017  December 25, 2016  December 27, 2015 
          
Net income $2,506  $4,203  $3,508 
Depreciation and amortization expense  23   -   10 
Interest expense  205   -   - 
Income tax expense  2,105   2,297   2,811 
EBITDA $4,839  $6,500  $6,329 

(2) For purposes of presenting information about FAT Brand’s common stock, weighted average number of shares outstanding and earnings or loss per share, outstanding shares of common stock of Fatburger and Buffalo’s prior to their combination with FAT Brands have been retroactively restated to their FAT Brands equivalents based on the share conversion ratio at the time of the Offering.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Business overview

FAT Brands Inc. is a multi-brand restaurant franchising company that develops, markets, and acquires predominantly fast casual restaurant concepts around the world. As a franchisor, we generally do not own or operate restaurant locations, but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties. Since it requires relatively small investments in tangible assets, this 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 significant capital investments. Our scalable management platform enables us to add new franchise 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.

FAT Brands Inc. was formed on March 21, 2017 as a wholly owned subsidiary of Fog Cutter Capital Group Inc. (“FCCG”). On October 19, 2017, we conducted a forward split of our common stock, par value $0.0001, which increased shares held by FCCG to 8,000,000 shares. On October 20, 2017, we completed our initial public offering and issued 2,000,000 additional shares of our common stock at an offering price of $12.00 per share, for an aggregate amount of $24,000,000 (the “Offering”). The net proceeds of the Offering were approximately $20,930,000 after deducting the selling agent fees of $1,853,000 and Offering expenses of $1,217,000. Our common stock trades on the Nasdaq Capital Market under the ticker symbol “FAT.”

Concurrent with the closing of the Offering, we completed the following transactions:

●FCCG contributed two of its operating subsidiaries, Fatburger North America Inc. and Buffalo’s Franchise Concepts Inc., to us in exchange for an unsecured promissory note with a principal balance of $30,000,000, bearing interest at a rate of 10.0% per annum and maturing in five years (the “Related Party Debt”). The contribution was consummated pursuant to a Contribution Agreement between us and FCCG.
●In March 2017, FCCG agreed to acquire Homestyle Dining LLC from Metromedia Company and its affiliate pursuant to a Membership Interest Purchase Agreement, as amended, which provided for a cash purchase price of $10,550,000 to be paid at closing. Effective October 20, 2017, we provided $10,550,000 of the net proceeds from the Offering to FCCG to consummate the acquisition of Homestyle Dining LLC.  In exchange, we received full ownership in the Homestyle Dining operating subsidiaries: Ponderosa Franchising Company, Bonanza Restaurant Company, Ponderosa International Development, Inc. and Puerto Rico Ponderosa, Inc. (collectively, “Ponderosa”).  These subsidiaries conduct the worldwide franchising of the Ponderosa Steakhouse Restaurants and the Bonanza Steakhouse Restaurants.

On November 14, 2017, we entered into a Membership Interest Purchase Agreement (the “Agreement”) to purchase the membership interests of Hurricane AMT, LLC, a Florida limited liability corporation (“Hurricane”), for a purchase price of $12,500,000. Hurricane is the franchisor of Hurricane Grill & Wings and Hurricane BTW Restaurants. The original Hurricane Grill & Wings opened in Fort Pierce, Florida in 1995 and has expanded to over 60 restaurant locations in Alabama, Arizona, Colorado, Florida, Georgia, Kansas, New York, and Texas.

We operate on a 52-week or 53-week fiscal year ending on the last Sunday of the calendar year. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations, which may cause our revenue, expenses and other results of operations to be higher due to an additional week of operations. The 2017 fiscal year was a 53-week fiscal year.

Fatburger and Buffalo’s were historically under a cost-sharing and reimbursement arrangement with FCCG. After the transfer of these entities to our control, the cost-sharing and reimbursement arrangement with FCCG was terminated and all employees were moved to FAT Brands Inc. or our subsidiaries as appropriate. The historical financial statements are expected to be consistent with the new FAT Brands Inc. entity, in that reimbursement expense and direct employee costs both appear under general and administrative expenses and are expected to be materially the same amounts going forward.

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"FATBB."

Operating segments

As of December 31, 2017, we franchise the Fatburger, Buffalo’sFebruary 17, 2023, there were 45 stockholders of record for our Class A Common Stock and Ponderosa restaurant concepts with 286 total locations across 24 states and 18 countries. While42 stockholders of record for our existing footprint covers 18 countries in which we have franchised restaurants open and operational as of December 31, 2017, our overall footprint (including development agreements for proposed stores in new markets and countries where our brands previously had a presence that we intend to resell to new franchisees) covers 25 countries. For each of our current restaurant brands and those that we will seek to acquire, the ability to expand the overall concept footprint, both domestically and internationally, is of critical importance and a primary acquisition evaluation criterion. We believe that our restaurant concepts have meaningful growth potential and appeal to a broad base of consumers globally.

Our chief operating decision maker (“CODM”) is our Chief Executive Officer. Our CODM reviews financial performance and allocates resources at an overall level on a recurring basis. However, each of our restaurant concepts is significant to our operations and is consistently evaluated individually. Therefore, management has determined that the Company has three operating and reportable segments.

Our operating segments are:

●The Fatburger Franchise Division which includes our worldwide operations of the Fatburger concept.
●The Buffalo’s Franchise Division which includes our worldwide operations of the Buffalo’s Café and Buffalo’s Express concepts.
●The Ponderosa Franchise Division which includes our worldwide operations of the Bonanza and Ponderosa Steakhouse concepts.

Key Performance Indicators

To evaluate the performance of our business, we utilize a variety of financial and performance measures, which are typically calculated on a system-wide basis. These key measures include new store openings, average unit volumes and same-store sales growth in addition to the general income statement line items such as revenues, general and administrative expenses, income before income tax expense and net income.

New store openings -Class B Common Stock. The number of new store openings reflects the number of franchised restaurant locations opened during a reporting period. The total number of new stores per year and the timing of stores openings has, and will continue to have, an impact on our results.

Average unit volumes -Average Unit Volumes (“AUV”) for any 12-month period consist of the average sales of all stores over that period that have been open a full year. Average unit volumes are calculated by dividing total sales from all stores open a full year by the number of stores open during that period. The measurement of AUVs allows us to assess changes in guest traffic and per transaction patterns at our stores.

Same-store sales growth -Same-store sales growth reflects the change in year-over-year sales for the comparable store base, which we define as the number of stores open for at least one full fiscal year. Given our focused marketing efforts and public excitement surrounding each opening, new stores often experience an initial start-up period with considerably higher than average sales volumes, which subsequently decrease to stabilized levels after three to six months. Thus, we dorecord holders does not include storespersons who held such shares in the comparable store base until they have been open for at least one full fiscal year. We expect that this trend will continue for the foreseeable future as we continue to open and expand into new markets.

Results of Operations

Results of Operations of FAT Brands Inc.

The following table summarize key components of our combined results of operations for theperiod beginning March 21,2017 (inception)nominee or “street name” accounts through December 31, 2017, which includes the operating results of Fatburger, Buffalo’s and Ponderosa for the period from October 20, 2017 (acquisition) through December 31, 2017. Because this is our initial year of operation, comparative information is not available.

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brokers.

(In thousands)

For the Fiscal Years Ended

  December 31, 2017 
    
Statement of operations data:    
     
Revenues    
Royalties $2,023 
Franchise fees  140 
Management fee  10 
Total revenues  2,173 
     
General and administrative expenses  2,123 
     
Income from operations  50 
     
Other expense  (256)
     
Loss before income tax expense  (206)
     
Income tax expense  407 
     
Net loss $(613)

Net Loss- Net loss for the period from March 21, 2017 (inception) through December 31, 2017 (the “2017 Fiscal Year”) totaled $613,000 consisting of revenues of $2,173,000 less general and administrative expenses of $2,123,000; other expense of $256,000 and income taxes of $407,000.

Revenues- Revenues consist of royalty fees, franchise fees and management fees. We had revenues of $2,173,000 for the 2017 Fiscal Year. Royalties totaled $2,023,000; Franchise fees totaled $140,000 and management fees were $10,000.

General and Administrative Expenses- General and administrative expenses consist primarily of compensation costs. For year ended December 31, 2017, our general and administrative expenses totaled $2,123,000 and included compensation costs of $1,337,000.

Other Income (Expense) –Other expense for the 2017 Fiscal Year totaled $256,000 and consisted primarily of interest expense of $405,000 which was partially offset by interest income of $200,000.

Income Tax Expense –We recorded a provision for income taxes of $407,000 for the 2017 Fiscal Year. On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The reduction in the corporate tax rate under the TCJ Act required a one-time revaluation of our deferred tax assets and liabilities to reflect their value at the lower corporate tax rate of 21%. As a result of the Tax Reform Act, we recorded a tax expense of $505,000 due to a remeasurement of deferred tax assets and liabilities.

Results of Segment Operations of Fatburger

Fatburger was historically under control of FCCG and is a predecessor of FAT Brands for financial reporting purposes. To provide comparative segment financial information for two full fiscal years, the data presented below was compiled using:

●the audited financial statements of Fatburger for the 2016 fiscal year, and
●for fiscal 2017, combining the audited financial statements of Fatburger for the pre-acquisition period from December 26, 2016 through October 19, 2017 with the Fatburger segment results included in the audited consolidated financial statements of FAT Brands Inc. for the period beginning March 21,2017 (inception) through December 31, 2017 (which includes the segment results of Fatburger from October 20, 2017 through December 31, 2017).  

The following table summarize key components of the results of operations for our Fatburger segment for the periods indicated:

(In thousands)

For the Fiscal Years Ended

  December 31, 2017  December 25, 2016 
       
Statement of operations data:        
         
Revenues        
Royalties $4,782  $4,632 
Franchise fees  1,869   3,750 
Management fee  61   74 
Total revenues  6,712   8,456 
         
General and administrative expenses  2,750   2,933 
         
Income from operations  3,962   5,523 
         
Other income  268   - 
         
Income before income tax expense  4,230   5,523 
         
Income tax expense  2,029   1,979 
         
Net income $2,201  $3,544 

For the Year Ended December 31, 2017 Compared to the Year Ended December 25, 2016

Net Income-Net income of Fatburger for the year ended December 31, 2017 decreased by $1,343,000 or 38% to $2,201,000 compared to $3,544,000 for the year ended December 25, 2016. The decrease was primarily attributable to lower recognized franchise fees in the amount of $1,881,000, partially offset by a reduction in general and administrative expenses of $183,000 and an increase in other income of $268,000.

Revenues-Fatburger’s revenues consist of royalty fees, franchise fees and management fees. Fatburger had revenues of $6,712,000 and $8,456,000 for the years ended December 31, 2017 and December 25, 2016, respectively. The $1,744,000 or 21% decrease in revenues was primarily driven by a decrease in franchise fees recognized in 2017. In 2016, we recognized $2,068,000 more in franchise fees compared to 2017, due to the termination of franchise agreements. The recognition of previously collected franchise fees into income can vary significantly from year to year based upon the number of new store openings and other triggering events.

General and Administrative Expenses- General and administrative expenses of Fatburger consist primarily of payroll, consulting fees and, prior to the Offering, an allocation of corporate overhead from FCCG. General and administrative expenses for the year ended December 31, 2017 decreased $183,000 or 6% to $2,750,000, as compared to $2,933,000 for the year ended December 25, 2016. This was primarily the result of a decrease in compensation costs of $411,000 partially offset by an increase in professional fees of $103,000, an increase in allocated corporate overhead of $85,000 and an increase in bad debt expense of $64,000 for the year ended December 31, 2017.

Other Income –Other income during the year ended December 31, 2017 consisted primarily of interest earned on intercompany receivables from FCCG in the amount of $84,000 and net settlement income in the amount of $184,000.

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Dividends

Income tax expense – We recorded a provision for income taxes of $2,029,000 for year ended December 31, 2017. On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The reduction in the corporate tax rate under the TCJ Act required a one-time revaluation of our deferred tax assets and liabilities to reflect their value at the lower corporate tax rate of 21%. As a result of the Tax Reform Act, we recorded a tax expense of $577,000 due to a re-measurement of deferred tax assets and liabilities.

New Store Openings-For the year ended December 31, 2017, our Fatburger franchisees opened 20 stores as compared to 12 stores for the year ended December 25, 2016.

Same-store Sales Growth-Adjusted same-store sales in our core domestic market (representing approximately 67% of revenues for 2017) grew by positive 7.4% for the year ended December 31, 2017, compared to growth of 1.5% for the for the year ended December 25, 2016. Overall Fatburger same-store sales, including international stores in their local currency were positive 2.3% for the year ended December 31, 2017 and negative 2.7% for the year ended December 25, 2016. These results reflect the deterioration in macroeconomic conditions in Canada and the Middle East due to the decline in oil prices, as well as increased competition internationally. The same-store sale results exclude two restaurants which were subject to extraordinary adverse operating conditions in 2015, 2016 and 2017 related to construction blocking direct access or visibility to the restaurant and political sanctions affecting the supply chain and the related local economy. The Fatburger restaurant on the Las Vegas Strip was affected by extensive construction on Las Vegas Blvd. The Fatburger restaurant located in Doha, Qatar in the Pearl District was affected by extensive construction and political sanctions affecting the supply chain and related local economy. If these restaurants were included the same-store sales data, the change in same-store sales for our core domestic market would be positive 5.4% for the year ended December 31, 2017 and positive 0.7% for the year ended December 25, 2016, and same-store sales system-wide would be positive 0.8% for the year ended December 31, 2017 and negative 3.2% for the year ended December 25, 2016.

Average unit volumes –Our average unit volumes were $767,717 and $747,892, respectively for the 52 weeks ended December 31, 2017 and December 25, 2016. The 2.7% increase was primarily the result of higher same-store sales from the opening of new stores and initiatives such as co-branding and adoption of mobile delivery.

Results of Segment Operations of Buffalo’s.

Buffalo’s was historically under control of FCCG and is a predecessor of FAT Brands for financial reporting purposes. To provide comparative segment financial information for two full fiscal years, the data presented below was compiled using:

●the audited financial statements of Buffalo’s for the 2016 fiscal year, and
●for 2017, combining the audited financial statements of Buffalo’s for the pre-acquisition period from December 26, 2016 through October 19, 2017 with the Buffalo’s segment results included in the audited consolidated financial statements of FAT Brands Inc. for the period beginning March 21,2017 (inception) through December 31, 2017 (which includes the segment results of Buffalo’s from October 20, 2017 through December 31, 2017).  

The following table summarize key components of the results of operations for our Buffalo’s segment for the periods indicated:

(In thousands)

For the Fiscal Years Ended

  December 31, 2017  December 25, 2016 
       
Statement of operations data:        
         
Revenues        
Royalties $1,226  $1,349 
Franchise fees  530   255 
Total revenues  1,756   1,604 
         
General and administrative expenses  783   663 
         
Income from operations  973   941 
         
Other income  95   36 
         
Income before income tax expense  1,068   977 
         
Income tax expense  429   318 
         
Net income $639  $659 

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For the Year Ended December 31, 2017 as Compared to the Year Ended December 25, 2016.

Net Income –Buffalo’s net income for the year ended December 31, 2017 decreased slightly to $639,000, compared to $659,000 for the year ended December 25, 2016. Increases in revenue and other income were offset by similar increases in general and administrative expenses and income taxes.

Revenues – Buffalo’s revenues consist of royalty fees and recognized franchise fees. Buffalo’s had revenues of $1,756,000 and $1,604,000 for the years ended December 31, 2017 and December 25, 2016, respectively. The increase in revenue of $152,000, or 9.5%, is primarily the result of increases in recognized franchise fees in 2017 of $275,000. This increase was partially reduced by lower royalties in 2017 in the amount of $123,000 due primarily to the closure of two long-standing franchise locations in Atlanta, Georgia and Riyadh, Saudi Arabia.

General and Administrative Expenses –General and administrative expenses of Buffalo’s primarily consist of payroll, consulting fees and an allocation of corporate overhead from the parent company. General and administrative expenses for the year ended December 31, 2017 increased by $120,000 or 18% to $783,000 as compared to $663,000 for the year ended December 25, 2016. This increase was primarily the result of an increase in the corporate overhead allocation of $99,000 and an increase in professional fees of $151,000 which was partially offset by decreases in salary and wage expense of $142,000 for the 2017 period.

Other Income -Other income increased from $36,000 in 2016 to $95,000 in 2017. The increase was primarily the result of interest income on intercompany receivables from FCCG, which began accruing interest during 2017.

Income tax expense –We recorded a provision for income taxes of $429,000 for year ended December 31, 2017. On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The reduction in the corporate tax rate under the TCJ Act required a one-time revaluation of our deferred tax assets and liabilities to reflect their value at the lower corporate tax rate of 21%. As a result of the Tax Reform Act, we recorded a tax expense of $33,000 due to a remeasurement of deferred tax assets and liabilities.

New Store Openings –There were no new stores opened by our Buffalo’s Cafe franchisees during the year ended December 31, 2017, as compared to two new seasonal stores opened for the year ended December 25, 2016.

Same-store Sales Growth –Same-store sales for Buffalo’s Cafe were positive 1.4% for the year ended December 31, 2017 and positive 2.4% for the year ended December 25, 2016. The softening in positive same-store sales for the year ended December 31, 2017 was primarily attributable to adverse weather conditions in the Atlanta area in the first quarter of 2017, which had a negative effect on customer traffic. We excluded two restaurants from the calculation of same-store sales because they were subject to extraordinary adverse operating conditions in 2016 and 2017, related to changes in the alcohol laws or political sanctions affecting the supply chain and the related local economy: Canyon, Texas, and The Ezdan Mall Doha, Qatar. If these restaurants were included, the same-store sales system-wide would have been negative 1.5% for the year ended December 31, 2017 and positive 0.4% for the year ended December 35, 2016.

Average Unit Volumes –Our average unit volumes were $1,512,653 and $1,538,442, respectively for the years ended December 31, 2017 and December 25, 2016. The 1.7% decline was the result of the changes in alcohol laws and political sanctions described above for two of the restaurants.

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Results of Segment Operations of Ponderosa

We were not affiliated with the Ponderosa entities until they became our wholly owned subsidiaries on October 20, 2017. Accordingly, only the financial results of Ponderosa which occurred subsequent to FCCG’s contribution are presented.

The following table summarizes key components of the results of operations of our Ponderosa segment for the period indicated:

(In thousands)

For the Period from October 20, 2017 (Acquisition) through December 31, 2017

Statement of operations data:    
     
Revenues    
Royalties $805 
Franchise fees  2 
Total revenues  807 
     
General and administrative expenses  815 
     
Income from operations  (8)
     
Other income (expense)  (18)
     
Income before income tax expense  (26)
     
Income tax expense  (175)
     
Net income $151 

Net Income- Net income of Ponderosa for the short period from October 20, 2017 through December 31, 2017 was $151,000. The primary contributor to the income was the recognition of income tax benefits in the amount of $175,000.

Revenues- Ponderosa’s revenues consist of royalty fees and franchise fees. Ponderosa had revenues of $807,000 for the short period from October 20, 2017 through December 31, 2017, consisting almost entirely of royalties.

General and Administrative Expense- General and administrative expense of Ponderosa consists primarily of payroll costs. General and administrative expenses for the period from October 20, 2017 through December 31, 2017 totaled $815,000 of which $665,000 was payroll related.

Income tax benefit –We recorded an income tax benefit of $175,000 for interim period ended December 31, 2017. On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The reduction in the corporate tax rate under the TCJ Act required a one-time revaluation of our deferred tax assets and liabilities to reflect their value at the lower corporate tax rate of 21%. As a result of the Tax Reform Act, we recorded a tax benefit of $167,000 due to a remeasurement of deferred tax assets and liabilities.

New Store Openings-For the year ended December 31, 2017, Ponderosa franchisees opened 1 location as compared to 2 locations for the year ended December 26, 2016.

Same-store Sales Growth –Domestic same-store sales for Ponderosa were positive 1.1% for the year ended December 31, 2017 and negative 0.7% for the year ended December 26, 2016. Overall systemwide same-store sales were negative 2.7% for the year ended December 31, 2017 and negative 3.3% for the year ended December 26, 2016. International sales were affected negatively in 2017 due to Hurricanes Maria and Irma, which caused temporary closures and lower sales for 27 stores in the Puerto Rico market.

Average Unit Volumes –Our average unit volumes were $1,404,345 and $1,424,645, respectively, for the years ended December 31, 2017 and December 26, 2016. The 1.4% decline was primarily the result of Hurricane Maria, which caused temporary closures for all the 27 stores in the Puerto Rico market.

Changes in Financial Condition

Overview

Our assets, liabilities and stockholders’ equity for the years ended December 31, 2017 can be summarized as follows:

  (dollars in thousands) 
Total assets $29,236 
Total liabilities $27,227 
Total stockholders’ equity $2,009 

The significant components of our balance sheet are as follows:

Cash

Our cash balance was $32,000 as of December 31, 2017. Significant sources and uses of cash during the 2017 fiscal year included:

●We received $20,930,000 in net proceeds from the issuance of stock, net of costs.
●We received $1,499,000 of cash provided by operations – comprised primarily of our net loss of $ (613,000), adjusted for non-cash items.
●We used $10,550,000 to acquire Ponderosa.
●We used $11,875,000 to partially repay the Related Party Debt.

Accounts Receivable

Accounts receivable consist primarily of royalty and advertising fees from franchisees reduced by reserves for the estimated amount deemed uncollectible due to bad debts. As of December 31, 2017, our accounts receivable totaled $918,000 which was net of $679,000 in reserves.

Trade Notes Receivable

Trade notes receivable are created when the settlement of a delinquent franchisee receivable account is reached and the entire balance is not immediately paid. Notes receivable generally include personal guarantees from the franchisee. The notes are made for the shortest time frame negotiable and will generally carry an interest rate of 6% to 7.5%. Reserve amounts, on the notes, are established based on the likelihood of collection. As of December 31, 2017, notes receivable totaled approximately $423,000, which is net of reserves of $34,000.

Due from Affiliates

We had open accounts with affiliated entities under the common control of FCCG resulting in net amounts due to us of $7,963,000 as of December 31, 2017. Effective October 20, 2017, the advances began to earn interest at a rate of 10% per annum. These advances are expected to be recovered from credits for the use of the Parents’ tax net operating losses and from repayments by the affiliates from proceeds generated by their operations and investments.

Goodwill and Net Intangible Assets

  December 31, 2017 
  (dollars in thousands) 
Goodwill – Fatburger acquisition $529 
Goodwill – Buffalo’s acquisition  5,365 
Goodwill – Ponderosa acquisition  1,462 
Total Goodwill $7,356 
     
Net Intangible Assets – Fatburger  2,135 
Net Intangible Assets – Buffalo’s  27 
Net Intangible Assets – Ponderosa  8,849 
Total Net Intangible Assets $11,011 

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Other Assets

  December 31, 2017 
  (dollars in thousands) 
Deferred Income Taxes $937 
     
Buffalo’s Creative and Advertising Fund $436 

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities totaled $4,548,000 at December 31, 2017 and consisted of the following:

  December 31, 2017 
  (dollars in thousands) 
Accounts payable $2,439 
Accrued advertising  348 
Accrued wages and payroll taxes  528 
Coke refunds payable  255 
Gift certificate liability  95 
Other accrued expenses  883 
Total accounts payable and accrued liabilities $4,548 

Deferred Income

Our deferred income relating to the collection of unearned franchise fees and royalties was $3,713,000 at December 31, 2017. Of this amount, $2,781,000 represents non-refundable franchise fees received by our subsidiaries for future franchise locations. These initial fees generally represent half of the total fee per location. The balance of the franchise fees (approximately an additional $2.8 million) will be collected in the future when leases on these specific franchise locations are signed and the entire fee will be recognized in income when the criteria for recognition of this revenue are met.

Note Payable to FCCG

Concurrent with the Offering, FCCG contributed Fatburger and Buffalo’s to us in exchange for an unsecured promissory note with a principal balance of $30,000,000, bearing interest at a rate of 10.0% per annum and maturing in five years. The contribution was consummated pursuant to a Contribution Agreement between us and FCCG. Approximately $11,875,000 of the note payable owed to FCCG was subsequently Repaid, resulting in a balance at December 31, 2017 of $18,125,000.

Deferred Income Taxes

We entered into a Tax Sharing Agreement with FCCG that provides that FCCG will, to the extent permitted by applicable law, file consolidated federal, California and Oregon (and possibly other jurisdictions where revenue is generated, at FCCG’s election) income tax returns with us and our subsidiaries. We will pay to FCCG the amount that our tax liability would have been had we filed a separate return. To the extent our required payment exceeds our share of the actual combined income tax liability (which may occur, for example, due to the application of FCCG’s net operating loss carryforwards), we will be permitted, in the discretion of a committee of our board of directors comprised solely of directors not affiliated with or interested in FCCG, to pay such excess to FCCG by issuing an equivalent amount of our common stock in lieu of cash, valued at the fair market value at the time of such payment. In addition, our inter-company receivable of approximately $7,963,000 due from FCCG will be applied first to reduce such excess income tax payment obligation to FCCG under the Tax Sharing Agreement.

We account for income taxes as if we filed separately from FCCG. We have determined that it is more likely than not that certain tax benefits will be available to shelter future tax liabilities and have recorded a deferred tax asset of $937,000.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, acquisitions, and expansion of franchised restaurant locations and for other general business purposes. In addition to our cash on hand, our primary sources of funds for liquidity during the 2017 fiscal year consisted of cash provided by proceeds from the sale of common stock.

Franchising operations are our major source of ongoing liquidity and we expect these sources, including the sale of franchises, to generate adequate cash flow to meet our liquidity needs for the next fiscal year.

At December 31, 2017, we had total consolidated indebtedness of $18.1 million, as well as $9.1 million of other liabilities. Our consolidated indebtedness consisted of the note payable to FCCG of $18,125,000.

Franchise expansion

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 timing of restaurant openings may be delayed.

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

Dividends

During the year ended December 31, 2017, we did not declare or pay dividends to shareholders. However, on February 8, 2018, our Board of Directors declared an initial quarterly dividend of $0.12 per share of common stock, payable on April 16, 2018 to stockholders of record as of the close of business on March 30, 2018. We also intend to launch a Dividend Reinvestment Plan (“DRIP”), under which interested stockholders may reinvest all or a portion of their cash dividends in additional common shares of FAT Brands without paying any brokerage commission or service charge. The DRIP will be administered by our transfer agent. FCCG, our largest shareholder, intends to reinvest its cash dividend in the Company, thereby allowing us to retain capital to continue our growth plans.

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.

Equity Compensation Plan Information
Effective September 30, 2017, we adopted the 2017 Omnibus Equity Incentive Plan (the “Plan”). The Plan was amended in September 2021 to increase the maximum shares issuable under the Plan to 4,000,000 shares and amended in December 2022 to increase the maximum shares issuable under the Plan to 5,000,000 shares. The Plan is a comprehensive incentive compensation plan under which we 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 purpose of the Plan is to help attract, motivate and retain qualified personnel and thereby enhance stockholder value. Awards which lapse or are forfeited become available again for grant.
As of December 25, 2022, we have granted options to purchase 2,166,822 shares of Class A Common Stock to employees, 536,130 shares of Class A Common Stock to non-employee directors, and 45,954 shares of Class A Common Stock to non-employee consultants. Each grant is subject to a three-year vesting requirement, with one-third of the options vesting each year.
During the year ended December 25, 2022, the Company also granted an aggregate of 150,000 shares of its Class A Common Stock to five Board members (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.

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The information presented in the table below is as of December 25, 2022:
Plan CategoryNumber of Securities to be Issued
upon Exercise of Outstanding Options, Warrants
and Rights		Weighted-Average Exercise Price of
Outstanding Options,
Warrants and Rights		Number of Securities Remaining Available for
Future Issuance under Equity Compensation
Plans (Excluding Securities Reflected in Column
(a))
(a)(b)(c)
Equity compensation plans approved by security holders2,748,906 $10.06 2,101,094 
Equity compensation plans not approved by security holders— — — 
Total2,748,906 $10.06 2,101,094 
Issuer Purchases of Equity Securities
We do not have a program in place to repurchase our own Common Stock or preferred stock and as of December 25, 2022, we have not repurchased any of these securities except for the cancellation of shares issued under the Plan, and as set forth in the following paragraph.
On October 21, 2022, the Company entered into an Exchange Agreement with the sellers of Twin Peaks and redeemed 1,821,831 shares of the Company's 8.25% Series B Cumulative Preferred Stock at a price of $23.69 per share, plus accrued and unpaid dividends to the date of redemption, in exchange for $46.5 million aggregate principal amount of secured debt ($43.2 million net of original issue discount). Prior to the redemption, the Twin Peaks sellers held 2,847,393 shares of Series B Cumulative Preferred Stock, which shares were issued to it on October 1, 2021 as partial consideration for the Company's acquisition of the Twin Peaks restaurant chain.
Recent Sales of Unregistered Securities

During the fiscal year ended December 25, 2022, we issued 4,761 shares of Class A Common Stock in a transaction that was not registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 thereunder, and in reliance on similar exemptions under applicable state securities laws. Such shares were issued to a director who elected to receive cash compensation in the form of Class A Common Stock at market value at the time the election was made at a weighted average price per share of $6.30.
ITEM 6. [RESERVED].

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COVID-19
The outbreak of the COVID-19 pandemic in March 2020 had a number of adverse effects on our business and that of our franchisees, including temporary and permanent closures of restaurant locations, reduced or modified store operating hours, difficulties in staffing restaurants and supply chain disruptions. While the disruptions to our business from the COVID-19 pandemic have mostly subsided, the resurgence of COVID-19 or its variants, as well as an outbreak of other widespread health epidemics or pandemics, could cause a closure of restaurants and disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
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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, casual dining and polished casual restaurant concepts around the world. As of December 25, 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 Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses. At December 25, 2022, the Company had approximately 2,300 locations open or under construction, of which approximately 95% were franchised.
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. 
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 sale of food and beverages at our company restaurants and the collection of royalties, franchise 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. The 2022 and 2021 fiscal years were each 52-week years.
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Results of Operations of FAT Brands Inc.
The following table summarizes key components of our consolidated results of operations for the fiscal years ended December 25, 2022 and December 26, 2021. Certain account balances from the prior period have been reclassified to conform to current period presentation.
(In Thousands)
For the Fiscal Years Ended
December 25, 2022December 26, 2021
Consolidated statement of operations data:
Revenues
Royalties$87,921 $42,658 
Franchise fees3,706 4,023 
Advertising fees37,997 16,728 
Restaurant sales241,001 41,563 
Factory revenue33,504 13,470 
Management fees and other income3,095 439 
Total revenues407,224 118,881 
Costs and expenses
General and administrative expense113,313 41,775 
Cost of restaurant and factory revenues221,627 44,242 
Depreciation and amortization27,015 8,474 
Impairment of goodwill and other intangible assets14,000 1,037 
Refranchising loss4,178 314 
Acquisition fees383 4,242 
Advertising expense44,612 17,973 
Total costs and expenses425,128 118,057 
(Loss) income from operations(17,904)824 
Total other expense, net(89,474)(35,944)
Loss before income tax(107,378)(35,120)
Income tax provision (benefit)18,810 (3,537)
Net loss$(126,188)$(31,583)
Net Loss- Net loss for the fiscal year ended December 25, 2022, totaled $126.2 million consisting of revenues of $407.2 million less costs and expenses of $425.1 million, other expense of $89.5 million, and income tax provision of $18.8 million. Net loss for the fiscal year ended December 26, 2021, totaled $31.6 million consisting of revenues of $118.9 million less costs and expenses of $118.1 million, other expense of $35.9 million plus an income tax benefit of $3.5 million.
Revenues - Revenues consist of royalties, franchise fees, advertising fees, restaurant sales, factory revenues, and other income. We earned revenues of $407.2 million for the fiscal year ended December 25, 2022 compared to $118.9 million for the fiscal year ended December 26, 2021. The increase of $288.3 million reflects revenue from the 2021 Acquisitions and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales.
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Costs and Expenses – Costs and expenses consist primarily of general and administrative costs and franchisee support, cost of restaurant and factory revenues, impairment of goodwill and other intangible assets, net refranchising (gains) losses, acquisition costs and advertising expense. Our costs and expenses increased from $118.1 million in the 2021 fiscal year to $425.1 million in the comparable period of 2022, primarily due to the 2021 Acquisitions.
General and administrative expenses increased $71.5 million for the fiscal year ended December 25, 2022, compared to the prior year, primarily due to the 2021 Acquisitions, increased compensation costs reflecting the significant expansion of the organization and professional fees related to pending litigation and government investigations.
Cost of restaurant and factory revenues totaled $221.6 million for the year ended December 25, 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.
Depreciation and amortization increased $18.5 million in fiscal year 2022 compared to fiscal year 2021, primarily due to depreciation of company-owned restaurant property and equipment and amortizing intangible assets related to the 2021 Acquisitions.
We recorded non-cash impairment charges for goodwill and other intangible assets of $14.0 million and $1.0 million during the fiscal years ended December 25, 2022 and December 26, 2021, respectively.
Refranchising net loss for the fiscal year ended December 25, 2022, was comprised of restaurant operating costs, net of food sales, of $4.2 million. Refranchising net loss for the fiscal year ended December 26, 2021, was comprised of restaurant operating costs, net of food sales, of $3.0 million, partially offset by $2.7 million in net gains related to the sale or closure of refranchised restaurants.
Acquisition costs during the 2022 fiscal year totaled $0.4 million. For the 2021 fiscal year acquisition costs totaled $4.2 million and were related primarily to the 2021 acquisitions.
Advertising expense increased $26.6 million for the fiscal year ended December 25, 2022, compared to the prior year. These expenses vary in relation to advertising revenues and reflect increases related to the 2021 Acquisitions and the increase in customer activity as the recovery from COVID continues.
Total other expense, net for the fiscal year ended December 25, 2022 was $89.5 million and consisted primarily of net interest expense of $94.8 million. Total other expense, net for the fiscal year ended December 26, 2021 was $35.9 million and consisted primarily of net interest expense of $29.1 million and net losses on extinguishment of debt in the amount of $7.6 million.
Income tax provision (benefit) –We recorded an income tax provision of $18.8 million for the year ended December 25, 2022, compared to an income tax benefit of $3.5 million for the fiscal year ended December 26, 2021. These tax results were based on a net loss before taxes of $107.4 million for fiscal year 2022 and $35.1 million for fiscal year 2021.
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 fiscal year ended December 25, 2022 consisted of cash provided by borrowings and 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 may acquire additional restaurant concepts. These acquisitions typically require capital investments in excess of our normal cash on hand. We would expect that future acquisitions will necessitate financing with additional debt or equity transactions. If we are unable to obtain acceptable financing, our ability to acquire additional restaurant concepts likely would be negatively impacted. 
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We have liabilities of$91.8 millionrelating to put options exercised by others on our Series B Cumulative Preferred Stock. The Company has contractual options pursuant to the put/call agreements to extend this repayment via incremental interest payments and there are capital market options that the Company may consider. We believe that we have sufficient liquidity to meet our liquidity needs and capital resource requirements for at least the next twelve months primarily through currently available cash and cash equivalents, cash flows from operations and access to the capital markets.
As of December 25, 2022, we had cash and restricted cash totaling $68.8 million.
Debt Issuances (Whole-Business Securitizations)
We financed our acquisitions and operations through the issuance of notes by four special purpose, wholly-owned financing subsidiaries identified below, which own substantially all of our operations. The Company acts as the manager of each of these subsidiaries under a Management Agreement and performs management, franchising, distribution, intellectual property and operational functions on behalf of the subsidiaries and receives a management fee.
FAT Brands Royalty I, LLC
On April 26, 2021, FAT Brands Royalty I, LLC (“FB Royalty”), our special purpose, wholly-owned subsidiary, completed the Offering of three tranches of fixed rate senior secured notes (collectively, the “2021 FB Royalty Securitization Notes”). Net proceeds from the issuance of the 2021 FB Royalty 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. A portion of the proceeds of the 2021 FB Royalty Securitization Notes were used to repay and retire similar notes issued in 2020 under the Base Indenture (the "2020 Securitization Notes"). The payoff amount totaled $83.7 million, which included principal of $80.0 million, accrued interest of $2.2 million and prepayment premiums of $1.5 million. The remaining proceeds were available for working capital. FB Royalty owns the following brands: Fatburger, Johnny Rockets, Buffalo's Cafe and Buffalo's Express, Ponderosa Steakhouse, Bonanza Steakhouse, Hurricane Grill & Wings and Yalla Mediterranean.
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:
Closing DateClassSeniorityPrincipal BalanceCouponFinal Legal Maturity Date
7/6/2022A-2Senior$42.74.75%4/25/2051
7/6/2022B-2Senior Subordinated$14.28.00%4/25/2051
7/6/2022M-2Subordinated$19.69.00%4/25/2051

Of the $76.5 million aggregate principal amount, $30.0 million was sold privately during the third quarter of 2022, resulting in net proceeds of $27.1 million (net of debt offering costs of $0.6 million and original issue discount of $2.3 million).

The remaining $46.5 million in aggregate principal amount was sold privately on October 21, 2022 when the Company entered into an Exchange Agreement with the Twin Peaks sellers and redeemed 1,821,831 shares of the Company’s 8.25% Series B Cumulative Preferred Stock at a price of $23.69 per share, plus accrued and unpaid dividends to the date of redemption, in exchange for $46.5 million aggregate principal amount of secured debt ($43.2 million net of original issue discount). Prior to the redemption, the Twin Peaks sellers held 2,847,393 shares of Series B Cumulative Preferred Stock, which shares were issued to it on October 1, 2021 as partial consideration for the Company’s acquisition of Twin Peaks.
Pursuant to the Exchange Agreement, (i) at any time prior to July 25, 2023, the Company may call from the Twin Peaks sellers all or a portion of the Class M-2 Notes at the outstanding principal balance multiplied by 0.86, plus any accrued plus unpaid interest thereon; (ii) at any time on or after the date of the Exchange Agreement, the Company may call from the Twin Peaks sellers, and at any time on or after July 25, 2023, the Twin Peaks sellers may put to the Company, all or a portion of the Class A-2 Notes and/or Class B-2 Notes at the outstanding principal balance multiplied by 0.94, plus any accrued plus unpaid interest thereon; and (iii) at any time on or after July 25, 2023, the Company may call from the Twin Peaks sellers, and the Twin Peaks sellers may put to the Company, all or a portion of the Class M-2 Notes at the outstanding principal balance multiplied by 0.91, plus any accrued plus unpaid interest thereon. If the Company does not remit the applicable call price or put
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price upon a duly exercised call or put, as applicable, the amount owed by the Company will accrue interest at 10% per annum, which interest is due and payable in cash monthly by the Company.
FAT Brands GFG Royalty I, LLC
In connection with the acquisition of GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC (“GFG Royalty”), our special purpose, wholly-owned subsidiary, completed the issuance and sale in a private offering (the “GFG Offering”) of three tranches of fixed rate senior secured notes (the "GFG Securitization Notes"). Net proceeds from the issuance of the GFG Securitization Notes totaled $338.9 million, which consisted of the combined face amount of $350.0 million, net of debt offering costs of $6.0 million and original issue discount of $5.1 million. Substantially all of the proceeds were used to acquire GFG. GFG Royalty owns our factory operations in Atlanta, GA and the following restaurant brands: Round Table Pizza, Marble Slab Creamery, Great American Cookies, Hot Dog on a Stick and Pretzelmaker.
On December 15, 2022, GFG Royalty authorized the issuance of an additional $113.5 million aggregate principal amount of three tranches of fixed rate senior secured notes as follows:
Closing DateClassSeniorityPrincipal BalanceCouponFinal Legal Maturity Date
12/13/2022A-2Senior$67.86.00%7/25/2051
12/13/2022B-2Senior Subordinated$20.27.00%7/25/2051
12/13/2022M-2Subordinated$25.59.50%7/25/2051
Of the $113.5 million aggregate principal amount, $25.0 million was sold privately during the fourth quarter of 2022, resulting in net proceeds of $22.3 million (net of debt offering costs of $0.4 million and original issue discount of $2.3 million). The remaining $88.5 million in aggregate principal was issued to FAT Brands Inc., pending sale to third party investors, and has been eliminated in consolidation as of December 25, 2022. In January 2023, an additional $40.0 million aggregate principal amount was sold privately, resulting in net proceeds of $34.8 million net of debt offering costs and original issue discount.
FAT Brands Twin Peaks I, LLC
In connection with the acquisition of Twin Peaks, on October 1, 2021, we completed the issuance and sale in a private offering through our special purpose, wholly-owned subsidiary, FAT Brands Twin Peaks I, LLC, of an aggregate principal amount of $250.0 million of Series 2021-1 Fixed Rate Secured Notes (the "Twin Peaks Securitization Notes"). Net proceeds from the issuance of the Twin Peaks Securitization Notes totaled $236.9 million, which consisted of the combined face amount of $250.0 million, net of debt offering costs of $5.6 million and original issue discount of $7.5 million. The proceeds were used to finance the cash portion of the purchase price for the acquisition of Twin Peaks Buyer, LLC and its direct and indirect subsidiaries. FAT Brands Twin Peaks I, LLC owns the Twin Peaks restaurant brand.
FAT Brands Fazoli's Native I, LLC
In connection with the acquisition of Fazoli's and Native Grill & Wings, on December 15, 2021, we completed the issuance and sale in a private offering through our special purpose, wholly-owned subsidiary, FAT Brands Fazoli's Native I, LLC, of an aggregate principal amount of $193.8 million of Series 2021-1 Fixed Rate Secured Notes (the "Fazoli's-Native Securitization Notes"). Net proceeds from the issuance of the Fazoli's-Native Securitization Notes totaled $180.6 million, which consisted of the combined face amount of $193.8 million, net of debt offering costs of $3.8 million and original issue discount
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of $9.4 million. The proceeds were used to close the acquisitions of Fazoli's and Native, and to provide working capital for the Company. FAT Brands Fazoli's Native I, LLC owns the Fazoli's and Native Grill & Wings restaurant brands.
We believe that we will be in compliance with our debt covenants and have sufficient sources of cash to meet our liquidity needs for the next twelve months.
Equity Issuances
On June 22, 2021, we completed an underwritten public offering of 460,000 shares of our 8.25% Series B Cumulative Preferred Stock at a price of $20.00 per share. The net proceeds of the offering totaled $8.3 million (net of $0.9 million in underwriting discounts and other offering expenses).
On November 1, 2021, we closed an additional underwritten public offering of 1,000,000 shares of our 8.25% Series B Cumulative Preferred Stock at a price of $18.00 per share. The net proceeds of this offering totaled $16.8 million (net of $1.2 million in underwriting discounts and other offering expenses).
On November 14, 2022, we entered into an ATM Sales Agreement (the "Sales Agreement") with ThinkEquity LLC (the "Agent"), pursuant to which we may offer and sell from time to time through the Agent up to $21,435,000 maximum aggregate offering price of shares of our Class A Common Stock and/or 8.25% Series B Cumulative Preferred Stock. During the fourth quarter and fiscal year 2022, pursuant to the Sales Agreement, (i) we sold and issued 1,648 shares of Class A Common Stock, at a weighted average share price of $7.04, paid the Agent commissions of $348 and received net proceeds of $11,260 (net of fees and commissions) for such sales and (ii) we sold and issued 30,683 shares of Series B Cumulative Preferred Stock, at a weighted average share price of $18.13, paid the Agent commissions of $16,692 for such sales and received net proceeds of $539,698 (net of fees and commissions) for such sales.
Comparison of Cash Flows
Our cash and restricted cash balance was $68.8 million as of December 25, 2022, compared to $99.9 million as of December 26, 2021.
The following table summarizes key components of our audited consolidated cash flows for the fiscal years ended December 25, 2022, and December 26, 2021:
(In thousands)
For the Fiscal Years Ended
December 25, 2022December 26, 2021
Net cash (used in) provided by operating activities$(47.4)$0.7 
Net cash used in investing activities(12.5)(723.2)
Net cash provided by financing activities28.7 815.2 
Net (decrease) increase in cash and restricted cash$(31.2)$92.7 
Operating Activities
Net cash used in operating activities increased by $48.1 million in 2022 compared to 2021, primarily due to higher debt service costs associated with our securitizations and changes in working capital.
Investing Activities
Net cash used in investing activities was $12.5 million in fiscal year 2022, primarily related to purchases of property and equipment in connection with company-owned restaurants. Net cash used in investing activities was $723.2 million in 2021, primarily related to the acquisition of GFG, Twin Peaks, Fazoli's and Native Grill & Wings.
Financing Activities
Net cash provided by financing activities was $28.7 million in 2022, primarily as a result of proceeds from borrowings, offset by dividends paid on our Class A and Class B Common Stock and our Series B Cumulative Preferred Stock. Net cash provided by financing activities was $815.2 million in 2021, primarily as a result of the whole business securitization
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transaction, the three securitization transactions relating to the acquisitions of GFG, Twin Peaks, Fazoli's and Native Grill & Wings and the issuance of Series B Cumulative Preferred Stock, net of repayments of borrowings of $93.3 million.
Dividends
The dividends declared on the Company's common stock by the Board of Directors during the fiscal year ended December 25, 2022 are as follows (in millions):
Declaration DateDividend Per ShareRecord DatePayment DateTotal Dividend (in millions)
January 11, 2022$0.13 February 15, 2022March 1, 2022$2.2 
April 12, 2022$0.13 May 16, 2022June 1, 2022$2.1 
July 12, 2022$0.14 August 16, 2022September 1, 2022$2.3 
October 25, 2022$0.14 November 15, 2022December 1, 2022$2.3 
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.
Capital Expenditures
As of December 25, 2022, we do not have any material commitments for capital expenditures.
Critical Accounting Policies and Estimates

Revenue recognition (Fatburger):

Franchise Fees: The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires us to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which includes the transfer of the franchise license. The services provided by us are highly interrelated with the franchise license and are considered a single performance obligation. Franchise fee revenue from salesthe sale of individual franchises is recognized as revenue upon completionover the term of training and the actual opening ofindividual franchise agreement on a location. Typically, franchise fees are $50,000 for each domestic location and arestraight-line basis. Unamortized non-refundable deposits collected 50% upon signing a deposit agreement and 50% at the signing of a lease and related franchise agreement. International franchise fees are typically $65,000 for each location and are payable 100% upon signing a deposit agreement.

Revenue recognition (Buffalo’s): Franchise fee revenue from sales of individual franchises is recognized upon completion of training and the actual opening of a location. Typically, franchise fees are $50,000 for each domestic location and are collected 50% upon signing a deposit agreement and 50% at the signing of a lease and related franchise agreement. International franchise fees are typically $65,000 for each location and are payable 100% upon signing a deposit agreement. The company typically charges a $25,000 co-brand conversion fee, in additionrelation to the initialsale of franchises are recorded as deferred franchise fee.

Revenue recognition (Ponderosa): Franchise fee revenue from sales of individual franchises is recognized upon completion of training and the actual opening of a location. Typically, franchise fees are $40,000 for each domestic location and are collected 100% at the signing of a lease and related franchise agreement.

For all our brands, thefees.

The franchise fee may be adjusted at management’s discretion or in a situation involving store transfers.transfers between franchisees. Deposits are non-refundable upon acceptance of the franchise application. These deposits are recorded as deferred income until store opens. Some of our franchisees haveIn the event a franchisee does not compliedcomply with their development timelinestimeline for opening franchise stores. Thesestores, the franchise rights aremay be terminated, andat which point the franchise fee revenue is recognized forin the amount of the non-refundable deposits.

Royalties: In addition to franchise fee revenue, we collect a royalty calculated as a percentage of net sales from our franchisees. Royalties range from 0.75% to 7.0% and are recognized as revenue when the related sales are made by the franchisees. Royalties collected in advance of sales are classified as deferred income until earned.

Advertising (Fatburger): Fatburger requires

Advertising: We require advertising payments from franchisees based on a percent of 1.95% oftheir net sales from Fatburger restaurants located in the Los Angeles marketing area and up to 0.95% of net sales from stores located outside of the Los Angeles marketing area. International locations pay 0.20% to 0.95%. The companysales. We also receives,receive, from time to time, payments from vendors that are to be used for advertising. Since advertisingAdvertising funds collected are required to be spent for specific advertising purposes, nopurposes. Advertising revenue orand associated expense is recorded for advertising funds. Cumulative advertising expenditures in excesson the consolidated statement of collections are recorded as current assetsoperations. Assets and will be reimbursed by future advertising payments from franchises. Cumulative collections in excess of advertising expenditures are recorded as accrued expenses and represent advertising funds collected which have not yet been spent on advertising activities.

Advertising (Buffalo’s): Buffalo’s generally requires advertising payments from franchisees of 2.0% of net sales from Buffalo’s Southwest Cafe restaurants. Co-branded restaurants generally pay 0.20% to 1.95%. The company also receives, from time to time, payments from vendors that are to be used for advertising. Since the company acts in a fiduciary role to collect and disburse these advertising funds, no revenue or expense is recorded. Advertising funds are segregated from other Company assets and the balance of the Buffalo’s Creative and Advertising Fund is recorded as an asset by the companyliabilities associated with the offsettingrelated advertising obligation recorded as a liability, Buffalo’s Creative and Advertising Fund - Contra.

Advertising (Ponderosa): Ponderosa requires advertising payments from franchisees of 0.5% of net sales from franchisees. The company also receives, from time to time, payments from vendors thatfees are to be used for advertising. Since advertising funds collected are required to be spent for specific advertising purposes, no revenue or expense is recorded for advertising funds. Cumulative advertising expendituresreflected in excess of collections are recorded as current assets and will be reimbursed by future advertising payments from franchises. Cumulative collections in excess of advertising expenditures are recorded as accrued expenses and represent advertising funds collected which have not yet been spent on advertising activities.

the Company’s consolidated balance sheets.

Goodwill and other intangible assets:assets:Goodwill and other intangible assets with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually, or more frequently if indicators arise. Noarise, as was done in 2022 and 2021. The Company recorded impairment charges of $14.0 million and $1.0 million relating to goodwill and other intangible assets during the fiscal years ended December 25, 2022 and December 26, 2021, respectively.
Assets classified as held-for-sale: Assets are classified as held-for-sale when we commit to a plan to sell the asset, the asset is available for immediate sale in its present condition and an active program to locate a buyer at a reasonable price has been identified forinitiated. The sale of these assets is generally expected to be completed within one year. The combined assets are valued at the 2017 fiscal year.

lower of their carrying amount or fair value, net of costs to sell and included as current assets on the Company’s

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consolidated balance sheet. Assets classified as held-for-sale are not depreciated. However, interest attributable to the liabilities associated with assets classified as held-for-sale and other expenses continue to be recorded as expenses in the Company’s consolidated statements of operations.
Income taxes: We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

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

Share-based compensation: We have a non-qualified stock option plan which provides for options to purchase shares of the Company’sour common stock. For grants to employees and directors, we recognize an expense for the value of options granted at their fair value at the date of grant over the vesting period in which the options are earned. Cancellations or forfeitures are accounted for as they occur. Fair values are estimated using the Black-Scholes option-pricing model. For grants to non-employees for services, we revalue the options each reporting period while the services are being performed. The adjusted value of the options is recognized as an expense over the service period. See(See Note 1214 in our consolidated financial statements for more details on our share-based compensation.

)

Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. These standards are effective for our first quarter of 2018 and we will adopt the standards using the modified retrospective method.

These standards require that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. The services we provide related to upfront fees we receive from franchisees such as initial or renewal fees do not currently contain separate and distinct performance obligations from the franchise right and thus those upfront fees will be recognized as revenue over the term of each respective franchise agreement. We currently recognize upfront franchise fees such as initial and renewal fees when the related services have been provided, which is when a store opens for initial fees and when renewal options become effective for renewal fees. These standards require any unamortized portion of fees received prior to adoption be presented in our consolidated balance sheet as a contract liability. We are evaluating the effect the adoption of these standards will have on our future financial reports.

These standards will also have an impact on transactions currently not included in our revenues and expenses such as franchisee contributions to and subsequent expenditures from advertising cooperatives that we are required to consolidate and other cost reimbursement arrangements we have with our franchisees. We do not currently include these contributions and expenditures in our consolidated statements of operations or cash flows. The new standards will impact the principal/agent determinations in these arrangements by superseding industry-specific guidance included in current GAAP. When we are the principal in these transactions we will include the related contributions and expenditures within our consolidated statements of operations and cash flows. As a result of this change, we expect the increase in both total revenues and total costs and expenses, with no significant impact to net income.



These standards will not impact the recognition of our sales-based royalty fees from franchisees, which is generally our largest source of revenue. We are currently implementing internal controls related to the recognition and presentation of the Company’s revenues under these new standards.

In FebruaryJune 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments, and later amended the ASU in 2019, as described below. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease terman allowance that reflects its current estimate of more than twelve months. Leases will continuecredit losses expected to be classified as either financing or operating, with classification affectingincurred over the recognition, measurement and presentationlife of expenses and cash flows arising from a lease. This ASU is effective for interim and annual period beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The adoption of this standard is not expected to have a material impactinstrument based on the company’s consolidated financial statements.

historical experience, current conditions and reasonable and supportable forecasts.

In August 2016,November 2019, the FASB issued ASU 2016-15, StatementNo. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of Cash Flows (Topic 230): Classificationthis amendment is to create a two-tier rollout of Certain Cash Receiptsmajor updates, staggering the effective dates between larger public companies and Cash Payments. The new guidance is intendedall other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to reduce diversity in practice in how transactions are classified in the statement of cash flows. Thisimplement major FASB standards, including ASU is2016-13. Larger public companies will have an effective date for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2017.2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until fiscal years beginning after December 15, 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 is not expected towill have a material impact on the company’sits condensed consolidated financial statements.

In January 2017,March 2022, the FASBFinancial Accounting Standards Board (the "FASB") issued ASU 2017-04,Intangibles — GoodwillNo. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Other (Topic 350): Simplifying the AccountingVintage Disclosures. The purpose of this amendment is to enhance disclosure requirements for Goodwill Impairment, which simplifies the accountingcertain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. It requires that an entity disclose current-period gross writeoffs by year of origination for goodwill impairment. This ASU removes Step 2financing receivables and net investments in leases. The amendments should be applied prospectively and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the goodwill impairment test, which requires hypothetical purchase price allocation. A goodwill impairmentamendments is permitted if an entity has adopted the amendments in ASU 2016-13 described above, including adoption in an interim period. The Company will now beevaluate ASC No. 2022-02 and does not expect the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance also requires disclosure of the amount of goodwill at reporting units with zero or negative carrying amounts. ASU 2017-04 is effective for the Company beginning January 1, 2020. We elected to early adopt this standard when performing our annual goodwill impairment test in 2017. The adoption of this ASUstandard will have a material impact on its condensed consolidated financial statements.

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Off-Balance Sheet Arrangements
As of December 25, 2022, we did not have a significant financial impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting. This standard provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This standard does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The amendments in this ASU are effective beginning January 1, 2018, with early adoption permitted. This ASU is to be applied prospectively on and after the effective date. We adopted this ASU during 2017. The adoption of this ASU did not have a significant financial impact on our consolidated financial statements.

any off-balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15 of Part IV of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There has been no change of accountants or any disagreements with accountants on any matter of accounting principles or practices, or financial statement disclosure required to be reported under this item.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting also includes those policies and procedures that:
(a)Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(b)Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(c)Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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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Under the supervision of the Audit Committee of the Board of Directors and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment and those criteria, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 25, 2022.
Because we are a non-accelerated filer, we are not required to include an attestation report by our independent registered public accounting firm regarding the effectiveness of our internal control over financial reporting in this annual report as of December 25, 2022.
Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 201725, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of disclosure controls and procedures

This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

ITEM 9B. OTHER INFORMATION

Nothing

On February 21, 2023, the Board of Directors approved an amendment to report.

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Section 3.05 of the Company's Bylaws to replace the words "next election of the class for which such director shall have been chosen" with the words "next annual meeting of stockholders." This was a technical amendment to the language describing the term of directors elected to fill vacancies or newly created directorships, in order to properly reflect the declassification of the Board of Directors which occurred in December 2022. The foregoing description of the Bylaws amendment is qualified in its entirety by reference to the complete text of the Amended and Restated Bylaws, which is filed herewith as Exhibit 3.6 and incorporated herein by this reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.


Not applicable.
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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers and Directors

Below is a list of the names and ages, as of December 31, 201725, 2022, of our directors and executive officers, (the “named executive officers”), and a description of the business experience of each of them.

NameAgePosition
NameAgePosition
Andrew A. Wiederhorn5156President and Chief Executive Officer, Director
Ron RoeJames Neuhauser4064Senior Vice President and Chief Financial Officer
Donald J. Berchtold72President and Chief Operating Officer, Fatburger
Gregg Nettleton61President and Chief Operating Officer, Casual Dining Division
Edward Rensi73Executive Chairman of the Board of Directors
Marc L. HoltzmanKenneth J. Anderson5768Director
Squire JungerLynne L. Collier6755Director
Silvia KesselAmy V. Forrestal7257Director
Jeff LotmanEdward H. Rensi5678Director
James NeuhauserKenneth J. Kuick5954DirectorChief Financial Officer
Thayer D. Wiederhorn34Chief Operating Officer
Taylor A. Wiederhorn34Chief Development Officer
Robert G. Rosen56Executive Vice President of Capital Markets
Allen Z. Sussman58Executive Vice President and General Counsel, Secretary
Ron Roe45Senior Vice President of Finance

Executive Officers, Key Employees, Directors and Director Nominees


Andrew A. Wiederhorn, age 51, has served as a director andthe President and Chief Executive Officer of FAT Brands Inc. and our principal operating subsidiaries since its formation. Mr. Wiederhorn has served as the Chairman of the board of directors and Chief Executive Officer of Fatburger North America, Inc. since 2006 and Buffalo’s Franchise Concepts, Inc. since 2011.our inception in March 2017. He also served as the Chairman of the board of directors and Chief Executive Officer of our former parent company, Fog Cutter Capital Group Inc., since its formation in 1997. Mr. Wiederhorn previously founded and served as the Chairman of the board of directors and Chief Executive Officer of Wilshire Financial Services Group Inc. and Wilshire Credit Corporation. Mr. Wiederhorn received his B.S. degree in Business Administration from the University of Southern California in 1987, with an emphasis in Finance and Entrepreneurship. He previously served on the boardBoard of directorsDirectors of Fabricated Metals, Inc., The Boy Scouts of America Cascade Pacific Council, The Boys and Girls Aid Society of Oregon, University of Southern California Associates, Citizens Crime Commission of Oregon, and Economic Development Council for the City of Beverly Hills Chamber of Commerce. Mr. Wiederhorn was also featured as the Fatburger CEO on the CBS television program “Undercover Boss” in 2013. Mr. Wiederhorn was selected to
James Neuhauser has served on our Board of Directors because of his rolesince our inception in our founding2017, and long career in hospitality, and because he possesses particular knowledge and experience in strategic planning and leadership of complex organizations and hospitality businesses.

Ron Roe, age 40, has served as our Chief Financial Officer since 2009, and served as our Vice-President of Finance from 2007 to 2009. Prior to 2007, Mr. Roe was an acquisitions associate for FCCG. He began his career as an investment banking analyst with Piper Jaffray. Mr. Roe attended UC Berkeley, where he earned a Bachelor of Arts in Economics.

Donald J. Berchtold, age 72, served as the President and Chief Operating Officer of Fatburger North America until February 20, 2018, and currently serves asbecame Executive Vice President and Chief Concept Officer. Mr. Berchtold has also served as the President and Chief Operating Officer of FCCG since 2006, and in various other positions at FCCG prior to 2006. From 1991 to 1999, Mr. Berchtold served as Senior Vice President of Wilshire Financial Services Group Inc. and its sister company Wilshire Credit Corporation. Prior to 1990, Mr. Berchtold was the owner-operator of his own business that included a dinner house, catering company and other food service concepts, and was active in the Restaurants of Oregon Association. Mr. Berchtold holds a BSC degree in Finance and Marketing from the University of Santa Clara.

Gregg Nettleton, age 61, has served as the President and Chief Operating Officer, Casual Dining Division since October 2017. Prior to joining our company, Mr. Nettleton served as President and Chief Executive Officer of GBS Enterprises, an international management consulting firm, since 2011. From 2014 to 2016, Mr. Nettleton also concurrently served as the Executive Vice President of Development of TransX Systems, Inc., an mBaSS mobile platform company, which he developed, positioned and marketed to secure two successful rounds of funding. From 2004 to 2006, Mr. Nettleton served as a consultant and Board member Black Angus Steakhouses, LLC. From 2002 to 2004, he served as Chief Marketing officer of International House of Pancakes Inc. and received the award for “Turnaround ChainChairman of the Year” in 2003, and from 2000 to 2001, he served as Interim Chief Marketing Officer of Applebee’s International, Inc. Mr. Nettleton received his B.S. in Management Science from the State University of New York at Geneseo in Geneseo, New York and his M.B.A. in Marketing and Sales from Nova University in Ft. Lauderdale, Florida.

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Marc L. Holtzman, age 57, became a member of the board of directors of FAT Brands Inc. on October 20, 2017. Mr. Holtzman currently serves as a Chairman of The Bank of Kigali, Rwanda’s largest financial institution, and a director of TeleTech (NASDAQ: TTEC), the world’s leading provider of analytics-driven technology-enabled services. Following a successful transformation and saleBoard in July 2017 of Kazkommertsbank (LSE: KKB:LI), Kazakhstan’s largest bank, Mr. Holtzman recently stepped down as Chief Executive Officer, having joined as Chairman in March 2015.2022. He previously served as Chairman of Meridian Capital HK, a Hong Kong private equity firm. From 2012 through 2015, he served on the Board of Directors of FTI Consulting, Inc., (NYSE:FCN) a global financial and strategic consulting firm, and Sistema, Russia’s largest listed private company (London Stock Exchange). Between 2008 and 2012, Mr. Holtzman served as the executive vice chairman of Barclays Capital. From 2006 to 2008, he served as vice chairman of the investment banking division of ABN AMRO Bank. Between 1989 and 1998, Mr. Holtzman lived and worked in Eastern Europe and Russia, as co-founder and president of MeesPierson EurAmerica (a firm acquired by ABN AMRO) and as senior adviser to Salomon Brothers. Mr. Holtzman serves as a director of Sistema JSFC, (LONDON:SSA;GDR), a Russian listed investment company. Between 2003 and 2005, Mr. Holtzman was President of the University of Denver; and between 1999 and 2003 he served in the Cabinet of Governor Bill Owens as Colorado’s First Secretary of Technology. Mr. Holtzman holds a B.A. degree in Economics from Lehigh University. Mr. Holtzman was selected to our Board of Directors because he brings financial experience and possesses particular knowledge and experience in strategic planning and leadership of complex organizations.

Squire Junger,age 67, became a member of the board of directors of FAT Brands Inc. on October 20, 2017. Mr. Junger is a co-founder and a managing member of Insight Consulting LLC, a management consulting firm based in the Los Angeles area, providing advice in mergers and acquisitions, corporate divestitures, business integration diagnostics, real estate investment, acquisition, development and construction and litigation support services. Prior to co-founding Insight in 2003 he was a partner at Arthur Andersen LLP, which he joined in 1972. Mr. Junger co-developed and managed the west coast Transaction Advisory Services practice at Andersen, providing comprehensive merger and acquisition consulting services to both financial and strategic buyers and sellers. Mr. Junger is a certified public accountant in California, and received Bachelor of Science and M.B.A. degrees from Cornell University. Mr. Junger was selected to our Board of Directors because he brings substantial expertise in financial and strategic planning, mergers and acquisitions, and leadership of complex organizations.

Silvia Kessel, age 72, became a member of the board of directors of FAT Brands Inc. on October 20, 2017. Ms. Kessel is Senior Vice President, Chief Financial Officer and Treasurer of Metromedia Company. Metromedia Company is a management and investment company founded by the late John W. Kluge, which manages and invests in a variety of industries, including medical research, restaurants and outdoor visual displays. Ms. Kessel has served in various executive positions at Metromedia Company and affiliated companies since 1984. Ms. Kessel has previously served as a director of LDDS Communications Inc. (and its successor) (1993-1996), Orion Pictures (1993-1997), AboveNet/Metromedia Fiber Network (1997-2001), Big City Radio (1997-2002), and Liquid Audio (1998-2002), and served on the Board of Governors and Competition Committee of Major League Soccer (1996-2001). Ms. Kessel attended the University of Miami and received an MBA in Finance from Columbia University. From 1981 to 1988, Ms. Kessel taught Finance at Pace University. Ms. Kessel was selected to our Board of Directors because she brings substantial expertise in finance, financial and strategic planning, complex transactions and leadership of complex organizations.

Jeff Lotman, age 56, became a member of the board of directors of FAT Brands Inc. on October 20, 2017. Mr. Lotman is the Chief Executive Officer of Global Icons, LLC, a company which he founded in 1998. Global Icons is a premier brand licensing agency specializing in the development and extension of corporate brands and trademarks. Prior to launching Global Icons, Mr. Lotman was Chief Operating Officer for Keystone Foods, a multi-billion dollar manufacturing company that developed and supplied food products for companies such as McDonald’s and Kraft. Mr. Lotman guided the international expansion of Keystone Foods and established manufacturing and distribution operations in over a dozen countries. Mr. Lotman has been a featured guest speaker at many leading industry events, including Entertainment Marketing Conference, Young Presidents’ Organization, SPLICE, Licensing Show, Restaurant Industry Conference, LA Roadshow, UCLA and others. He has also been profiled numerous times, including in The New York Times, The Los Angeles Times, The Wall St. Journal, CNBC, and FOX. He is a distinguished member of the Licensing Industry Merchandisers’ Association (LIMA) and the Licensing Executives Society (LES). Mr. Lotman received a B.A. degree in Business and Marketing from Curry College. Mr. Lotman was selected to our board of directors because he brings substantial expertise in retail marketing, branding and licensing opportunities for consumer brands,

James Neuhauser, age 59, has served on the board of directors of FAT Brands Inc. since its formation. Mr. Neuhauser is a Senior Managing Director in the Private Capital Markets Group of Stifel Nicolas & Company.Company from May 2017 until July 2022. Mr. Neuhauser is also the Managing Memberserves as a managing member of Turtlerock Capital, LLC, a private company that finances and invests in real estate development projects and he serves as a member of the board of directors of PHH Corp, a public company (PHH). Heprojects. Mr. Neuhauser previously worked forheld senior positions at FBR & Co. for more thanover 24 years, including positions as Chief Investment Officer, Head of Investment Banking, and Head of the Real Estate and Financial Services groups in Investment Banking through October 2016. He also served as Head of FBR’s Commitment Committee and was a member of the firm’sfirm's Executive Committee. Prior to joining FBR, Mr. Neuhauser was a Senior Vice President of Trident Financial Corporation for seven years, where he specialized in managing stock offerings for mutual to stock conversions of thrift institutions. Before joining Trident, he worked in commercial banking with theThe Bank of New England. Mr. Neuhauser is a CFA charter holder and a member of the Society of Financial Analysts. He received a Bachelor of Arts from Brown University and an M.B.A. from the University of Michigan. Mr. Neuhauser was selected to

Kenneth J. Anderson has served on our Board of Directors becausesince October 2021, and was a director of our former parent company, Fog Cutter Capital Group Inc., until December 2020. Mr. Anderson has more than 35 years of experience in advising families, corporate executives and business owners, providing financial strategies related to taxes, estate planning, investments, insurance and philanthropy. Mr. Anderson currently serves as the CEO of the investment firm, Cedar Tree Capital, where he brings substantial expertise in financial andprovides strategic planning to high-net-worth family groups with a focus on public equities and alternative investments. Prior to Cedar Tree Capital, was a founder and client service director at a leading independent wealth management firm, Aspiriant, where he also was a member of the Board of Directors. Mr. Anderson was a client service director at myCFO until its sale in 2002 and prior to that a Tax Partner at Arthur Andersen LLP for 20 years. In addition to his decades of professional experience, Mr. Anderson is a certified public accountant and licensed attorney.
Lynne L. Collier has served on our Board of Directors since July 2022. Ms. Collier is an experienced capital markets professional, with nearly 30 years of experience in public capital markets and a focus on the restaurant industry. Ms. Collier
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currently serves as Head of Consumer Discretionary for Water Tower Research, LLC, and previously served as a Managing Director in the Investor Relations Division of ICR Inc. from April 2021 to June 2022. Prior to that, Ms. Collier had a 25-year career in equity research as a sell-side Consumer Analyst, including for Loop Capital, Canaccord Genuity and Sterne Agee. Ms. Collier received a bachelor's degree in finance from Baylor University and an M.B.A. in finance from Texas Christian University.
Amy V. Forrestal has served on our Board of Directors since October 2021. Ms. Forrestal is a seasoned executive and investment banker for companies in the restaurant and franchising industries. Ms. Forrestal serves as Managing Director of Brookwood Associates, an investment banking complexfirm based in Atlanta, GA. Ms. Forrestal established Brookwood’s Restaurant and Hospitality Group and spearheaded noteworthy deals for brands such as Beef O’ Brady’s, Fuddruckers, Rita’s Italian Ice, Quiznos, Zoes Kitchen and The Habit Burger Grill. Prior to joining Brookwood, Ms. Forrestal was a Managing Director in Banc of America Securities’ Mergers and Acquisitions group. Over her 15 years at Banc of America Securities and its predecessor organizations, including NationsBanc Montgomery Securities, Ms. Forrestal advised senior management teams, boards of directors and business owners in a variety of strategic and financial transactions, mergersincluding acquisitions, leveraged buyouts, exclusive sales, divestitures, ESOPs, public equity and acquisitions,debt offerings and leadershipprivate equity and debt placements. Ms. Forrestal received a Bachelor of complex organizations.

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Arts degree in math and economics from Duke University.

Edward H. Rensi, age 73, has served on the boardBoard of directors of FAT Brands Inc.Directors since its formationour inception in March 2017, and became Chairman of the Board onin October 20, 2017. In July 2022, Mr. Rensi transitioned to the role of Vice-Chairman of the Board and Lead Independent Director. Mr. Rensi is the retired president and chief executive officer of McDonald’s USA. Prior to his retirement in 1997, Mr. Rensi devoted his entire professional career to McDonald’s, joining the company in 1966 as a “grill man” and part-time manager trainee in Columbus, Ohio. He was promoted to restaurant manager within a year, and went on to hold nearly every position in the restaurant and field offices, including franchise service positions in Columbus, Ohio and Washington, D.C. In 1972, he was named Philadelphia district manager, and later became regional manager and regional vice president. In 1978, he transferred from the field to the company’s home office in Oak Brook, Illinois, as vice president of Operations and Training, where he was responsible for personnel and product development. In 1980, he became executive vice president and chief operations officer, and was appointed senior executive vice president in 1982. Mr. Rensi was promoted tobecame president and chief operating officeofficer of McDonald’sMcDonald's USA in 1984. In 1991, he1984, and was named chief executive officer. As president and chief executive officer his responsibilities includedin 1991, overseeing all domestic company-owned and franchisee operations, in addition to providing direction relative to sales, profits, operations and service standards, customer satisfaction, product development, personnel and training. Mr. Rensi was directly responsible for management of McDonald’s USA, which consisted of eight geographic zones and 40 regional offices. During his 13-year term as president, McDonald’s experienced phenomenal growth.McDonald's U.S. sales doubled to more than $16 billion, the number of the U.S. restaurants grew from nearly 6,600 to more than 12,000, and the number of U.S. franchisees grew from 1,600 to more than 2,700. Since his retirement, Mr. Rensi has held consulting positions. From January 2014 to July 2015, Mr. Rensi served as director and interim CEO of Famous Dave’sDave's of America, Inc. Mr. Rensi received his B.S. in Business Education from The Ohio State University in Columbus, Ohio. Mr. Rensi was selected to our Board of Directors because of his long career in hospitality, and because he possesses particular knowledge and experience in strategic planning and leadership of complex organizations and hospitality businesses.

Subsequent to December


Kenneth J. Kuick has served as the Chief Financial Officer since May 31, 2017, we namedToni M. Bianco (age 47) as President and Chief Operating Officer of the Company’s subsidiary, Fatburger North America, Inc. Mr. Bianco succeeds Don Berchtold who will be transitioning to a new role as Executive Vice President and Chief Concept Officer for FAT Brands, where he will assist in the development of innovative concept designs across the Company’s portfolio. Mr. Bianco has extensive experience in international franchising and restaurant development.2021. Prior to joining the Company, Mr. BiancoKuick served as Chief OperationsFinancial Officer of Noodles & Company, a national fast-casual restaurant concept, from November 2018 to August 2020, where he was responsible for leading the Company’s finance, accounting and SVP International/IT of Long John Silver’s LLC since 2015.supply chain operations. Prior to that, Mr. BiancoKuick served as Chief Accounting Officer of VICI Properties Inc., a real estate investment trust specializing in casino properties, from October 2017 to August 2018, where he was employed by PAPA JOHN’S International,responsible for accounting, consolidated financial operations, capital markets transactions, treasury, internal audit, tax, information technology and external reporting. Prior to that, Mr. Kuick served as Chief Accounting Officer of Caesars Entertainment Operating Company, a subsidiary of Caesars Entertainment Corporation, and as Vice President, Assistant Controller for Caesars Entertainment Corporation. Mr. Kuick is a Certified Public Accountant and earned his Bachelor of Science degree in Accounting and Business Systems from Taylor University.

Thayer D. Wiederhorn has served as the Chief Operating Officer since November 2021 where he is responsible for day-to-day business operations and providing leadership to management to ensure short-term and long-term business strategies are implemented and executed and that the organization's capabilities are optimized. Prior to that, Mr. Wiederhorn served as Chief Marketing Officer since March 2017 where he oversaw global branding and marketing for over 2,000 franchise-owned restaurants. Mr. Wiederhorn served as Vice President Asia- Marketing of Fatburger North America Inc. and Buffalo’s Franchise Concepts Inc. From June 2012 through March 2017 and as Director of Marketing of Fatburger North America Inc. from 2014July 2011 through June 2012. Additionally, he served as Marketing Coordinator from April 2011 through June 2011 and Brand Development Agent from October 2010 through April 2011. Mr. Wiederhorn started his career working in Fatburger restaurants and food-trucks. Mr. Wiederhorn received his Bachelor of Science degree in Business Administration, with an emphasis in Finance Business Economics, from the University of Southern California.

Taylor A. Wiederhorn has served as the Chief Development Officer since October 2017. Previously, Mr. Wiederhorn served as Vice President - Franchise Marketing and Development for Fatburger North America from September 2011 until October 2017. Mr. Wiederhorn graduated from the USC Marshall School of Business with a Bachelor of Science degree in Business Administration with a concentration in corporate Finance.

Robert G. Rosen has served as the Executive Vice President of Capital Markets since April 2021. Prior to 2015;joining the company, he had been the Managing Member of Kodiak Financial Group LLC since 2004. Kodiak invests in credit classes of
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ABS and MBS securities, purchases individual real estate loans and portfolios, purchases and manages real estate developments and invests in private equity transactions as well as venture capital transactions. Mr. Rosen began his career in commercial banking, focusing on direct lending for Fleet Bank (then Fleet Norstar Bank) in Albany NY after completing their extensive management training program. This was followed in 1990 by a career on Wall Street, working for Bankers Trust (now Deutsche Bank) and Kidder Peabody in structured finance and investment banking focusing primarily on credit derivatives including securitizations, asset-based lending as well as financing and banking commercial banks and other originators of securitizable assets. After Kidder, Mr. Rosen joined Black Diamond Advisors and Black Diamond Securities (and ultimately Black Diamond Capital Management). He served as a Director and FINOP of the Black Diamond entities, with a continued focus on structured finance transactions and credit as well as portfolio management (banking, sales and trading) and servicing. Mr. Rosen continued his career at Bank of Tokyo Mitsubishi and several buy side firms. He continues to be a long-term consultant to Black Diamond Capital Management and serves on multiple advisory boards and committees of Black Diamond. Mr. Rosen holds an MBA and a BA degree from Union College in Managerial Economics.

Allen Z. Sussman has served as the General Counsel and Executive Vice President for Corporate Development and our Corporate Secretary since March 2021. Prior to that time, Mr. Sussman was a partner at the law firm of Loeb & Loeb LLP in Los Angeles, California, specializing in corporate and securities law, and served as the primary outside corporate and securities counsel of FAT Brands. Prior to private practice, in the early 1990s Mr. Sussman served as an attorney with the Division of Enforcement of the U.S. Securities and Exchange Commission in Washington, DC. Mr. Sussman holds a B.S. degree in Industrial and Labor Relations from Cornell University and a J.D. degree from Boston University School of Law.

Ron Roe currently serves as the Senior Director International R&D/QAVice President of Finance. Prior to August 16, 2018, Mr. Roe served as the Chief Financial Officer since 2009 and served as the Vice President of Finance from 2009 to 2014; and Franchise Business Director from 20022007 to 2009. Prior to 2007, Mr. Bianco receivedRoe was an acquisitions associate for Fog Cutter Capital Group Inc. He began his career as an investment banking analyst with Piper Jaffray. Mr. Roe attended the University of California, Berkeley, where he earned a Bachelor of Arts degree in English LiteratureEconomics.

Family Relationships

The following family members of Andrew Wiederhorn are employed by the Company in the capacities indicated below:

•Thayer Wiederhorn, son of Andrew Wiederhorn, serves as Chief Operating Officer of the Company. During fiscal 2022, Thayer Wiederhorn received total cash compensation from the Company of approximately $1,600,000, participated in the general welfare and Educationbenefit plans of the Company and vested in stock options to purchase 33,334 shares of the Company’s common stock granted in previous years. Andrew Wiederhorn does not have a material interest in Thayer Wiederhorn’s employment, nor do they share a household.
•Taylor Wiederhorn, son of Andrew Wiederhorn, serves as Chief Development Officer of the Company. During fiscal 2022, Taylor Wiederhorn received total cash compensation from Abilene Christian University, Abilene, TX.

Family Relationships

Donald Berchtold is the former father-in-lawCompany of our Chief Executive Officer,approximately $1,660,000, participated in the general welfare and benefit plans of the Company and vested in stock options to purchase 33,334 shares of the Company’s common stock granted in previous years. Andrew Wiederhorn.

Wiederhorn does not have a material interest in Taylor Wiederhorn’s employment, nor do they share a household.

•Mason Wiederhorn, son of Andrew Wiederhorn, serves as Creative Director of the Company. During fiscal 2021, Mason Wiederhorn received total cash compensation from the Company of approximately $1,275,000, participated in the general welfare and benefit plans of the Company and vested in stock options to purchase 25,000 shares of the Company’s common stock granted in previous years. Andrew Wiederhorn does not have a material interest in Mason Wiederhorn’s employment, nor do they share a household.

Delinquent Section 16(a) Beneficial Ownership Reporting Compliance

Reports


Based solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to us for the year ended December 31, 2017,25, 2022, our directors, officers, or beneficial owners of more than 10% of our common stock timely furnished reports on all Forms 3, 4 and 5, except that (i) Ron Roe filed one late Form 3 reporting a stock option grant received on October 23, 2017; (ii) Gregg Nettleton filed a late Form 3 reporting a stock option grant received on October 23, 2017; (iii) Marc L. Holtzman filed a late Form 3 reporting a stock purchase on October 20, 2017 and a stock option grant received on October 23, 2017; (iv) Squire Junger filed one late Form 4 reporting a stock purchase on October 20, 2017; Silvia Kesselfor two transactions, (ii) Taylor Wiederhorn filed aone late Form 3 reporting a stock purchase on October 20, 2017 and a stock option grant received on October 23, 2017; Jeff Lotman4 for one transaction, (iii) Kenneth Anderson filed aone late Form 3 reporting a stock purchase on October 20, 20174 for one transaction and a stock option grant received on October 23, 2017; and Edward Rensi(iv) Lynne Collier filed twoone late Forms 4 reporting stock purchases made by his spouse on October 23, 2017 and November 9, 2017, respectively.

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Form 3.

Code of Ethics

We have adopted a written code of business ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted a current copy of the code under the Corporate Governance section of our website at https://
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ir.fatbrands.com.In addition, we intend to post on our website all disclosures that are required by law or the NASDAQ listing standards concerning any amendments to, or waivers from, any provision of the code.

Board Committees
During fiscal 2022, our Board of Directors held 43 meetings. Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of the committees of the Board of Directors on which he or she serves.
The following table sets forth the three standing committees of our Board and the members of each committee as of December 25, 2022 and the number of meetings held by our Board of Directors and the committees during 2022:
DirectorBoard of
Directors		Audit
Committee		Compensation
Committee		Nominating
and Corporate
Governance
Committee
James NeuhauserExecutive Chairman
Edward RensiVice-Chairman/Lead Independent DirectorChairChair
Kenneth J. AndersonXChairX
Lynne L. CollierXXX
Amy V. ForrestalXXX
Andrew WiederhornX
Meetings in 2022:43644
To assist it in carrying out its duties, the Board of Directors has delegated certain authority to an Audit Committee,

a Compensation Committee and a Nominating and Governance Committee, the functions of which are described below.

Audit Committee
The audit committeeAudit Committee is responsible for, among other matters:

●appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm;
●discussing with our independent registered public accounting firm their independence from management;
●reviewing with our independent registered public accounting firm the scope and results of their audit;
●approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
●overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
●reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; and
●establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters.

•appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm;
•discussing with our independent registered public accounting firm their independence from management;
•reviewing with our independent registered public accounting firm the scope and results of their audit;
•approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
•overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
•reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; and
•establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters.
Our audit committee is comprisedBoard of Mr. Junger, Ms. Kessel and Mr. Neuhauser, with Mr. Neuhauser serving as the chair. Our board of directorsDirectors has affirmatively determined that each member of the audit committeeAudit Committee meets the definition of “independent director” for purposes of serving on an audit committee under Rule 10A-3 and NASDAQ rules. In addition, our boardBoard of directorsDirectors has determined that each of Mr. Anderson, Ms. KesselCollier and Mr. NeuhauserMs. Forrestal qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.

The boardBoard of directorsDirectors adopted a charter for the Audit Committee on October 19, 2017. A copy of the Audit Committee charter is available in the Corporate Governance section of our website at https://ir.fatbrands.com.ir.fatbrands.com. The Audit Committee engaged Hutchinsonreviews and Bloodgood LLP, Glendale, California, as our independent registered public accounting firm on April 11, 2017.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

Name and Principal Position Year  Salary(1)  Bonus  Stock Awards  Option Awards (2)  Non-Equity Incentive Plan Compensation  Nonqualified Deferred Compensation Earnings  All Other Compensation  Total 
Andrew A. Wiederhorn,  2017  $251,147   -   -  $3,621   -   -   -  $254,768 
Chief Executive Officer  2016   199,165   -   -   -   -   -   -   199,165 
                                     
Ron Roe,  2017   161,462   -   -   3,621   -   -   -   165,083 
Chief Financial Officer  2016   112,030   -   -   -   -   -   -   112,030 
                                     
Gregg Nettleton,  2017   53,846   -   -   3,621   -   -   -   57,467 
President – Casual Dining Division (3)  2016   -   -   -   -   -   -   -   - 
                                     
Donald J. Berchtold,  2017   251,147   -   -   3,621   -   -   -   254,768 
President - Fatburger  2016   199,165   -   -   -   -   -   -   199,165 

44

Explanatory Notes:

(1) Reflectsreassesses the dollar amount recognized for financial statement reporting purposes for salary paid or accrued on behalfadequacy of the named executivescharter on an annual basis.

Compensation Committee
The Compensation Committee is responsible for the full fiscal years ended December 31, 2017 and December 25, 2016, including amountsassisting our Board of Directors in discharging its responsibilities relating to predecessor entities Fatburgerthe compensation of our Chief Executive Officer, other executive officers and Buffalo’s prior to being contributedoutside directors, as subsidiarieswell as
43

administering stock incentive plans. During the fiscal year ended December 31, 2017,25, 2022, there were no employee directors on the Compensation Committee and no Compensation Committee interlocks.
The Compensation Committee is responsible for the following, among other matters, as required from time to time:
•reviewing and recommending to our board of directors the compensation of our Chief Executive Officer and other executive officers and the outside directors;
•conducting a performance review of our Chief Executive Officer;
•administering the Company’s incentive-compensation plans and equity-based plans as in effect or as adopted from time to time by the Board of Directors;
•approving any new equity compensation plan or material change to an existing plan where stockholder approval has not been obtained;
•reviewing our compensation policies; and
•if required, preparing the report of the Compensation Committee for inclusion in our annual proxy statement.
The Board of Directors has adopted a charter for the Compensation Committee on October 19, 2017. A copy of the Compensation Committee charter is available in the Corporate Governance section of our website at https://ir.fatbrands.com. The Compensation Committee reviews and reassesses the adequacy of the charter on an annual basis.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for the following, among other matters, as required from time to time:
•identify qualified individuals to serve as members of the Company’s board of directors;
•review the qualifications and performance of incumbent directors;
•review and consider director candidates who may be suggested by any director or executive officer or by any stockholder of the Company; and
•review considerations relating to board composition, including size of the board, term, and the criteria for membership on the board.
The Board of Directors has adopted a charter for the Nominating and Corporate Governance Committee on October 19, 2017. A copy of the Compensation Committee charter is available in the Corporate Governance section of our website at https://ir.fatbrands.com. The Nominating and Corporate Governance Committee reviews and reassesses the adequacy of the charter on an annual basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal years ended December 25, 2022 and December 26, 2021 awarded to, earned by, or paid to our principal executive officer and our other two most highly compensated executive officers. We refer to the individuals included in the Summary Compensation Table as our “named executive officers.”
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SUMMARY COMPENSATION TABLE
Name and
Principal
Position		Fiscal
Year		Salary ($)Bonus ($)
Stock Awards (1) ($)
Option
Awards (1) ($)
All other Compensation (2) ($)
Total ($)
Andrew A. Wiederhorn2022750,000 2,250,000 — — 551,040 3,551,040 
Chief Executive Officer2021546,615 1,500,000 — 607,000 221,294 2,874,909 
Robert G. Rosen2022550,000 1,650,000 — — — 2,200,000 
EVP, Capital Markets2021395,866 480,000 857,000 607,000 — 2,339,866 
Taylor A. Wiederhorn2022550,000 1,110,000 — — — 1,660,000 
Chief Development Officer2021480,000 480,000 — 607,000 — 1,567,000 
Explanatory Notes:
(1)     Amounts shown represent the aggregate grant date fair value computed in accordance with ASC 718 of awards pursuant to the Stock Option Plan.Accounting Standards Codification 718. Assumptions used in the calculation of this amount for fiscal yearsyear ended December 31, 201725, 2022 are included in footnote 1213 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017,25, 2022, included in Part IV of this Annual Report on Form 10-K.

(3)

(2)     The amount disclosed for Mr. Nettleton became an employee ofAndrew Wiederhorn reflects the aggregate incremental cost to the Company in 2017.

of providing him with certain personal use of leased aircraft pursuant to his employment agreement. This cost is calculated based on the applicable hourly rate charged to the Company for leased aircraft.

Executive Employment Agreements


There are no written employment agreements between the Company and any of its employees.

employees, other than Andrew A. Wiederhorn.


On November 18, 2021, the Company entered into an Employment Agreement (the “Employment Agreement”) with Andrew A. Wiederhorn, who has served as the Company’s Chief Executive Officer since its inception. Pursuant to the Employment Agreement, Mr. Wiederhorn’s term as Chief Executive Officer will continue for a period of three years from July 1, 2021, the effective date of the Employment Agreement, unless earlier terminated as provided in the Employment Agreement, and will be automatically extended for additional terms of successive two year periods unless the Company or Mr. Wiederhorn gives written notice of the termination of his employment at least 180 days prior to the expiration of the then current termination date.

Pursuant to the Employment Agreement, Mr. Wiederhorn’s annual base salary is $750,000, subject to an annual merit-based increases in the sole discretion of the Board of Directors of the Company (the “Board”). Mr. Wiederhorn will also be eligible for an annual discretionary bonus in the sole discretion of the Board, with a target annual discretionary Bonus of up to 100% of base salary and a maximum of 300% of base salary for exceptional performance in the sole discretion of the Board. Mr. Wiederhorn’s eligibility to receive a bonus for any particular calendar year is subject to the achievement by him and the Company, as applicable, of personal and Company-wide targets to be established by the Company in the discretion of the Board.

Pursuant to the Employment Agreement, Mr. Wiederhorn will be eligible to receive awards of equity from time to time in the form of stock options, stock purchase rights and/or restricted stock awards. Such awards will be subject to the achievement by Mr. Wiederhorn and the Company, as applicable, of personal and Company-wide targets to be established by the Company, on such terms and subject to such conditions as the Board shall determine as of the date of any such grant. In the event of a change in control (as defined in the Employment Agreement), Mr. Wiederhorn’s continuous employment is involuntarily terminated without “cause” (as defined in the Employment Agreement), or Mr. Wiederhorn resigns from continuous employment for “good reason” (as defined in the Employment Agreement), and in any case other than as a result of his death or disability, then 100% of the equity awards that are then unvested will become fully vested. In addition, in the event that Mr. Wiederhorn’s employment is terminated by the Company without “cause” or by Mr. Wiederhorn for “good reason”, Mr. Wiederhorn will be entitled to receive severance of 12 months of base salary payable on the Company’s regular payroll schedule.

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The Employment Agreement also entitles Mr. Wiederhorn to participate in the benefit plans or programs that the Company may make available to employees and their families from time to time. The Employment Agreement also provides for certain other ancillary benefits, including the reimbursement of all reasonable business expenses and, for security purposes, use at the Company’s expense of private aircraft transportation for all business-related travel. The Company will also bear expenses for Mr. Wiederhorn’s personal use of private aircraft transportation that does not exceed 100 hours of flight time in any calendar year. In addition, Mr. Wiederhorn is entitled to 25 days of paid time off during each twelve-month period of employment.

OUTSTANDING EQUITY AWARDS AT FISCAL 20172022 YEAR END

The following table summarizes the outstanding equity award holdings of our named executive officers as of December 31, 2017.

  Option Awards  Stock Awards 
Name Number of Securities Underlying Unexercised Options (#) Exercisable  Number of Securities Underlying Unexercised Options (#) Unexercisable  Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)  Option Exercise Price($)  Option Expiration Date  Number of Shares or Units of Stock That Have Not Vested (#)  Market Value of Shares or Units of Stock That Have Not Vested($)  Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not  Vested(#)  Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested($) 
Andrew A. Wiederhorn, Chief Executive Officer  -   15,000   -  $12.00   10/19/2027   -   -   -   - 
Ron Roe, Chief Financial Officer  -   15,000   -   12.00   10/19/2027   -   -   -   - 
Gregg Nettleton, President – Buffalo’s  -   15,000   -   12.00   10/19/2027   -   -   -   - 
Donald J. Berchtold, President-Fatburger  -   15,000   -   12.00   10/19/2027   -   -   -   - 

Explanatory Notes:

25, 2022.

Option AwardsStock Awards
NameNumber of Securities
Underlying Unexercised
Options (#) Exercisable		Number of Securities
Underlying Unexercised
Options (#) Unexercisable		Option Exercise Price ($)Option Expiration DateNumber of Shares or Units of Stock That Have Not Vested (#)Market Value of Shares or Units of Stock That Have Not Vested ($)
Andrew A. Wiederhorn15,318 — 10.68 10/20/2027——
Chief Executive Officer15,318 — 4.80 12/10/2028——
33,334 66,666 11.43 11/16/2031——
Robert G. Rosen33,334 66,666 11.43 11/16/2031100,000552,000
EVP, Capital Markets——
Taylor A. Wiederhorn15,318 — 10.68 10/20/2027——
Chief Development Officer15,318 — 4.80 12/10/2028——
33,334 66,666 11.43 11/16/2031——
Option Exercises and Stock Vested

None of the named executives acquired shares of the Company’s stock through exercise of options during the year ended December 31, 2017.

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25, 2022.

DIRECTOR COMPENSATION

The Company uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the boardBoard of directors.Directors. In setting director compensation, the Company considers the significant amount of time that our directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of the boardBoard of directors.

Effective October 20, 2017, weDirectors.


We pay each non-employee director serving on our Board of Directors $80,000 in annual cash compensation, an additional $40,000 in annual cash compensation plusfor service on Board committees and an annual equity award of 15,000 stock options or SAR’s. Toto acquire 30,636 shares of common stock.The stock options issued to directors are awarded under our 2017 Omnibus Equity Incentive Plan. During fiscal 2022, we also issued our directors a one-time award of 10,000 restricted shares of Class A Common Stock vesting over two years in equal annual installments on the extent that anyanniversary date of the grant.. The non-employee director serves on onecompensation policy may be amended, modified or more committees ofterminated at any time by our Board of Directors we pay an additional $20,000 inor Compensation Committee.

At various times upon the quarterly payment dates of the cash component of director compensation, the Board has allowed each independent director to elect to receive his or her cash compensation annually.

in the form of Class A common stock of the Company at market value at the time the election is made. Under such arrangement, during fiscal 2022, the independent

46

directors elected to acquire an aggregate of 4,761 shares of Class A common stock in 2022 at a weighted average price per share of $6.30.

The terms of the equity award described above are set forth in the 2017 Omnibus Equity Incentive Plan (the “Plan”). The Plan is a comprehensive incentive compensation plan under which we can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, FAT Brands and its subsidiaries. The Plan, as amended, provides for a maximum of 1,000,0005,000,000 shares available for grant. The Plangrant and is administered by the Compensation Committee of the Board of Directors.

The non-employee director compensation policy (including the compensation described above) may be amended, modified or terminated by our Board of Directors at any time in its sole discretion.


The following table sets forth a summary of the compensation we paid or accrued to our non-employee directors during 2017:

Name Fees
Earned
or Paid
in Cash
($)(1) (2)		  Stock
Awards
($)		  Option
Awards
($)(3)		  Non-Equity
Incentive Plan
Compensation
($)		  Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)		  All Other
Compensation
($)		  Total
($)		 
Edward Rensi $15,000  $—  $3,621  $—  $—  $—  $18,621 
Marc L. Holtzman $15,000  $—  $3,621  $—  $—  $—  $18,621 
Squire Junger $15,000  $—  $3,621  $—  $—  $—  $18,621 
Silvia Kessel $15,000  $—  $3,621  $—  $—  $—  $18,621 
Jeff Lotman $15,000  $—  $3,621  $—  $—  $—  $18,621 
James Neuhauser $15,000  $—  $3,621  $—  $—  $—  $18,621 

and our executive chairman for the fiscal year ended December 25, 2022:

NameFees
Earned
or Paid
in Cash
($)		Stock
Awards
($)		Option
Awards
($) (1)		Total
($)
Edward H. Rensi120,000 88,500 88,982 297,482 
Kenneth A. Anderson90,000 88,500 88,982 267,482 
Lynne L. Collier (2)60,000 88,500 88,982 237,482 
Amy V. Forrestal120,000 88,500 88,982 297,482 
Squire Junger (3)120,000 88,500 88,982 297,482 
James Neuhauser (4)807,500 853,500 — 1,661,000 
Explanatory Notes:

(1)Mr. Rensi and Mr. Lotman serve on the Nominating Committee. Mr. Holtzman serves on the Compensation Committee and the Nominating Committee. Mr. Neuhauser serves on the Compensation Committee and the Audit Committee. Ms. Kessel and Mr. Junger serve on the Audit Committee.    
(2)All director fees were accrued but unpaid during 2017 for each director.
(3)Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2017 of awards pursuant to the Plan. Assumptions used in the calculation of this amount for fiscal year ended December 31, 2017 are included in footnote 12 to the Company’s audited financial statements, included in Part IV of the Company’s Annual Report on Form 10-K. During 2017, each director was granted options to purchase 15,000 shares of common stock with a grant date option fair value of $35,550.

(1)Amounts shown represent the grant date fair value calculated in accordance with Accounting Standards Codification 718. Assumptions used in the calculation of this amount are included in footnote 14 to the Company’s audited consolidated financial statements included in Part IV of this Annual Report on Form 10-K. During 2022, the directors were each granted options to purchase 30,636 shares of common stock.
(2)Ms. Collier was appointed to the Board of Directors effective as of July 12, 2022.
(3)Mr. Junger was removed from the Board of Directors effective as of December 20, 2022.
(4)Mr. Neuhauser was appointed Executive Chairman effective as of July 13, 2022. This table includes Mr. Neuhauser's compensation as a non-executive Director prior to July 13, 2022 and as Executive Chairman beginning on July 13, 2022.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

PRINCIPAL STOCKHOLDERS

Common Stock

The following table sets forth information, as of February 23, 2023, with respect to the beneficial ownership of our Common Stock as of March 1, 2018:

Class A common stock and our Class B common stock by:

●each person known by us to beneficially own more than 5% of our Common Stock;Class A common stock or Class B common stock;
●each of our directors;
●each of our named executive officers; and
●all of our executive officers and directors as a group.


The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC and includes voting power (if applicable) or investment power with respect to securities. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power (if applicable) or investment power. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options, or other rights including the redemption right described above, held by such person that are currently exercisable or will become exercisable within 60 days of the effective date of the disclosure, are considered outstanding, although these shares are not considered outstanding for
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purposes of computing the percentage ownership of any other person. Unless otherwise indicated, the address of all listed stockholders is c/o FAT Brands Inc., 9720 Wilshire Blvd., Suite 500, Beverly Hills, California 90212. Each of the stockholders listed below has sole voting power (if applicable) and sole investment power with respect to the shares beneficially owned by thesuch stockholder unless noted otherwise, subject to community property laws where applicable.

  Shares of Common Stock
Beneficially Owned		 
Name of beneficial owner Number  Percentage(3) 
5% Stockholders        
Fog Cutter Capital Group Inc.  8,000,000   80%
Named Executive Officers and Directors        
Andrew A. Wiederhorn   0 (1)(2)  * 
Ron Roe   0 (2)  * 
Donald J. Berchtold  0 (2)  * 
Gregg Nettleton  0 (2)  * 
Marc L. Holtzman  4,000 (2)  * 
Squire Junger  1,500 (2)  * 
Silvia Kessel  2,000 (2)  * 
Jeff Lotman  15,000 (2)  * 
James Neuhauser  0 (2)  * 
Edward Rensi  402 (2)(3)  * 
All directors and executive officers as a group (ten persons)  22,902   0%


As of February 23, 2023, there were issued and outstanding 15,316,920 shares of Class A common stock and 1,270,805 shares of Class B common stock.
Class A Common Stock
Beneficially Owned		Class B Common Stock
Beneficially Owned		 Percent of Total Voting Power †
Name of beneficial ownerNumber%Number%
Greater than 5% Stockholders
Fog Cutter Holdings LLC7,033,397 (1)45.9 %706,514 55.6 %55.5 %
HOT GFG LLC2,259,594 (2)14.8 %— **
Geode Capital Holdings LLC— *77,586 6.1 %(3)6.1 %
Gregory Fortunoff and certain persons1,024,939 (4)6.6 %— **
Named Executive Officers and Directors
   Andrew A. Wiederhorn226,449 (5)1.5 %5,333 **
Robert G. Rosen133,333 (6)*10,000 **
Taylor A. Wiederhorn220,678 (7)1.4 %14,989 1.2 %1.2 %
Kenneth J. Anderson176,620 (8)1.2 %16,353 1.3 %1.3 %
Lynne L. Collier10,000 (9)*— 0.0 %*
Amy V. Forrestal24,113 (8)*— **
James Neuhauser294,627 (10)1.9 %8,803 **
    Edward Rensi120,132 (11)*3,354 **
All directors and executive officers as a group (12 persons)1,901,878 (12)16.2 %111,136 8.7 %8.8 %
(1)Mr.
†Represents the voting power with respect to all shares of our Class A Common Stock and Class B Common Stock, voting as a single class, beneficially owned by the holder. Each share of Class A Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to 2,000 votes per share.
*Represents beneficial ownership of less than 1% of the class.
(1)Based on a Schedule 13D filed by Fog Cutter Holdings LLC, a limited liability company controlled by a board of managers comprised of Andrew A. Wiederhorn, beneficially owns 38.2%Taylor A. Wiederhorn, Thayer D. Wiederhorn and Mason A. Wiederhorn. Includes warrants to purchase 19,148 shares of FCCG,Class A Common Stock. The address of Fog Cutter Holdings, LLC is 9720 Wilshire Blvd., Suite 500, Beverly Hills, CA 90212.
(2)Based on a Schedule 13G filed on March 8, 2022 jointly by HOT GFG LLC and Ms. Rachel Serruya. Ms. Serruya is the sole Director and President of HOT GFG LLC, and may be deemed to have voting and investment power over these shares. Ms. Serruya disclaims beneficial ownership of such securities except to the Company heldextent of her indirect pecuniary interest therein, if any. The address provided by FCCGHOT GFG LLC is 210 Shields Court, Markham, Ontario, Canada L3R8V2.
(3)Based on a Schedule 13G filed on February 9, 2022 jointly by Geode Capital Holdings LLC and Geode Capital Management, LLC. The address provided by Geode is 100 Summer Street, 12th Floor, Boston, MA 02110.
(4)Includes warrants to purchase 158,000 shares of Class A Common Stock. Based in part on a Schedule 13D/A filed jointly on August 25, 2022 by Gregory Fortunoff with an address at 49 West 37th Street, New York, NY 10018. Mr. Fortunoff expressly disclaims beneficial ownership for all purposes of the shares beneficially owned by other persons.
(5)Includes 23,332 shares of Class A Common Stock, options to purchase an additional 63,969 shares of Class A Common Stock that have vested or will vest within 60 days of the effective date of the disclosure, and warrants that are exercisable for an additional 120,000 shares of Class A Common Stock, including warrants for 100,000 shares owned by Mr. Wiederhorn’s spouse, to which he disclaims beneficial ownership except to the extent of his pecuniary interest in FCCG.  
(2)therein. Does not include non-vestedunvested options to purchase 15,000an additional 66,667 shares of the Company’s common stock.Class A Common Stock.
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(3)(6)Includes options to purchase 33,333 shares of Class A Common Stock that have vested or will vest within 60 days of the effective date of the disclosure. Does not include unvested options to purchase an additional 66,667 shares of Class A Common Stock.
(7)Includes options to purchase 63,969 shares of Class A Common Stock that have vested or will vest within 60 days of the effective date of the disclosure. Does not include unvested options to purchase an additional 66,667 shares of Class A Common Stock.
(8)Includes 402options to purchase 10,212 shares of Class A Common Stock that have vested or will vest within 60 days of the effective date of the disclosure. Does not include unvested options to purchase an additional 51,060 shares of Class A Common Stock.
(9)Does not include unvested options to purchase an additional 30,636 shares of Class A Common Stock.
(10)Includes options to purchase 76,590 shares of Class A Common Stock that have vested or will vest within 60 days of the effective date of the disclosure. Does not include unvested options to purchase an additional 30,636 shares of Class A Common Stock.
(11)Includes options to purchase 76,590 shares of Class A Common Stock that have vested or will vest within 60 days of the effective date of the disclosure. Does not include unvested options to purchase an additional 61,272 shares of Class A Common Stock.
(12)Includes aggregate options to purchase 526,782 shares of Class A Common Stock that have vested or will vest within 60 days of the effective date of the disclosure. Does not include aggregate unvested options to purchase an additional 624,666 shares of Class A Common Stock. Includes warrants to purchase 140,000 shares of Class A Common Stock, 100,000 of which are owned by Mr. Rensi’s spouse.Wiederhorn’s spouse, to which he disclaims beneficial ownership except to the extent of his pecuniary interest therein.

* Represents


Preferred Stock

The following table sets forth information, as of February 23, 2023, with respect to the beneficial ownership of less than 1%.

Equity Compensation Plan Information

Please see the information provided under the heading “Equity Compensation Plan Information” in Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES included in this Annual Report on Form 10-K for the year ended December 31, 2017.

our non-voting Series B Cumulative Preferred Stock (the “Series B Preferred Stock”) by each of our directors, each of our named executive officers, and all of our executive officers and directors as a group. As of February 23, 2023, were 7,380,229 issued and outstanding shares of Series B Preferred Stock.


Series B Preferred Stock
Beneficially Owned
Name of beneficial ownerShares%
Named Executive Officers and Directors
Andrew A. Wiederhorn—*
Robert G. Rosen232*
Taylor A. Wiederhorn—*
Kenneth J. Anderson11,681(1)*
Lynne L. Collier—*
Amy V. Forrestal—*
James Neuhauser—*
Edward Rensi7,781*
All directors and executive officers as a group (12 persons)25,189*

*Represents beneficial ownership of less than 1% of the class.
(1)Mr. Anderson also has voting and investment authority over 478,199 shares of Series B Preferred Stock and a warrant to acquire 100,000 shares of Class A Common Stock held by Trojan Investments, LLC.

49

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Review

Parent Company
As disclosed above under "Item 12. Security Ownership of Certain Beneficial Owners and ApprovalManagement and Related Stockholder Matters," Fog Cutter Holdings, LLC beneficially holds approximately 55.5% of Related Person Transactions

We have adopted, by resolution of our Board of Directors, a policy that any transactions between us and any of our affiliates or related parties, including our executive officers, directors, shareholders who own 5% or morethe voting power with respect to all shares of our common stock, the family members of those individualsstock.

Family Relationships
The information set forth above under "Item 10. Directors, Executive Officers and any of their affiliates, must (1) be approvedCorporate Governance - Family Relationships" is incorporated by a majority of the members of the Board of Directors and by a majority of the disinterested members of the Board of Directors and (2) be on terms no less favorable to us than could be obtained from unaffiliated third parties.

Reportable Related Person Transactions

Other than the transactions described elsewhere in this Annual Report on Form 10-K between the Company and FCCG, since January 1, 2017, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:

●in which the amount involved exceeds $120,000; and
●in which any director, executive officer, shareholder who beneficially owns 5% or more of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

reference herein.

Director Independence

The boardBoard has determined that each of the current directors, except Mr. Wiederhorn and Mr. Neuhauser, is independent within the meaning of the applicable rules and regulations of the Securities and Exchange Commission (“SEC”)SEC and the director independence standards of The NASDAQ Stock Market, Inc. (“NASDAQ”), as currently in effect. Furthermore, the boardBoard has determined that each of the members of each of the committees of the boardBoard is “independent” under the applicable rules and regulations of the SEC and the director independence standards of NASDAQ applicable to each such committee, as currently in effect.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Hutchinson and Bloodgood

Baker Tilly US, LLP, Glendale,Los Angeles, California, currently serves as our independent registered public accounting firm. The aggregate accounting fees for the years ended December 31, 201725, 2022 and December 26, 2021 are as follows (dollars in thousands):

  December 31, 2017 
Audit fees $205 
Audit related fees $95 
Tax fees $7 

December 25, 2022December 26, 2021
Audit fees$1,068 $1,128 
Audit related fees$215 $418 
Other fees$— $— 
Audit Committee Pre-Approval Policies and Procedures. The Audit Committee reviews the independence of our independent registered public accounting firm on an annual basis and has determined that Hutchinson and BloodgoodBaker Tilly US, LLP is independent. In addition, the Audit Committee pre-approves all work and fees(and the related estimated fees) that areis to be performed by our independent registered public accounting firm.

48
50


PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)Financial Statements
FAT Brands Inc.
(a)Financial Statements

FAT Brands Inc.
Audited Financial Statements
F-1
F-1
Consolidated Balance Sheet as of December 31, 2017F-3
Consolidated Statement of Operations for the period beginning March 21,2017 (inception) and ending December 31, 2017F-4
Consolidated Statement of Changes in Stockholders’ Equity for the period beginning March 21, 2017 and ending December 31, 2017F-5
Consolidated Statement of Cash Flows for the period beginning March 21,2017 (inception) and ending December 31, 2017F-6
Notes to Consolidated Financial StatementsF-7
Schedule II – Valuation and Qualifying AccountsF-18
Fatburger North America, Inc.
Audited Interim Financial Statements
Report of Independent Registered Public Accounting FirmF-19
Balance Sheet as of October19, 2017F-20
Statement of Income for the period beginning December 26, 2016 and ending October 19, 2017F-21
Statement of Changes in Stockholder’s Equity for the period beginning December 26, 2016 and ending October 19, 2017F-22
Statement of Cash Flows for the period beginning December 26, 2016 and ending October 19,2017F-23
Notes to Consolidated Financial StatementsF-24
Audited Financial Statements
Report of Independent Registered Public Accounting FirmF-30
Balance Sheets as of December 25, 2016 and December 27, 2015F-31
Statements of Income for the years ended December 25, 2016 and December 27, 2015F-32
Statements of Changes in Stockholder’s Equity for the years ended December 25, 2016 and December 27, 2015F-33
Statements of Cash Flows for the years ended December 25, 2016 and December 27, 2015F-34
Notes to Financial StatementsF-35
Buffalo’s Franchise Concepts, Inc.
Audited Interim Financial Statements
Report of Independent Registered Public Accounting FirmF-41
Consolidated Balance Sheet as of October19, 2017F-42
Consolidated Statement of Income for the period beginning December 26, 2016 and ending October 19, 2017F-43
Consolidated Statement of Changes in Stockholder’s Equity for the period beginning December 26, 2016 and ending October 19, 2017F-44
Consolidated Statement of Cash Flows for the period beginning December 26, 2016 and ending October19,2017F-45
Notes to Consolidated Financial StatementsF-46
Audited Financial Statements
Report of Independent Registered Public Accounting FirmF-51
Consolidated Balance Sheets as of December 25, 20162022 and December 27, 201526, 2021
F-52
F-3
F-53
F-5
F-54
F-6
F-55
F-8
F-56
F-10

(b)Exhibits -See Exhibit Index immediately following the signature pages.

(b)Exhibits – See Exhibit Index immediately following the signature pages.

51


Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

of FAT Brands Inc.

Beverly Hills, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheetsheets of FAT Brands Inc. and its subsidiaries (the “Company”"Company") and subsidiaries as of December 31, 2017,25, 2022 and December 26, 2021, the related consolidated statements of operations, stockholders’ equity,deficit, and cash flows for the period March 21, 2017 (inception) through December 31, 2017,years then ended, and the related notes and Schedule II to the consolidated financial statements (collectively referred to as the “consolidated"consolidated financial statements”statements"). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2017,25, 2022 and December 26, 2021, and the results of theirits operations and theirits cash flows for the period March 21, 2017 (inception) through December 31, 2017year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)("PCAOB)" and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our auditaudits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.

F-1
Critical Audit Matters

Supplemental Information

The supplementary information contained in Schedule II (the Supplemental Information) has been subjected tocritical audit procedures performed in conjunction withmatters communicated below are matters arising from the current period audit of the Company’s consolidated financial statements.statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The Supplemental Information iscommunication of critical audit matters does not alter in any way our opinion on the responsibilityfinancial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill and Intangible Asset Impairment Assessment
Critical Audit Matter Description
As discussed in Note 2 of the Company’s management. Our audit procedures included determining whether the Supplemental Information reconciles to the consolidated financial statements, goodwill and intangible assets are tested for impairment at least annually on the reporting unit level, and more frequently if the Company believes indicators of impairment exist. The Company determined that three of the reporting units' (Great American Cookie, Pretzel Maker and Marble Slab Company) intangible assets were impaired and the Company recorded related impairment losses of approximately $14 million for the year ended December 25, 2022. The determination of the fair value of the reporting units and related intangibles requires significant estimates and assumptions. Changes in these assumptions could have a significant impact on either the fair value of the reporting units and intangibles, the amount of any goodwill impairment charge, or both.
We identified the underlying accountingimpairment assessment of goodwill and other records,intangibles as applicable,a critical audit matter. Auditing management's judgements regarding forecasts of future revenue and performingoperating margin, and the discount rate to be applied involved a high degree of subjectivity.
How the Critical Audit Matter Was Addressed in Our Audit
The primary procedures we performed to testaddress this critical audit matter included:
F-1

•Obtaining an understanding of management's process for determining goodwill and intangible asset impairment;
•Obtaining and reviewing management's goodwill and intangibles impairment analysis including the completenessfair value of reporting units and intangible balances tested;
•Comparing the actual sales to those forecasted by the Company in previous years in order to assess the historical accuracy of management's forecasting;
•Utilizing a valuation specialist to assist in evaluating the valuation methodologies utilized by the Company for goodwill and intangibles by comparing the methodologies to those utilized by other companies holding similar assets, compared management's assumption inputs to information presentedfrom external sources and available economic forecasts and data;
•Evaluating the estimated fair value of the reporting units to the Company's market capitalization and evaluating whether any variances from the projections or changes in market capitalization were indicative of potential impairment of the goodwill and identifiable intangible assets; and
•Evaluating whether the assumptions used in the Supplemental Information. In forming our opinion ongoodwill and intangibles impairment analysis were reasonable by considering the Supplemental Information, we evaluatedpast performance of reporting units and third-party market data, and whether such assumptions were consistent with evidence obtained in other areas of the Supplemental Information, including its form and content, is presented in conformity with Rule 17a-5 under the Securities Exchange Act of 1934. In our opinion, the supplementary information contained in Schedule II is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.

audit.


/s/ Hutchinson and BloodgoodBaker Tilly US, LLP

We or a firm acquired by us in 2012, have continuously served as the Company’s auditor for the two predecessorssince 2019.
Los Angeles, California
February 24, 2023

F-2


FAT BRANDS INC.

CONSOLIDATED BALANCE SHEET

SHEETS

(dollars in thousands, except share data)

  December 31, 2017 
Assets    
Current Assets    
Cash $32 
Accounts receivable, net of allowance for $679 for doubtful accounts  918 
Trade notes receivable, net of allowance of $17 for doubtful accounts  77 
Other current assets  153 
Total current assets  1,180 
     
Trade notes receivable – noncurrent, net of allowance of $17 for doubtful accounts  346 
Due from affiliates  7,963 
Deferred income taxes  937 
Intangible assets, net  11,011 
Goodwill  7,356 
Other assets  7 
Buffalo’s creative and advertising fund  436 
Total assets $29,236 
     
Liabilities and Stockholders’ Equity    
Liabilities    
Accounts payable $2,439 
Deferred income  1,772 
Accrued expenses  1,761 
Accrued advertising  348 
Accrued interest payable to FCCG  405 
Total current liabilities  6,725 
     
Deferred income  1,941 
Notes payable to FCCG  18,125 
Buffalo’s creative and advertising fund-contra  436 
Total liabilities  27,227 
     
Commitments and contingencies  - 
     
Stockholders’ Equity    
Common stock, $.0001 par value; 25,000,000 shares authorized; 10,000,000 shares issued and outstanding  2,622 
Accumulated deficit  (613)
Total stockholders’ equity  2,009 
Total liabilities and stockholders’ equity $29,236 


December 25, 2022December 26, 2021
Assets
Current assets
Cash$28,668 $56,656 
Restricted cash25,375 24,740 
Accounts receivable, net23,880 20,084 
Inventory6,925 5,927 
Assets classified as held-for-sale4,767 5,476 
Other current assets6,086 6,156 
Total current assets95,701 119,039 
Non-current restricted cash14,720 18,525 
Operating lease right-of-use assets101,114 98,552 
Goodwill293,282 295,128 
Other intangible assets, net625,294 652,788 
Property and equipment, net79,189 80,501 
Other assets4,003 5,499 
Total assets$1,213,303 $1,270,032 
Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable$18,328 $27,527 
Accrued expenses and other liabilities52,800 46,295 
Deferred income, current portion2,019 2,636 
Accrued advertising14,819 10,853 
Accrued interest payable13,241 10,678 
Dividend payable on preferred shares1,467 1,574 
Liabilities related to assets classified as held- for-sale4,084 4,780 
Current portion of operating lease liability14,815 14,341 
Current portion of redeemable preferred stock91,836 67,500 
Current portion of long-term debt49,611 631 
Current portion of acquisition purchase price payable4,000 4,173 
Other current liabilities— 7,500 
Total current liabilities267,020 198,488 
Deferred income, net of current portion21,698 17,662 
Deferred income tax liabilities, net27,181 12,921 
Operating lease liability, net of current portion95,620 92,920 
Long-term debt, net of current portion958,630 904,265 
Other liabilities2,332 976 
Total liabilities1,372,481 1,227,232 
F-3

Commitments and contingencies (Note 16)
Redeemable preferred stock— 64,455 
Stockholders’ deficit
Preferred stock: $0.0001 par value; 15,000,000 shares authorized; 3,252,154 shares issued and outstanding at December 25, 2022 and 3,221,471 shares issued and outstanding at December 26, 2021; liquidation preference $25 per share45,504 55,661 
Class A and Class B common stock and additional paid-in capital as of December 25, 2022: $0.0001 par value per share; 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,571,675 shares issued and outstanding (Class A 15,300,870, 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 (Class A 50,000,000, Class B 1,600,000); 16,380,552 shares issued and outstanding (Class A 15,109,747, Class B 1,270,805)(26,015)(24,837)
Accumulated deficit(178,667)(52,479)
Total stockholders’ deficit(159,178)(21,655)
Total liabilities and stockholders’ deficit$1,213,303 $1,270,032 


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


F-4

FAT BRANDS INC.

CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS

(dollars in thousands, except share data)

For the period beginning March 21, 2017 (inception) throughFiscal Years Ended December 31, 2017

Revenue    
Royalties $2,023 
Franchise fees  140 
Management fees  10 
Total revenue  2,173 
     
General and administrative expenses    
Compensation and employee benefits  1,337 
Travel and entertainment  110 
Professional fees  117 
Other  559 
Total general and administrative expenses  2,123 
     
Income from operations  50 
     
Non-operating income (expense)    
Interest Income  200 
Interest expense  (405)
Other income (expense), net  (51)
Total non-operating income (expense)  (256)
     
Loss before taxes  (206)
     
Income tax expense  407 
     
Net loss $(613)
     
Basic loss per share $(0.07)
Basic weighted average shares outstanding  8,505,263 
Diluted loss per share $(0.07)
Diluted weighted average shares outstanding  8,505,263 
Dividends declared per share $- 

25, 2022 and December 26, 2021
20222021
Revenue
Royalties$87,921 $42,658 
Restaurant sales241,001 41,563 
Advertising fees37,997 16,728 
Factory revenues33,504 13,470 
Franchise fees3,706 4,023 
Management fees and other income3,095 439 
Total revenue407,224 118,881 
Costs and expenses
General and administrative expense113,313 41,775 
Cost of restaurant and factory revenues221,627 44,242 
Depreciation and amortization27,015 8,474 
Impairment of goodwill and other intangible assets14,000 1,037 
Refranchising loss4,178 314 
Acquisition costs383 4,242 
Advertising fees44,612 17,973 
Total costs and expenses425,128 118,057 
(Loss) income from operations(17,904)824 
Other (expense) income, net
Interest expense, net(78,477)(26,864)
Interest expense related to preferred shares(16,372)(2,193)
Loss on extinguishment of debt— (7,637)
Other income, net5,375 750 
Total other expense, net(89,474)(35,944)
Loss before income tax(107,378)(35,120)
Income tax provision (benefit)18,810 (3,537)
Net loss(126,188)(31,583)
Basic and diluted loss per common share$(7.66)$(2.15)
Basic and diluted weighted average shares outstanding16,476,090 14,656,880 
Cash dividends declared per common share$0.54 $0.52 

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

FAT BRANDS INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(dollars in thousands, except share data)

 

  Common Stock  Accumulated    
  Shares  Amount  Deficit  Total 
             
Balance at March 21, 2017 (inception)  100  $-  $-  $- 
                 
Forward split of common stock  7,999,900   -   -   - 
                 
Issuance of shares  2,000,000   20,930   -   20,930 
                 
Distribution to FCCG in excess of historical cost basis of assets received  -   (18,397)  -   (18,397)
                 
Net loss  -   -   (613)  (613)
                 
Share-based compensation  -   89   -   89 
                 
Balance at December 31, 2017  10,000,000  $2,622  $(613) $2,009 


F-5

FAT BRANDS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(dollars in thousands, except share data)
For the Fiscal Year Ended December 25, 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— ————— — ——— (126,188)(126,188)
Issuance of common and preferred stock36,362 ———108108 30,683 —586586 —694 
Share-based compensation150,000 ———7,6197,619 — ——— —7,619 
Dividends paid on common stock— ———(8,905)(8,905)— ——— —(8,905)
Issuance of common stock in lieu of cash - director fees4,761 ————— — ——— —— 
Dividends paid on Series B preferred stock— ————— — —(6,636)(6,636)—(6,636)
Exercise of Series B preferred stock put option— ———— — — —(4,107)(4,107)—(4,107)
Balance at December 25, 202215,300,870 1,270,805 $2 $— $(26,017)$(26,015)3,252,154 $— $45,504 $45,504 $(178,667)$(159,178)








F-6

For the Fiscal Year Ended December 26, 2021
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 27, 202011,926,264 — $1 $— $(42,776)$(42,775)1,183,272 $— $21,788 $21,788 $(20,896)$(41,883)
Net loss— ————— — ———(31,583)(31,583)
Issuance of common stock through exercise of warrants559,988 ———2,0912,091 — —475475—2,566 
Issuance of preferred stock— ————— 1,560,000 —26,73226,732—26,732 
Share-based compensation300,000 ———1,6421,642 — ————1,642 
Measurement period adjustment in accordance with ASU 2015-16— ———(1,381)(1,381)— ————(1,381)
Stock contracted for issue in payment of debt63,901 ———831831 — ————831 
Dividends declared on common stock— ———(7,442)(7,442)— ————(7,442)
Dividends declared on Series B preferred stock— ————— — —(4,084)(4,084)—(4,084)
Issuance of common stock in connection with acquisition of LS GFG Holdings Inc.1,964,865 ———22,537 22,537 — —0——22,537 
Stock dividend of Class B Shares294,729 1,270,8051—(26)(25)— —0——(25)
Issuance costs related to common equity— ———(315)(315)— —0——(315)
Series A Preferred shares retired through issuance of Series B Preferred shares— ————— 478,199 —10,75010,750—10,750 
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)

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

F-7

FAT BRANDS INC.

CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS

(dollars in thousands)

For the period beginning March 21, 2017 (inception) throughFiscal Years Ended December 31, 2017

Cash flows from operating activities    
Net loss $(613)
Adjustments to reconcile net loss to net cash provided by operations:    
Deferred income taxes  232 
Provision for bad debts  124 
Depreciation and amortization  23 
Share-based compensation  89 
Change in:    
Accounts receivable  (221)
Trade notes receivable  8 
Prepaid expenses  (145)
Accounts payables  808 
Accrued expense  796 
Accrued advertising  43 
Accrued interest payable to FCCG  405 
Deferred income  (50)
Total adjustments  2,112 
Net cash provided by operating activities  1,499 
     
Cash flows from investing activities    
Investment in subsidiary, net of cash acquired  (10,515)
Increase in other assets  (7)
Net cash used in investing activities  (10,522)
     
Cash flows from financing activities    
Repayments of loans from FCCG  (11,875)
Proceeds from issuance of common stock from initial public offering,
net of issuance costs		  20,930 
Net cash provided by financing activities  9,055 
     
Net increase in cash  32 
Cash at beginning of year  - 
Cash at end of year $32 
     
Supplemental disclosures of cash flow information:    
Cash paid for interest $- 
Cash paid for income taxes $17 
     
Supplemental disclosure of non-cash financing and investing activities:    
Note payable issued in exchange for contributed subsidiaries $30,000 
Net non-cash assets received from FCCG $11,568 
Income taxes payable offset against amounts due from affiliates $134 

25, 2022 and December 26, 2021

20222021
Cash flows from operating activities  
Net loss$(126,188)$(31,583)
Adjustments to reconcile net loss to net cash (used in) provided by operations:
Deferred income taxes17,463 (5,337)
Net loss on extinguishment of debt— 6,087 
Depreciation and amortization27,015 8,474 
Share-based compensation7,619 1,642 
Change in operating right-of-use assets7,021 3,851 
Accretion of loan fees and interest10,771 2,787 
Adjustments to purchase price liability(1,140)95 
Gain on sale of refranchised assets— (2,681)
Impairment of goodwill and other intangible assets14,000 1,037 
Change in provision for bad debts20,720 1,843 
Other(500)301 
Change in:
Accounts receivable(24,516)(4,705)
Other current assets29 (1,533)
Accounts payable(9,199)5,374 
Accrued expense and other liabilities6,501 3,002 
Deferred income3,419 768 
Accrued advertising3,966 1,894 
Accrued interest payable2,563 8,831 
Dividend payable on preferred shares(107)1,188 
Other current and non-current liabilities(6,836)(653)
Total adjustments78,789 32,265 
Net cash (used in) provided by operating activities(47,399)682 
Cash flows from investing activities
Acquisitions, net of cash acquired(1,022)(721,382)
Acquisition of intangible assets(1,750)— 
Payments received on loans receivable1,762 212 
Net proceeds from sale of refranchised restaurants— 2,692 
Proceeds from sale of property and equipment9,934 4,233 
Purchases of property and equipment(21,421)(10,422)
Purchase deposits received on refranchised restaurants— 1,500 
Other— (33)
Net cash used in investing activities(12,497)(723,200)
Cash flows from financing activities
Proceeds from borrowings, net of issuance costs55,220 897,215 
Repayments of borrowings(4,874)(93,279)
Issuance of preferred shares, net— 26,732 
Change in operating lease liabilities(5,699)(3,595)
F-8

Payments made on acquisition purchase price liability— (1,075)
Exercise of warrants694 2,567 
Dividends paid on redeemable preferred stock(1,062)(2,283)
Dividends paid on common shares(8,905)(7,468)
Dividends paid on preferred shares(6,636)(3,559)
Other— (27)
Net cash provided by financing activities28,738 815,228 
Net (decrease) increase in cash and restricted cash(31,158)92,710 
Cash and restricted cash at beginning of the period99,921 7,211 
Cash and restricted cash at end of the period$68,763 $99,921 
Supplemental disclosures of cash flow information:
Cash paid for interest$66,851 $14,978 
Cash paid for income taxes$1,029 $842 
Supplemental disclosure of non-cash financing and investing activities:
Director fees converted to common stock$30 $15 
Issuance of preferred stock in lieu of cash preferred dividends payable$— $1,564 



















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

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –1. ORGANIZATION AND RELATIONSHIPS

Organization and Nature of Business
FAT Brands Inc. (the “Company”) was formed onis a leading multi-brand restaurant franchising company that develops, markets and acquires primarily quick-service, fast casual, casual and polished casual dining restaurant concepts around the world. Organized in March 21, 2017 as a wholly ownedwholly-owned subsidiary of Fog Cutter Capital Group, Inc. (“FCCG”FCCG”). On, the Company completed its initial public offering on October 20, 2017 the Company completed an initial public offering and issued additional shares of common stock representing 20 percent of its ownership (the “Offering”). The net proceedsupon completion of the Offering were approximately $20,930,000 after deductingoffering. During the selling agent fees and offering expenses. The Company’s common stock trades on the Nasdaq Capital Market under the symbol “FAT.”

Concurrent with the Offering, two subsidiariesfourth quarter of FCCG, Fatburger North America, Inc. (“Fatburger”) and Buffalo’s Franchise Concepts, Inc. (“Buffalo’s”) were contributed to2020, the Company bycompleted a transaction in which FCCG in exchange formerged into a $30,000,000 note payable (the “Related Party Debt”). FCCG also contributed the newly acquired operating subsidiaries of Homestyle Dining LLC: Ponderosa Franchising Company, Bonanza Restaurant Company, Ponderosa International Development, Inc. and Puerto Rico Ponderosa, Inc. (collectively, “Ponderosa”). These subsidiaries conduct the worldwide franchisingwholly-owned subsidiary of the Ponderosa Steakhouse RestaurantsCompany, and the Company became the parent of FCCG.

As of December 25, 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 Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouse Restaurants. TheSteakhouses. As of December 25, 2022, the Company provided $10,550,000had approximately 2,300 locations open and under construction, of the net proceeds from the Offering to FCCG to consummate the acquisition of Homestyle Dining LLC.

At December 31, 2017, certain Company officers and directors controlled, directly or indirectly, a significant voting majority of the Company.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations – FAT Brands Inc. is a multi-brandwhich approximately 95% were franchised.

Each franchising company specializing in fast casual restaurant concepts around the world through its subsidiaries: Fatburger, Buffalo’s and Ponderosa.

Fatburger franchises andsubsidiary licenses the right to use the Fatburgerits brand name and provides franchisees with operating procedures and methods of merchandising. The restaurants serve a variety of freshly made-to-order Fatburgers, Turkeyburgers, Chicken Sandwiches, Veggieburgers, French fries, onion rings, soft-drinks and milkshakes. Upon signing a franchise agreement, the Companyfranchisor is committed to provide training, some supervision and assistance, and access to operations manuals. As needed, the Companyfranchisor will also provide advice and written materials concerning techniques of managing and operating the restaurants.

The franchisesCompany’s operations have historically been comprised primarily of franchising a growing portfolio of restaurant brands. This growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and accounting services. As part of these ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants and may convert them to franchise locations. During the refranchising period, the Company may operate the restaurants and classifies the operational activities as refranchising gains or losses and the assets and associated liabilities as held-for sale. Through recent acquisitions, the Company also operates "company owned" restaurant locations of certain brands. Our revenues are operated underderived primarily from two sales channels, franchised restaurants and company owned restaurants, which we operate as one segment.
COVID-19
The outbreak of the name “Fatburger.”

Buffalo’s grantsCOVID-19 pandemic in March 2020 had a number of adverse effects on our business and that of our franchisees, including temporary and permanent closures of restaurant locations, reduced or modified store franchiseoperating hours, difficulties in staffing restaurants and development agreementssupply chain disruptions. While the disruptions to our business from the COVID-19 pandemic have mostly subsided, the resurgence of COVID-19 or its variants, as well as an outbreak of other widespread health epidemics or pandemics, could cause a closure of restaurants and disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.

Liquidity
The Company recognized loss from operations of $17.9 million during fiscal year 2022 and income from operations of $0.8 million during fiscal year 2021. The Company has a history of net losses and an accumulated deficit of $178.7 million as of December 25, 2022. Additionally, as of December 25, 2022, the Company had negative working capital of $171.3 million. Of this amount, $91.8 million represents the current portion of redeemable preferred stock as discussed in Note 12. Since the Company did not deliver the applicable cash proceeds at the related due dates the amount accrues interest until the payments are completed. The Company had $28.7 million of unrestricted cash as of December 25, 2022, has received $34.8 million in debt financing subsequent to that date and plans on the combination of cash flows from operations and cash on hand to be sufficient to cover any working capital requirements for the operationnext twelve months from the date of casual dining restaurants (Buffalo’s Southwest Cafés) and quick service restaurants outlets (Buffalo’s Express). The restaurants specializethis 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 the salea timely manner or at all.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Buffalo-Style chicken wings, chicken tenders, burgers, ribs, wrap sandwiches, and salads. Franchisees are licensed to use the Company’s trade name, service marks, trademarks, logos, and unique methods of food preparation and presentation.

Ponderosa and Bonanza Steakhouses offer guests a high-quality buffet and broad array of great tasting, affordably-priced steak, chicken and seafood entrées. Buffets at Ponderosa and Bonanza Steakhouses feature a large variety of all you can eat salads, soups, appetizers, vegetables, breads, hot main courses and desserts. Bonanza Steak & BBQ operates full service steakhouses with fresh farm-to-table salad bar, including a menu showcase of USDA flame-grilled steaks, house-smoked BBQ and contemporized interpretations of traditional American classics.

operations – The Company also co-brandsoperates on a 52-week calendar and its franchise concepts. These co-brandedfiscal year ends on the last Sunday of the calendar year. Consistent with the industry practice, the Company measures its stores’ performance based upon 7-day work weeks.

Using the 52-week cycle ensures consistent weekly reporting for operations and ensures that each week has the same days, since certain days are more profitable than others. The use of this fiscal year means a 53rd week is added to the fiscal year every 5 or 6 years, as will be the case in fiscal year 2023. In a 52-week year, all four quarters are comprised of 13 weeks. In a 53-week year, one extra week is added to the fourth quarter. Both fiscal years 2022 and 2021 were 52-week years. Our revenues are derived from two sales channels, franchised restaurants sell products of multiple affiliated brands and share back-of-the-house facilities.

company owned locations, which we operate as one reportable segment.

Principles of consolidation – The accompanying consolidated financial statements include the accounts of the Company fromand its formation on March 21, 2017 through December 31, 2017. The operations of Fatburger, Buffalo’s and Ponderosasubsidiaries. Newly-acquired subsidiaries are included in the consolidated financial statements beginning October 20, 2017,from the date of their contribution by FCCG.acquisition. Intercompany accounts have been eliminated in consolidation.

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

F-7

Franchise revenueFinancial statement reclassification – Franchise fee revenueCertain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications.

Credit and depository risks – Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. Management evaluates each of its franchisee’s financial condition prior to entry into a franchise or other agreement, as well as periodically through the term of the agreement, and believes that it has adequately provided for any exposure to potential credit losses. As of December 25, 2022 and December 26, 2021, accounts receivable, net of allowance for doubtful accounts, totaled $23.9 million and $20.1 million, respectively, with no franchisee representing more than 10% of that amount.
Restricted cash – The Company has restricted cash consisting of funds required to be held in trust in connection with its securitized debt. The current portion of restricted cash was $25.4 million and $24.7 million as of December 25, 2022 and December 26, 2021, respectively. Non-current restricted cash of $14.7 million and $18.5 million as of December 25, 2022 and December 26, 2021, respectively, represents interest reserves required to be set aside for the duration of the securitized debt.
Accounts receivable – Accounts receivable are recorded at the invoiced amount and are stated net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The allowance is based on historical collection data and current franchisee information. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 25, 2022 and December 26, 2021 accounts receivable was stated net of an allowance for doubtful accounts of $24.2 million and $3.5 million, respectively.
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 a 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 Company accounts for the ERC by analogy to International Accounting Standard, Accounting for Government Grants and Disclosure of Government Assistance ("IAS 20"). During 2022 the Company filed with the Internal Revenue Service credits totaling $22.0 million and, in accordance with IAS 20, fully reserved the amounts claimed until such time when it is determined that the Company has reasonable assurance that the credits will be realized.
Inventories – Inventories are carried at the lower of cost or net realizable value and consist primarily of raw materials used in the Company's dough manufacturing facility in Atlanta, Georgia, and finished goods which consist primarily of food, beverages and supplies for Company restaurants. Inventory costs are included in "Cost of restaurant and factory revenues" in the Consolidated Statements of Operations.
Assets classified as held-for-sale – Assets are classified as held-for-sale when the Company commits to a plan to sell the asset, the asset is available for immediate sale in its present condition, and an active program to locate a buyer at a reasonable price has been initiated. The sale of individual franchisesthese assets is recognized only when all material servicesgenerally expected to be completed within one year. The combined assets are valued at the lower of their carrying amount or conditions relatingfair value, net of costs to sell, and included as current assets on the Company’s
consolidated balance sheet. Assets classified as held-for-sale are not depreciated. However, interest attributable to the sales have been substantially performed or satisfied. The completion of trainingliabilities associated with assets classified as held-for-sale and the opening of a location by the franchisee constitute substantial performance on the part of the Company. Non-refundable deposits collected in relation to the sale of franchisesother related expenses are recorded as deferred franchise fees untilexpenses in the completionCompany’s consolidated statement of training and the opening of the restaurant, at which time the franchise fee revenue is recognized. In addition to franchise fee revenue, the Company collects a royalty ranging from 3% to 6% of gross sales from restaurants operated by franchisees. Royalty fees are recorded as revenue as the related sales are made by the franchisees. Costs relating to continuing franchise support are expensed as incurred.

The Company operates on a 52-week calendar and its fiscal year ends on the Sunday closest to December 31. Consistent with the industry, 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. Accordingly, the accompanying consolidated financial statements reflect a fiscal year end of December 31, 2017. The use of this fiscal year means a 53rd 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.

Advertising – The Company requires advertising payments based on a percent of net sales from franchisees. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Since advertising funds collected are required to be spent for specific advertising purposes, no revenue or expense is recorded for advertising funds. For Fatburger and Ponderosa, cumulative advertising expenditures in excess of collections are recorded as current assets and will be reimbursed by future advertising payments from franchises. Buffalo’s acts in a fiduciary role to collect and disburse advertising funds through the Buffalo’s Creative and Advertising Fund. As a result, no revenue or expense is recorded by Buffalo’s and the balance of the Fund is recorded as an asset by Buffalo’s with the offsetting advertising obligation recorded as a liability, Buffalo’s Creative and Advertising Fund - Contra.

operations.

Goodwill and other intangible assets – Intangible assets are stated at the estimated fair value at the date of acquisition and include goodwill, trademarks, and franchise agreements. Goodwill and other intangible assets with indefinite lives, such as trademark,trademarks, are not amortized but are reviewed for impairment annually or more frequently if indicators arise. All other intangible assets are amortized over their estimated weighted average useful lives, which range from nine4.9 years to twenty-five15.3 years. Management assesses potential impairments to intangible assets at least annually, or when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Judgments regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of the acquired businesses, market conditions and other factors.

Accounts receivable – Accounts receivable

Fair value measurements - The Company determines the fair market values of its financial assets and liabilities, as well as non-financial assets and liabilities that are recordedrecognized or disclosed at the invoiced amount and are stated net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is basedfair value on historical collection data and current franchisee information. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Trade notes receivable – Tradenotes receivable are created when an agreement to settle a delinquent franchisee receivable account is reached and the entire balance is not immediately paid. Generally, trade notes receivable include personal guarantees from the franchisee. The notes are made for the shortest time frame negotiable and will generally carry an interest rate of 6% to 7.5%. Reserve amounts on the notes are establishedrecurring basis, based on the likelihoodfair value hierarchy established in U.S. GAAP. As necessary, the Company measures its financial assets and liabilities using inputs from the following three levels of collection.

the fair value hierarchy:

•Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.
•Level 2 - Inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active
markets for similar assets or liabilities.
•Level 3 - Inputs are unobservable and reflect the Company’s own assumptions.
The Company does not have a material amount of financial assets or liabilities that are required to be measured at fair value on a recurring basis under U.S. GAAP. None of the Company’s non-financial assets or non-financial liabilities are required to be measured at fair value on a recurring basis.
Income taxes – The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. A valuation allowance is recognized when the realization of our deferred tax assets is expected to be less than our carrying amounts.
A two-step approach is utilized to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon the ultimate settlement.
Franchise fees - The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which includes the transfer of the franchise license. The services provided by the Company are highly inter-related with the franchise license and are considered a single performance obligation. Franchise fee revenue from the sale of individual franchises is recognized over the term of the individual franchise agreement on a straight-line basis. Unamortized non-refundable deposits collected in relation to the sale of franchises are recorded as deferred income.
The franchise fee may be adjusted from time to time at management’s discretion. Deposits are non-refundable upon acceptance of the franchise application. In the event a franchisee does not comply with their development timeline for opening franchise stores, the franchise rights may be terminated, at which point the franchise fee revenue is recognized for non-refundable deposits.
Royalties – In addition to franchise fee revenue, the Company collects a royalty calculated as a percentage of net sales from our franchisees. Royalties typically range from 0.75% to 7.0% and are recognized as revenue when the related sales are made by the franchisees. Royalties collected in advance of sales are classified as deferred income until earned.
Company-owned restaurant revenue - Company-owned restaurant revenue is recognized at the point in time when food and beverage products are sold. Company restaurant sales are presented net of sales-related taxes collected from customers and remitted to governmental taxing authorities.
Advertising – The Company requires advertising fee payments from franchisees based on a percent of net sales. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Advertising funds collected are required to be spent for specific advertising purposes. Advertising revenue and the associated expense are recorded gross on the Company’s consolidated statement of operations. Assets and liabilities associated with the related advertising fees are reflected in the Company’s consolidated balance sheet.
Share-based compensation– The Company has a non-qualified stock option plan which provides for options to purchase shares of the Company’s common stock. Options issued under the plan may have a variety of terms as determined by the Board of Directors including the option term, the exercise price and the vesting period. Options granted to employees and directors are valued at the date of grant and recognized as an expense over the vesting period in which the options are earned. Cancellations or forfeitures are accounted for as they occur. Stock options issued to non-employees as compensation for services are accounted for based upon the estimated fair value of the stock option. The Company recognizes this expense over the period in which the services are provided. Management utilizes the Black-Scholes option-pricing model to determine the fair value of the stock options issued by the Company. See Note 1214 for more details on the Company’s share-based compensation.

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

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

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

Earnings per share – The Company reports basic earnings or loss per share in accordance with FASB ASC 260, “Earnings“Earnings Per Share”Share”. Basic earnings per share is computed using the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed using the weighted average number of common shares outstanding plus the effect of dilutive securities during the reporting period. AllAny potentially dilutive securities that have an anti-dilutive impact on the per share calculation are excluded. During periods in which the Company reports a net loss, diluted weighted average shares outstanding stock optionsare equal to basic weighted average shares outstanding because the effect of the inclusion of all potentially dilutive securities would be anti-dilutive. As of December 25, 2022, and warrants to purchase common stockDecember 26, 2021, there were excluded fromno potentially dilutive securities considered in the computationcalculation of diluted net loss per common share due to net losses for the period presented because none of those instruments currently have exercise prices below the market price of the shares.

NOTE 3 – RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2014, the Financialeach period.

Recently Issued Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. These standards are effective for the Company in our first quarter of 2018 and will be adopted using the modified retrospective method.

These standards require that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. The services provided by the Company related to upfront fees received from franchisees such as initial or renewal fees do not currently contain separate and distinct performance obligations from the franchise right and thus those upfront fees will be recognized as revenue over the term of each respective franchise agreement. We currently recognize upfront franchise fees such as initial and renewal fees when the related services have been provided, which is when a store opens for initial fees and when renewal options become effective for renewal fees. These standards require any unamortized portion of fees received prior to adoption be presented in the consolidated balance sheet as a contract liability. The Company is currently evaluating the impact the adoption of these standards on our future consolidated financial statements.


These standards will also have an impact on transactions currently not included in the Company’s revenues and expenses such as franchisee contributions to and subsequent expenditures from advertising cooperatives that we are required to consolidate and other cost reimbursement arrangements we have with our franchisees. We do not currently include these contributions and expenditures in our consolidated statements of operations or cash flows. The new standards will impact the principal/agent determinations in these arrangements by superseding industry-specific guidance included in current GAAP. When we are the principal in these transactions we will include the related contributions and expenditures within our consolidated statements of operations and cash flows. As a result of this change, we expect the increase in both total revenues and total costs and expenses, with no significant impact to net Income.


These standards will not impact the recognition of our sales-based royalty fees from franchisees, which is generally our largest source of revenue. We are currently implementing internal controls related to the recognition and presentation of the Company’s revenues under these new standards.

In FebruaryJune 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments, and later amended the ASU in 2019, as described below. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease terman allowance that reflects its current estimate of more than twelve months. Leases will continuecredit losses expected to be classified as either financing or operating, with classification affectingincurred over the recognition, measurement and presentationlife of expenses and cash flows arising from a lease. This ASU is effective for interim and annual period beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The adoption of this standard is not expected to have a material impactinstrument based on the Company’s consolidated financial statements.

historical experience, current conditions and reasonable and supportable forecasts.

In August 2016,November 2019, the FASB issued ASU 2016-15, StatementNo. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of Cash Flows (Topic 230): Classificationthis amendment is to create a two-tier rollout of Certain Cash Receiptsmajor updates, staggering the effective dates between larger public companies and Cash Payments. The new guidance is intendedall other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to reduce diversity in practice in how transactions are classified in the statement of cash flows. Thisimplement major FASB standards, including ASU is2016-13. Larger public companies will have an effective date for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2017.2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until fiscal years beginning after December 15, 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 is not expected towill have a material impact on the Company’sits condensed consolidated financial statements.

In January 2017,March 2022, the FASBFinancial Accounting Standards Board (the "FASB") issued ASU 2017-04, Intangibles — GoodwillNo. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Other (Topic 350): Simplifying the AccountingVintage Disclosures. The purpose of this amendment is to enhance disclosure requirements for Goodwill Impairment, which simplifies the accountingcertain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. It requires that an entity disclose current-period gross write-offs by year of origination for goodwill impairment. This ASU removes Step 2financing receivables and net investments in leases. The amendments should be applied prospectively and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the goodwill impairment test, which requires hypothetical purchase price allocation. A goodwill impairment will now beamendments is permitted if an entity has adopted the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance also requires disclosure of the amount of goodwill at reporting units with zero or negative carrying amounts.amendments in ASU 2017-04 is effective for the Company beginning January 1, 2020.2016-13 described above, including adoption in an interim period. The Company elected to early adopt this standard when performing its annual goodwill impairment test in 2017. Thewill evaluate ASC No. 2022-02 and does not expect the adoption of this ASU did notstandard will have a significant financialmaterial impact on the Company’sits condensed consolidated financial statements.

In



F-10

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

On May 2017,24, 2022, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting. This standard provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This standard does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The amendments in this ASU are effective beginning January 1, 2018, with early adoption permitted and are to be applied prospectively on and after the effective date. The Company adopted this ASU during 2017. The adoption of this ASU did not have a significant financial impact on the Company’s consolidated financial statements.

NOTE 4 – PONDEROSA ACQUISITION

In March 2017, FCCG agreed to acquire Homestyle Dining LLCthe royalty stream related to the chain of stores known as Nestlé® Toll House® Café by Chip® from MetromediaCrest Foods, Inc., consisting of all royalties generated under the Nestlé® Toll House® Café by Chip® brand, and the franchisor has agreed to cause 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 and its affiliate (“Metromedia”) pursuant topaid 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 a Membership Interest Purchase Agreement, as amended, which provided for atotal cash purchase price of $10,550,000 to be paid at closing. Effective October 20, 2017,$138.1 million.

Founded in 1988 in Lexington, KY, Fazoli’s owns and operates nearly 210 restaurants in 26 states, making it the largest premium quick service restaurant Italian chain priding itself on serving premium quality Italian food, fast, fresh and friendly. Menu offerings include freshly prepared pasta entrees, Submarinos® sandwiches, salads, pizza and desserts – along with its unlimited signature breadsticks.
Acquisition of Native Grill & Wings
On December 15, 2021, the Company provided $10,550,000 of the net proceeds from the Offering to FCCG to consummatecompleted the acquisition of Homestyle Dining LLC. In exchange,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 22 franchised locations throughout Arizona, Illinois, and Texas. Native serves over 20 award-winning wing flavors that guests can order by the 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 received full ownershipcompleted the acquisition of Twin Peaks Buyer, LLC (“Twin Peaks”) from TwinPeaksHoldings,LLC(the“Seller”).Twin Peaks is the franchisor and operator of a chain of sports lodge themed restaurants. The purchase price totaled $310.3 million. See Note 10 for more details of the purchase price consideration.
Acquisition of GFG Franchise Group

On July 22, 2021, the Company completed the acquisition of LS GFG Holdings Inc. (“GFG”) for a total purchase price of $444.9 million.
GFG is a franchisor of five restaurant brands. GFG’s brands (Great American Cookies, Marble Slab Creamery, Pretzelmaker, Hot Dog on a Stick and Round Table Pizza) are in the Homestyle Dining operating subsidiaries: Ponderosa Franchising Company, Bonanza Restaurant Company, Ponderosa International Development, Inc. and Puerto Rico Ponderosa, Inc. (collectively, “Ponderosa”). These subsidiaries conduct the worldwide franchisingquick service restaurant industry. The franchise network, across all of the Ponderosa Steakhouse Restaurants andCompany’s brands, consists of approximately 1,415 retail stores in 8 countries. GFG also operates a dough manufacturing facility which supplies dough to certain of the Bonanza Steakhouse Restaurants and management believes that Ponderosa’s operations will be complimentary and accretive to the FAT Brand business. The Ponderosa acquisition was accounted for as a business combination using the acquisition methodGFG brands.


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The allocation of the consideration to the valuation of net tangible and intangible assets acquired in the transactions described above is presented in the following table (in millions). The allocations relating to Fazoli's, Native Grill & Wings, Twin Peaks and GFG are as follows:
Fazoli'sNative Grill & WingsTwin PeaksGFG
Cash$9.6 $0.2 $14.9 $8.7 
Accounts receivable3.3 0.3 1.6 7.3 
Prepaids and other current assets1.8 0.1 2.8 3.8 
Notes receivable— — 1.5 — 
Other intangible assets, net83.3 14.7 165.4 348.3 
Goodwill53.4 5.3 105.1 120.2 
Right-of-use assets43.1 0.2 43.7 6.5 
Property, plant and equipment22.0 0.1 46.8 8.4 
Deferred tax asset, net— — 0.2 — 
Other assets0.3 — 0.5 1.2 
Accounts payable(5.8)— (5.2)(2.4)
Accrued expenses(7.4)(0.3)(6.4)(10.1)
Accrued advertising— (0.1)(3.5)(3.2)
Deferred income(1.5)(0.2)(3.6)(3.2)
Operating lease liability(48.8)(0.2)(44.7)(8.7)
Deferred tax liability, net(14.7)— — (31.4)
Other liabilities(0.5)— (8.8)(0.5)
Total net identifiable assets$138.1 $20.1 $310.3 $444.9 
Pro Forma Information

The table below (in thousands):

  October 20, 2017 
Accounts receivable $441 
Trade notes receivable  431 
Intangible assets  8,870 
Deferred tax liability  (528)
Deferred income  (126)
Total identifiable net assets  9,088 
Goodwill  1,462 
Total consideration $10,550 

The following table provides information regardingpresents the combined pro forma revenue and earningsnet loss of Ponderosa includedthe Company and Fazoli's, Twin Peaks and GFG (the "Material Acquired Entities") for the year December 26, 2021, assuming the acquisition of the Material Acquired Entities had occurred on December 28, 2020 (the beginning of the Company’s 2021 fiscal year), pursuant to ASC 805-10-50 (in millions). Actual consolidated results are presented in the accompanying consolidated financial statements since October 20, 2017 (in thousands):

 Ponderosa 
   
Revenues    
Royalties $805 
Franchise fees  2 
     
Total revenues  807 
     
Expenses    
General and administrative  815 
     
Loss from operations  (8)
     
Other expense  (18)
     
Loss before income tax expense  (26)
     
Income tax benefit  (175)
     
Net income $151 

The following unaudited pro forma information presents the revenue and earnings of Ponderosa as if it had been acquired on December 26, 2016 (the Company’s normal beginning fiscal year) through December 31, 2017 (in thousands):

 

Pro Forma

Ponderosa

 
   
Revenues    
Royalties $4,234 
Franchise fees  8 
     
Total revenues  4,242 
     
Expenses    
General and administrative  3,079 
     
Income from operations  1,163 
     
Other Income  24 
     
Loss before income tax expense  1,187 
     
Income tax expense  320 
     
Net income $867 

The unaudited pro forma income statement reflects actual results for fiscal 2017, as adjusted for an additional $90,000 of amortization of intangible assets recognized asany period in which a result of the acquisition and an adjusted income tax provision to reflect the tax status of Ponderosa asMaterial Acquired Entity was actually a consolidated subsidiary of the Company. HadThis pro forma information does not purport to represent what the actual results of operations of the Company owned Ponderosawould have been had the acquisition of the Material Acquired Entities occurred on this date nor does it purport to predict the results of operations for future periods.


Year Ended December 26, 2021
Revenue$347.9 
Net loss$28.8 



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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 following assets used in the operation of certain restaurants meet all of the criteria requiring that they be classified as held- for-sale, and have been classified accordingly on the accompanying audited consolidated balance sheets as of December 25, 2022 and December 26, 2016,2021 (in millions):
December 25, 2022December 26, 2021
Property, plant and equipment$0.7 $0.8 
Operating lease right-of-use assets4.1 4.7 
Total$4.8 $5.5 
Operating lease liabilities related to the unaudited pro forma consolidated net income wouldassets classified as held-for-sale in the amount of $4.1 million and $4.8 million, have been approximately $103,000 insteadclassified as current liabilities on the accompanying audited consolidated balance sheets as of a net loss of $613,000.

Note 5. GOODWILL

Goodwill consistDecember 25, 2022 and December 26, 2021, respectively.

The following table highlights the operating results of the following:

  December 31, 2017 
Goodwill:    
Fatburger $529 
Buffalo’s  5,365 
Ponderosa  1,462 
Total goodwill $7,356 

NoteCompany’s refranchising program during 2022 and 2021 (in millions):

Twelve Months Ended
December 25, 2022		Twelve Months Ended
December 26, 2021
Restaurant costs and expenses, net of revenue$(4.2)$(3.0)
Gains on store sales or closures— 2.7 
Refranchising loss$(4.2)$(0.3)

NOTE 5. PROPERTY AND EQUIPMENT, NET
Property and equipment consists primarily of real estate (including land, buildings and tenant improvements) and equipment.
As of December 25, 2022 and December 26, 2021, the Company's gross carrying value of property and equipment and accumulated depreciation balances were (in millions):
Total
20222021
Real estate$67.7 $60.5 
Equipment26.5 22.9 
  Total property and equipment, gross94.2 83.4 
Less: accumulated depreciation(15.0)(2.9)
  Total property and equipment, net$79.2 $80.5 
Depreciation expense for the fiscal years ended December 25, 2022 and December 26, 2021 was $12.1 million and $2.6 million, respectively.
On an annual basis the Company assesses its property and equipment for impairment. For the fiscal year ended December 25, 2022 the company recognized impairment expense of $0.5 million which is included in General and administrative expense on
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the Consolidated Statements of Operations. The Company recognized no impairment expense for the fiscal year ended December 26, 2021.
Upon retirement or other disposal of property and equipment, the cost and related amounts of accumulated depreciation are eliminated from the asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds, is recorded in earnings.
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS,

Intangible NET

The following table reflects the changes in carrying amounts of goodwill for the fiscal years ended December 25, 2022 and December 26, 2021 (in millions):
December 25, 2022December 26, 2021
Gross goodwill:
   Balance, beginning of year$296.8 $12.4 
   Acquired1.2 285.9 
   Adjustment to preliminary purchase price allocation(3.0)(1.5)
   Balance, end of year295.0 296.8 
Accumulated impairment:
   Balance, beginning of year(1.7)(1.4)
   Impairment— (0.3)
   Balance, end of year(1.7)(1.7)
Net carrying value$293.3 $295.1 
When considering the available facts, assessments and judgments, the Company recorded goodwill impairment charges of $0.0 million and $0.3 million for the fiscal years ended December 25, 2022 and December 26, 2021, respectively.
Because of the risks and uncertainties related to the COVID-19 pandemic events, the negative effects on the operations of the Company’s franchisees could prove to be worse than currently estimated and result in the need to record additional goodwill impairment charges in future periods.
Other intangible assets consist primarily of trademarks, franchise agreements and customer relationships that were classified as identifiable intangible assets at the time of the followingbrands’ acquisition by the Company, or at the time they were acquired by FCCG prior to FCCG’s contribution of the brands to the Company in connection with the initial public offering. Franchise agreements and customer relationships are amortized over the useful life of the asset. Trademarks are considered to have an indefinite useful life and are not amortized.
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Changes in Carrying Value of Other Intangible Assets
The changes in carrying value of other intangible assets for the fiscal years ended December 25, 2022 and December 26, 2021 are as follows (in thousands)millions):

  December 31, 2017 
Trademarks:    
Fatburger $2,135 
Buffalo’s  27 
Ponderosa  7,230 
Total trademarks  9,392 
     
Franchise agreements:    
Ponderosa – cost  1,640 
Ponderosa – accumulated amortization  21 
   1,619 
Total $11,011 

AmortizingNon-AmortizingTotal
202220212022202120222021
Balance, beginning of year$175.6 $12.6 $477.2 $35.1 $652.8 $47.7 
   Impairment— — (14.0)(0.8)(14.0)(0.8)
   Amortization expense(14.9)(6.0)— — (14.9)(6.0)
   Acquisitions1.7 169.0 — 442.9 1.7 611.9 
   Adjustment to preliminary purchase price allocation(0.3)— — — (0.3)— 
Balance, end of year$162.1 $175.6 $463.2 $477.2 $625.3 $652.8 
Gross Carrying Value and Accumulated Amortization of Other Intangible Assets
The carrying value of amortizing other intangible assets is as follows as of December 25, 2022 and December 26, 2021 (in millions):
December 25, 2022December 26, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Amortizing intangible assets
    Franchise agreements$109.2 $(14.8)$94.4 $109.4 $(5.7)$103.7 
    Customer relationships73.9 (8.1)65.8 73.9 (2.4)71.5 
    Other2.1 (0.2)1.9 0.4 — 0.4 
Balance, end of year$185.2 $(23.1)$162.1 $183.7 $(8.1)$175.6 
When considering the available facts, assessments and judgments, including increased interest rates, the Company recorded impairment of trademarks in the amount of $14.0 million and $0.8 million for the fiscal years ended December 25, 2022 and December 26, 2021, respectively.
The expected future amortization of the Company’s capitalized franchise agreementsamortizable intangible assets is as follows (in thousands)millions):

Fiscal year:    
2018$ 111 
2019  111 
2020  111 
2021  110 
2022  110 
Thereafter  1,066 
Total$ 1,619 

Note

Fiscal year:
2023$15.0 
202414.7 
202514.5 
202614.5 
202714.4 
Thereafter89.0 
Total$162.1 

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NOTE 7. DEFERRED INCOME

Deferred income is as follows:

  December 31, 2017 
    
Deferred franchise fees $2,781 
Deferred royalties  932 
     
Total $3,713 

Note 8. Income Taxes

Effective October 20, 2017, the Company entered into a Tax Sharing Agreement with FCCG that provides that FCCG will, to the extent permitted by applicable law, file consolidated federal, California and Oregon (and possibly other jurisdictions where revenue is generated, at FCCG’s election) income tax returns with the Company and its subsidiaries. The Company will pay FCCG the amount that its current tax liability would have been had it filed a separate return. To the extent the Company’s required payment exceeds its share of the actual combined income tax liability (which may occur, for example, due to the application of FCCG’s net operating loss carryforwards), the Company will be permitted, in the discretion of a committee of its board of directors comprised solely of directors not affiliated with or having an interest in FCCG, to pay such excess to FCCG by issuing an equivalent amount of its common stock in lieu of cash, valued at the fair market value at the time of the payment. In addition, an inter-company receivable of approximately $7,963,000 due from FCCG will be applied first to reduce such excess income tax payment obligation to FCCG under the Tax Sharing Agreement.

For financial reporting purposes, the Company has recorded a tax provision calculated as if the Company files its tax returns on a stand-alone basis. The taxes payable to FCCG determined by this calculation of $134,000 was offset against amounts due from FCCG as of December 31, 2017 (see Note 10).

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The TCJ Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), that impact corporate taxation requirements, such as the reduction of the federal tax rate for corporations from 35% to 21%.

The reduction in the corporate tax rate under the TCJ Act required a one-time revaluation of certain tax-related assets to reflect their value at the lower corporate tax rate of 21%. As a result of the Tax Reform Act, the Company recorded a tax expense of $505,000 due to a remeasurement of deferred tax assets and liabilities for the tax year ended December 31, 2017.

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

  December 31, 2017 
Deferred tax assets (liabilities)    
Deferred income $882 
Reserves and accruals  451 
Other  1 
Intangibles  (372)
Deferred state income tax  (25)
Total $937 

December 25, 2022December 26, 2021
Deferred franchise fees$23.5 $19.8 
Deferred royalties— 0.2 
Deferred vendor incentives0.2 0.3
Total$23.7 $20.3 

NOTE 8. INCOME TAXES
Components of the income tax provision (benefit), net are as follows (in thousands)millions):

  Year Ended 
  December 31, 2017 
Current    
Federal $134 
State  24 
Foreign  17 
   175 
Deferred    
Federal  320 
State  (88)
   232 
Total income tax provision $407 

Fiscal Year Ended December 25, 2022Fiscal Year Ended December 26, 2021
Current
Federal$— $— 
State0.4 1.0 
Foreign1.00.8 
1.4 1.8
Deferred
Federal8.2 (5.1)
State9.2 (0.2)
17.4 (5.3)
Total income tax provision (benefit)$18.8 $(3.5)
Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 34% to pretax lossincome as follows (in thousands)millions):

  December 31, 2017 
    
Tax provision (benefit) at statutory rate $(70)
State and local income taxes  (41)
Other  13 
Tax law changes  505 
Total income tax provision $407 

Fiscal Year Ended December 25, 2022Fiscal Year Ended December 26, 2021
Tax benefit at statutory rate$(22.5)$(7.4)
State and local income taxes(0.7)0.6 
State and federal valuation allowances36.4 1.5 
162(m) limitation1.3 0.2 
Foreign taxes0.8 0.6 
Tax credits0.5 0.5 
Nondeductible interest expense2.2 0.5 
Other0.8 — 
Total income tax provision (benefit)$18.8 $(3.5)
As of December 31, 2017,25, 2022, the Company’s subsidiaries’ annual tax filings for the prior three years are open for audit by Federal and for the prior four years for state tax agencies. The Company is the beneficiary of indemnification agreements from the prior owners of the subsidiaries for tax liabilities related to periods prior to their contribution.its ownership of the subsidiaries. Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of December 31, 2017.

Note25, 2022.

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Deferred taxes reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for calculating taxes payable. Significant components of the Company’s deferred tax assets and liabilities are as follows (in millions):
December 25, 2022December 26, 2021
Deferred tax assets (liabilities), net
Net federal and state operating loss carryforwards$47.9 $43.8 
Deferred revenue4.9 4.1 
Intangibles(92.6)(86.2)
Deferred state income tax1.8 0.6 
Reserves and accruals6.6 7.3 
Interest expense carryforward43.9 22.4 
Tax credits0.1 0.1 
Share-based compensation2.8 0.9 
Fixed assets(4.4)(2.9)
Operating lease right-of-use assets(26.0)(23.9)
Operating lease liabilities28.5 26.1 
Valuation allowance(40.6)(5.2)
Other(0.1)— 
Total$(27.2)$(12.9)
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than fifty percent) that some portion or all of the deferred tax assets will not be realized. As of December 25, 2022 and December 26, 2021, the Company recorded a valuation allowance against its deferred tax assets in the amount of $40.6 million and $5.2 million, respectively, as it determined that these amounts would not likely be realized. Realization of our deferred tax assets is dependent upon future earnings, the timing and amount of which, if any, are uncertain. The valuation allowance increased by $35.4 million and $4.7 million during the fiscal years ended December 25, 2022 and December 26, 2021, respectively.
The Company had federal net operating loss carryforwards (“NOLs”) of approximately $176.9 million and $159.3 million as of December 25, 2022 and December 26, 2021, respectively. The Company’s State NOLs were approximately $133.5 million and $134.1 million as of December 25, 2022 and December 26, 2021, respectively. The NOLs begin to expire in 2037. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The Company also had certain federal tax credits totaling approximately $0.1 million and $0.1 million as of December 25, 2022 and December 26, 2021 respectively. The credits will begin to expire in 2028.
Under Section 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 portion of the NOLs and other tax benefits accumulated by Johnny Rockets, GFG and Fazoli's prior to the Acquisition are subject to this annual limitation.


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NOTE 9. LEASES
As of December 25, 2022, the Company has recorded 136 operating leases for corporate offices and for certain owned restaurant properties, some of which are in the process of being refranchised. The leases have remaining terms ranging from 1 month to 23.9 years. The Company recognized lease expense of $18.8 million and $6.3 million for the fiscal years ended December 25, 2022 and December 26, 2021, respectively. The weighted average remaining lease term of the operating leases as of December 25, 2022 was 15.9 years.
Operating lease right-of-use assets and operating lease liabilities are as follows (in millions):
December 25,
2022		December 26,
2021
Operating lease right-of-use assets$101.1 $98.6 
Right of use assets classified as held-for-sale4.1 4.7 
Total right-of-use assets$105.2 $103.3 
Operating lease liabilities$110.4 $107.3 
Lease liabilities related to assets held-for-sale4.1 4.8 
Total operating lease liabilities$114.5 $112.1 
The operating lease right-of-use assets and operating lease liabilities include obligations relating to the optional term extensions available on certain restaurant leases based on management’s intention to exercise the options. The weighted average discount rate used to calculate the carrying value of the right-of-use assets and lease liabilities was 9.4% which is based on the Company’s incremental borrowing rate at the time the lease is acquired.
The contractual future maturities of the Company’s operating lease liabilities as of December 25, 2022, including anticipated lease extensions, are as follows (in millions):
Fiscal year:
2023$17.1 
202416.1 
202515.5 
202614.1 
202713.9 
Thereafter162.8 
Total lease payments239.5 
Less imputed interest125.0 
Total$114.5 
Supplemental cash flow information for the fiscal years ended December 25, 2022 and December 26, 2021 related to leases is as follows (in millions):
20222021
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases$16.4 $5.7 
Operating lease right-of-use assets obtained in exchange for new lease obligations:
Operating lease liabilities$7.7 $105.6 

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NOTE PAYABLE To FCCG

Effective10. DEBT

Long-term debt consisted of the following (in millions):
December 25, 2022December 26, 2021
Final MaturityAnticipated Call DateRateFace ValueBook ValueBook Value
Senior Debt
FB Royalty Securitization4/25/20517/25/20234.75%$139.8 $135.3 $95.4 
GFG Royalty Securitization7/25/20517/25/20236.00%234.0 228.9 205.6 
Twin Peaks Securitization7/25/20517/25/20237.00%150.0 147.5 146.8 
Fazoli's/Native Securitization7/25/20517/25/20236.00%128.8 124.8 122.8 
Senior Subordinated Debt
FB Royalty Securitization4/25/20517/25/20238.00%46.6 45.2 31.8 
GFG Royalty Securitization7/25/20517/25/20237.00%84.0 82.0 81.5 
Twin Peaks Securitization7/25/20517/25/20239.00%50.0 47.3 46.6 
Fazoli's/Native Securitization7/25/20517/25/20237.00%25.0 23.5 22.7 
Subordinated Debt
FB Royalty Securitization4/25/20517/25/20239.00%34.6 32.1 14.1 
GFG Royalty Securitization7/25/20517/25/20239.50%57.0 53.5 52.6 
Twin Peaks Securitization7/25/20517/25/202310.00%50.0 45.5 44.2 
Fazoli's/Native Securitization7/25/20517/25/20239.00%40.0 37.0 35.2 
Total Securitized Debt1,039.8 1,002.6 899.3 
Elevation Note7/19/2026N/A6.00%4.3 3.9 5.6 
Equipment Notes5/5/2027 to 3/7/2029N/A7.99% to 8.49%1.3 1.3 — 
Twin Peaks Construction Loan8/5/2023 with One Six-Month ExtensionN/A8.00%0.4 0.4 — 
Total debt$1,045.8 1,008.2 904.9 
Current portion of long-term debt(49.6)(0.6)
Long-term debt$958.6 $904.3 
Terms of Outstanding Debt
FB Royalty Securitization
On April 26, 2021, FAT Brands Royalty I, LLC (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the Offering of three tranches of fixed rate senior secured notes. Net proceeds 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. A portion of the proceeds was used to repay and retire notes issued in 2020 under the Base Indenture (the "2020 Securitization Notes"). The payoff amount totaled $83.7 million, which included principal of $80.0 million, accrued interest of $2.2 million and prepayment premiums of $1.5 million. The Company recognized a loss on extinguishment of debt of $7.8
F-19

million in connection with the refinance as well as interest expense on the 2020 Securitization Notes in the amount of $2.6 million for the year ended December 26, 2021.
On July 6, 2022, FB Royalty issued an additional $76.5 million aggregate principal amount of three tranches of fixed rate senior secured notes (in millions):
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, $30.0 million was sold privately during the third quarter of 2022, resulting in net proceeds of $27.1 million (net of debt offering costs of $0.6 million and original issue discount of $2.3 million). The remaining $46.5 million in aggregate principal was sold privately on October 20, 2017, FCCG contributed two21, 2022, when the Company entered into an Exchange Agreement with the Twin Peaks sellers and redeemed 1,821,831 shares of its operating subsidiaries, Fatburgerthe Company’s 8.25% Series B Cumulative Preferred Stock at a price of $23.69 per share, plus accrued and Buffalo’s,unpaid dividends to the date of redemption, in exchange for $46.5 million aggregate principal amount of secured debt ($43.2 million net of debt offering costs and original issue discount).
Prior to the redemption, the Twin Peaks sellers held 2,847,393 shares of Series B Cumulative Preferred Stock, which shares were issued to it on October 1, 2021 as partial consideration for the Company’s acquisition of Twin Peaks.
Pursuant to the Exchange Agreement, (i) at any time prior to July 25, 2023, the Company may call from the Twin Peaks sellers all or a portion of the Class M-2 Notes at the outstanding principal balance multiplied by 0.86, plus any accrued plus unpaid interest thereon; (ii) at any time on or after the date of the Exchange Agreement, the Company may call from the Twin Peaks sellers, and at any time on or after July 25, 2023, the Twin Peaks sellers may put to the Company, all or a portion of the Class A-2 Notes and/or Class B-2 Notes at the outstanding principal balance multiplied by 0.94, plus any accrued plus unpaid interest thereon; and (iii) at any time on or after July 25, 2023, the Company may call from the Twin Peaks sellers, and the Twin Peaks sellers may put to the Company, all or a portion of the Class M-2 Notes at the outstanding principal balance multiplied by 0.91, plus any accrued plus unpaid interest thereon. If the Company does not remit the applicable call price or put price upon a duly exercised call or put, as applicable, the amount owed by the Company will accrue interest at 10% per annum, which interest is due and payable in cash monthly by the Company.
As of December 25, 2022, the carrying value of the FB Royalty Securitization Notes was $212.7 million (net of debt offering costs of $2.5 million and original issue discount of $5.8 million). The Company recognized interest expense on the FB Royalty Securitization Notes of $11.3 million for the year ended December 25, 2022, respectively, which includes $0.6 million for amortization of debt offering costs, and $0.6 million for amortization of the original issue discount. The average annualized effective interest rate of the FB Royalty Securitization Notes, including the amortization of debt offering costs and original issue discount, was 6.3% for the time the debt was outstanding during the year ended December 25, 2022.
The FB Royalty Securitization Notes are generally secured by a security interest in substantially all the assets of FB Royalty and its subsidiaries.
GFG Royalty Securitization
In connection with the acquisition of GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC (“GFG Royalty”), a special purpose, wholly-owned subsidiary of the Company, completed the issuance and sale in a private offering (the “GFG Offering”) of three tranches of fixed rate senior secured notes. Net proceeds totaled $338.9 million, which consisted of the combined face amount of $350.0 million, net of debt offering costs of $6.0 million and original issue discount of $5.1 million. Substantially all
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of the proceeds were used to acquire GFG. 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.
On December 15, 2022, GFG Royalty issued an additional $113.5 million aggregate principal amount of three tranches of fixed rate senior secured notes as follows (in millions):
Closing DateClassSeniorityPrincipal BalanceCouponFinal Legal Maturity Date
12/13/2022A-2Senior$67.86.00%7/25/2051
12/13/2022B-2Senior Subordinated$20.27.00%7/25/2051
12/13/2022M-2Subordinated$25.59.50%7/25/2051
Of the $113.5 million aggregate principal amount, $25.0 million was sold privately during the fourth quarter, resulting in net proceeds of $22.3 million (net of debt offering costs of $0.4 million and original issue discount of $2.3 million). The remaining $88.5 million in aggregate principal was issued to FAT Brands Inc. and has been eliminated in consolidation. In January 2023, an additional $40.0 million aggregate principal amount was sold privately, resulting in net proceeds of $34.8 million.
As of December 25, 2022, the carrying value of the GFG Securitization Notes was $364.4 million (net of debt offering costs of $4.7 million and original issue discount of $5.9 million). The Company recognized interest expense on the GFG Securitization Notes of $26.1 million for fiscal year ended December 25, 2022, which includes $1.2 million for amortization of debt offering costs and $1.1 million for amortization of the original issue discount. The average annualized effective interest rate of the GFG Securitization Notes, including the amortization of debt offering costs and original issue discount, was 7.5% during the fiscal year ended December 25, 2022.
The GFG Securitization Notes are generally secured by a security interest in substantially all the assets of GFG Royalty and its subsidiaries.
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 an aggregate principal amount of $250.0 million. The net proceeds from the sale of the Notes were used by the Company to finance the cash portion of the purchase price for the acquisition of Twin Peaks Buyer, LLC and its direct and indirect subsidiaries. Net proceeds totaled $236.9 million, which consisted of the combined face amount of $250.0 million, net of debt offering costs of $5.6 million and original issue discount of $7.5 million. Substantially all of the proceeds were used to acquire Twin Peaks. 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.
As of December 25, 2022, the carrying value of the Twin Peaks Securitization Notes was $240.4 million (net of debt offering costs of $4.2 million and original issue discount of $5.5 million). The Company recognized interest expense on the Twin Peaks Securitization Notes of $22.8 million for year ended December 25, 2022, which includes $1.6 million for amortization of debt offering costs and $1.1 million for amortization of the original issue discount. The effective interest rate of the Twin Peaks Securitization Notes, including the amortization of debt offering costs and original issue discount, was 9.1% during the year ended December 25, 2022.
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.
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 an aggregate principal amount of $193.8 million. Net proceeds totaled $180.6 million, which consisted of the combined face amount of $193.8 million, net of debt offering costs of $3.8 million and original issue discount of $9.4 million. The proceeds were used to close the acquisitions of Fazoli's and Native, and to provide working capital for the Company. 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
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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.
As of December 25, 2022, the carrying value of the Fazoli's-Native Securitization Notes was $185.2 million (net of debt offering costs of $2.5 million and original issue discount of $6.0 million). The Company recognized interest expense on the Fazoli's-Native Securitization Notes of $17.6 million for the fiscal year ended December 25, 2022, which includes $1.2 million for amortization of debt offering costs and $3.4 million for amortization of the original issue discount. The effective interest rate of the Fazoli's-Native Securitization Notes, including the amortization of debt offering costs and original issue discount, was 9.1% during the year ended December 25, 2022.
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 2021 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 obligations 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 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 then outstanding principal balance of each tranche. Principal payments, with an amount equal to 0.5% of the initial principal amount, will be made on the scheduled quarterly payment date on and following the anticipated call date, starting in October 2023.
The material terms of the Securitization Notes contain covenants which are standard and customary for these types of agreements, including the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio, and (iii) senior leverage ratio. As of December 25, 2022, the Company was in compliance with these covenants.
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 million, bearing interest at 6.0% per year and maturing in July 31, 2026. The Elevation Note is convertible under certain circumstances into shares of the Company’s common stock at $12.00 per share. In connection with the valuation of the acquisition of Elevation Burger, the Elevation Note was recorded on the financial statements of the Company at $6.1 million, net of a loan discount of $1.3 million and debt offering costs of $0.1 million.
As of December 25, 2022, the carrying value of the Elevation Note was $3.9 million which is net of the loan discount of $0.4 million and debt offering costs of $35,329. 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 Company recognized interest expense relating to the Elevation Note during the fiscal year ended December 25, 2022 in the amount of $0.6 million, which included amortization of the loan discount of $0.2 million and amortization of $10,191 in debt offering costs. The Company recognized interest expense relating to the Elevation Note during the year ended December 26, 2021 in the amount of $0.7 million, which included amortization of the loan discount of $0.3 million and amortization of $10,000 in debt offering costs. The effective interest rate for the Elevation Note during the year ended December 25, 2022 was 20.2%.
The Elevation Note is a general unsecured obligation of Company and is subordinated in right of payment to all indebtedness of the Company arising under any agreement or instrument to which Company or any of its Affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment.
Equipment Financing (Twin Peaks)
During fiscal year 2022, an indirect subsidiary of the Company entered into certain 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 "Equipment Financing"). The Equipment Financing has maturity dates ranging from May 5, 2027 and 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.
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Construction Loan Agreement (Twin Peaks)
On July 12, 2022, an indirect subsidiary of the Company entered into a construction loan agreement, the proceeds of which were used for a new corporate Twin Peaks in Northlake, TX. The loan was paid in full in December 2022.

On December 5, 2022, an indirect subsidiary of the Company entered into a construction loan agreement to borrow up to $4.5 million, the proceeds of which will be used for a new corporate Twin Peaks restaurant (the "Construction Loan"). The Construction Loan has an initial maturity of August 5, 2023, with an optional six-month extension, bearing interest at the greater of the 3-month Secured Overnight Financing Rate (SOFR) plus 360 basis points, or 8% per year, and is secured by land and building.

Paycheck Protection Program Loans

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

At inception, the PPP Loans and EIDL Loans related to FAT Brands Inc. and five restaurant locations that were part of the Company’s refranchising program. During 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 fiscal year ended December 26, 2021.

Scheduled Principal Maturities

Scheduled principal maturities of long-term debt and redemptions of redeemable preferred stock (Note 12) for the next five fiscal years are as follows (in millions):

Fiscal YearLong-Term DebtRedeemable Preferred Stock (Note 12)
2023$49.6 $91.8 
2024$21.2 $— 
2025$21.4 $— 
2026$21.0 $— 
2027$20.2 $— 

NOTE 11. PREFERRED STOCK
Series B Cumulative Preferred Stock
On July 13, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) to issue and sell, in a public offering (the “Offering”), 360,000 shares of 8.25% Series B Cumulative Preferred Stock (“Series B Preferred Stock”) and 1,800,000 warrants, plus 99,000 additional warrants pursuant to the underwriter’s overallotment option (the “2020 Series B Offering Warrants”), to purchase common stock at $5.00 per share.
In connection with the Offering, on July 15, 2020 the Company filed an Amended and Restated Certificate of Designation of Rights and Preferences of Series B Cumulative Preferred Stock with the Secretary of State of Delaware, designating the terms of the Series B Preferred Stock (the “Certificate of Designation”).
The Certificate of Designation amends and restates the terms of the Series B Cumulative Preferred Stock issued in October 2019 (the “Original Series B Preferred”). At the time of the Offering, there were 57,140 shares of the Original Series B
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Preferred outstanding, together with warrants to purchase 34,284 shares of the Company’s common stock at an exercise price of $8.50 per share (the “Series B Warrants”).
Holders of Series B Cumulative Preferred Stock do not have voting rights and are entitled to receive, when declared by the Board, cumulative preferential cash dividends at a rate per annum equal to the 8.25% multiplied by $25.00 per share stated liquidation preference of the Series B Preferred Stock. The dividends shall accrue without interest and accumulate, whether or not earned or declared, on each issued and outstanding share of the Series B Preferred Stock from (and including) the original date of issuance of such share and shall be payable monthly in arrears on a date selected by the Company each calendar month that is no later than twenty days following the end of each calendar month.
If the Company fails to pay dividends on the Series B Preferred Stock in full for any twelve accumulated, accrued and unpaid dividend periods, the dividend rate shall increase to 10.0% until the Company has paid all accumulated accrued and unpaid dividends on the Series B Preferred Stock in full and has paid accrued dividends during the two most recently completed dividend periods in full, at which time the 8.25% dividend rate shall be reinstated.
The Company may redeem the Series B Preferred Stock, in whole or in part, at the option of the Company, for cash, at the following redemption price per share, plus any unpaid dividends:
i.After July 16, 2022 and on or prior to July 16, 2023: $26.50 per share.
ii.After July 16, 2023 and on or prior to July 16, 2024: $26.00 per share.
iii.After July 16, 2024 and on or prior to July 16, 2025: $25.50 per share.
iv.After July 16, 2025: $25.00 per share.
As a result of the amended and restated terms of the Series B Cumulative Preferred Stock, the Company classified the Series B Preferred Stock as equity as of July 15, 2020.
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. At the time of the amendment and restatement of the Certificate of Designation, the adjusted basis of the Original Series B Preferred on the Company’s books was $1.1 million, net of unamortized debt discounts and debt offering costs. As a result of the amendment and restatement of the Certificate of Designation, the recorded value of the new Series B Stock was $1.1 million with $0.3 million allocated to the 2020 Series B Offering Warrants, resulting in an aggregate loss on the exchange of $0.3 million. The original holders were also issued 3,537 shares of new Series B Preferred Shares in payment of $0.1 million accrued and outstanding dividends relating to the Original Series B Preferred at a price of $25.00 per share.
•The Company entered into an agreement to exchange 15,000 shares of Series A Fixed Rate Cumulative Preferred Stock owned by FCCG for 60,000 shares of Series B Preferred Stock valued at $1.5 million, pursuant to a Settlement, Redemption and Release Agreement. At the time of the exchange, the adjusted basis of the Series A Preferred on the Company’s books was $1.5 million, net of unamortized debt discounts and debt offering costs, and the Company recognized a loss on the exchange in the amount of $11,000. The Company also agreed to issue 14,449 shares of Series B Preferred Stock valued at $0.4 million as consideration for accrued dividends due to FCCG.
•The Company entered into an agreement to exchange all of the outstanding shares of Series A-1 Fixed Rate Cumulative Preferred Stock for 168,001 shares of Series B Preferred Stock valued at $4.2 million, pursuant to a Settlement, Redemption and Release Agreement with the holders of such shares. At the time of the exchange, the adjusted basis of the Series A-1 Preferred Stock on the Company’s books was $4.4 million, net of unamortized debt discounts and debt offering costs, and the Company recognized a gain on the exchange in the amount of $0.2 million.
On June 22, 2021, the Company closed a second underwritten public offering of 460,000 shares of 8.25% Series B Cumulative Preferred Stock at a price of $20.00 per share. The net proceeds to the Company totaled $8.3 million (net of $0.9 million in underwriting discounts and other offering expenses).

On August 25, 2021, the Company redeemed the final 80,000 shares of outstanding Series A Preferred Stock held by Trojan Investments, LLC, with a redemption value of $8.0 million, plus accrued dividends thereon in the amount of $1.6 million, in exchange for 478,199 shares of Series B Preferred Stock valued at $10.8 million. The Company recognized a loss on extinguishment of debt in the amount of $1.2 million resulting from the redemption of the Series A Preferred Stock. The loss on extinguishment of debt was recognized during the fourth quarter of 2021 and was deemed by the Company to be immaterial to the third quarter 2021 financial statements. Following this transaction, the Company no longer has outstanding shares of its
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Series A Preferred Stock and has cancelled all shares. The Company had accounted for the Series A Preferred Stock as debt and recognized interest expense on the Series A Preferred Stock of $0.7 million for the fiscal year ended December 26, 2021.
On November 1, 2021, the Company closed an unsecured promissory noteadditional underwritten public offering of 1,000,000 shares of 8.25% Series B Cumulative Preferred Stock at a price of $18.00 per share. The net proceeds to the Company totaled $16.8 million (net of $1.2 million in underwriting discounts and other offering expenses).
As of December 25, 2022, the Series B Preferred Stock consisted of 3,252,154 shares outstanding with a principal balance of $30,000,000, bearing$45.5 million. The Company declared preferred dividends to the holders of the Series B Preferred Stock totaling $6.6 million during the fiscal year ended December 25, 2022. As of December 26, 2021, the Series B Preferred Stock consisted of 3,221,471 shares outstanding with a balance of $55.7 million. The Company declared preferred dividends to the holders of the Series B Preferred Stock totaling $4.1 million during the fiscal year ended December 26, 2021. These amounts do not include 5,936,638 shares of Series B Preferred Stock classified as redeemable preferred stock due to associated put options granted to the holders by the Company (see Note 12).

NOTE 12. REDEEMABLE PREFERRED STOCK

GFG Preferred Stock Consideration

On July 22, 2021, the Company completed the acquisition of GFG (Note 3). A portion of the consideration paid included 3,089,245 newly issued shares of the Company’s Series B Cumulative Preferred Stock valued at $67.3 million (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. Since the Company did not deliver the applicable cash proceeds to the GFG Sellers by that date, the amount accrues interest at the rate of 5% 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 from redeemable preferred stock to current liabilities on its consolidated balance sheet. As of December 25, 2022, the carrying value of the redeemable preferred stock was $67.5 million.

On September 16, 2022, the Company entered into an agreement with one of the GFG sellers who held 1,544,623 put preferred shares. Pursuant to the agreement, the closing date of the redemption was extended from April 22, 2022 to July 23, 2023 and, effective August 23, 2022, the interest rate applicable to such holder's 1,544,623 put shares was increased from 5% to 10% per annum, payable monthly in arrears. In the fiscal year ended December 25, 2022, the Company paid $1.7 million for the accrued interest.

Twin Peaks Preferred Stock Consideration

On October 1, 2021, the Company completed the acquisition of Twin Peaks. A portion of the consideration paid included 2,847,393 shares of the Company’s Series B Cumulative Preferred Stock (the "Twin Peaks Preferred Stock Consideration") valued at $67.5 million.

On October 1, 2021, the Company and the Twin Peaks Seller entered into a Put/Call Agreement (the “Put/Call Agreement”) pursuant to which the Company was granted the right to call from the Twin Peaks Seller, and the Twin Peaks 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 (the Initial Put/call Shares together with the Secondary Put/Call Shares total $67.5 million), plus any accrued but unpaid dividends on such shares. Unpaid balances, when due, accrue interest at a rate of 10.0% per annum and maturing in five years (the “Related Party Debt”). The contribution was consummated pursuant to a Contribution Agreement betweenuntil repayment is completed. On October 7, 2021, the Company received a put notice on the Initial Put/Call Shares and FCCG. Approximately $11,875,000the Secondary Put/Call Shares.
On October 21, 2022, the Company entered into an Exchange Agreement with the Twin Peaks Seller and redeemed 1,821,831 shares of the note payableCompany’s 8.25% Series B Cumulative Preferred Stock at a price of $23.69 per share, plus accrued and unpaid dividends to FCCG was subsequently repaid, reducing the balance to $18,125,000 atdate of redemption in exchange for $46.5 million aggregate principal amount of secured debt ($43.2 million net of debt offering costs and original issue discount) as discussed in Note 10.
As of December 31, 2017.25, 2022, the carrying value of the Twin Peaks Preferred Stock Consideration totaled $24.3 million. The Company recognized interest expense of $405,000 for the period ending December 31, 2017.

Note 10. Related Party Transactions

The Company had open accounts with affiliated entities under the common control of FCCG resulting in net amounts duerelating to the Company of $7,963,000 as of December 31, 2017. Beginning October 20, 2017, the receivable from FCCG bears interest at a rate of 10% per annum.

Prior to the Offering, the Company’s operations were insignificant other than structuring the Offering. During this time, FCCG provided executive administration and accounting services for the Company. The Company reimbursed FCCG for out-of-pocket costs associated with these services, but there was no allocation of FCCG’s overhead costs. Effective with the Offering, the Company assumed all direct and indirect administrative functions relating to its business.

During the period ending December 31, 2017, the Company recognized payables to FCCGTwin Peaks Preferred Stock Consideration in the amount of $134,000 for use$3.2 million during the year ended December 25, 2022.


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NOTE 11. BUFFALO’S CREATIVE13. STOCKHOLDERS’ EQUITY AND ADVERTISING FUND

UnderDIVIDENDS ON COMMON STOCK


On August 16, 2021, the Company filed its Second Amended and Restated Certificate of Incorporation (the “Amended Certificate”) with the Secretary of State of the State of Delaware, which among other things, (i) authorized 50,000,000 shares of Class A Common Stock and 1,600,000 shares of Class B Common Stock, and (ii) reclassified the Company’s outstanding shares of Common Stock as Class A Common Stock as of such date (the "Recapitalization"). Prior to the Recapitalization, the Company’s authorized common shares totaled 51,600,000 in a single class.

The terms of the Amended Certificate require equal or better treatment for the Class A Common Stock to the Class B Common Stock in transactions such as distributions, mergers, dissolution or recapitalization. Generally, each holder of shares of Class A Common Stock shall be entitled to 1 vote for each share of Class A Common Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Corporation, while each holder of shares of Class B Common Stock shall be entitled to 2,000 votes for each share of Class B Common Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Corporation. The foregoing is qualified in its franchise agreements,entirety by reference to the full text of the Amended Certificate, which is filed as Exhibit 3.1 on the Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 19, 2021 and incorporated by reference herein.

On October 15, 2021, the Board of Directors of the Company collects fees for creative developmentapproved an amendment and advertising from its franchisees based on percentagesrestatement (the “Amendment”) of salesthe Company’s Bylaws, effective as outlined in franchise agreements. The Company is to oversee all advertising and promotional programs and is to have sole discretion over expenditures from the fund.

During the period from October 20, 2017 through December 31, 2017, Buffalo’s collected advertising fees and vender contributions of approximately $87,000. Advertising expenditures for the same period totaled approximately $50,000.date. The accompanying consolidated financial statementsAmendment revised the stockholder voting provisions of the Bylaws to reflect the year-end balancedual class common stock structure adopted by the Company in August 2021. In addition, the Amendment revised the provisions in the Bylaws for stockholder voting by written consent and the procedure for fixing the size of the advertising fundBoard of Directors and the related advertising obligation, which were approximately $435,000 asmade certain other conforming changes.


As of December 31, 2017.

Note 12. Stock based incentive plans

25, 2022 and December 26, 2021, the total number of authorized shares of Class A and Class B common stock was 51,600,000. There were 15,300,870 shares of Class A common stock and 1,270,805 shares of Class B common stock outstanding at December 25, 2022, and 15,109,747 shares of Class A common stock and 1,270,805 shares of Class B common stock issued and outstanding at December 26, 2021.


Below are the changes to the Company’s common stock during the fiscal year ended December 25, 2022:
●Warrants to purchase 36,362 shares of Class A common stock were exercised during the year ended December 25, 2022. The proceeds to the Company from the exercise of the warrants totaled $0.7 million.
●The Company granted 150,000 restricted shares of Class A common stock to Board members. The shares vest over 3 years in equal installments at the anniversary date of grant. The value of the restricted stock grant was $1.2 million and will be amortized as compensation expense over the vesting period.
●On January 11, 2022, the Board of Directors declared a cash dividend of $0.13 per share of Class A and Class B common stock, payable on March 1, 2022 to stockholders of record as of February 15, 2022, for a total of $2.2 million.
●On April 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 June 1, 2022 to stockholders of record as of May 16, 2022, for a total of $2.1 million.
●On July 12, 2022, the Board of Directors declared a cash dividend of $0.14 per share of Class A and Class B common stock, payable on September 1, 2022 to stockholders of record as of August 16, 2022, for a total of $2.3 million.
●On October 25, 2022, the Board of Directors declared a cash dividend of $0.14 per share of Class A and Class B common stock, payable on December 1, 2022 to stockholders of record as of November 15, 2022, for a total of $2.3 million.
●On May 3, 2022, one non-employee member of the Board of Directors elected to receive a portion of his compensation in shares of the Company’s Class A common stock in lieu of cash. As such, the Company issued a total of 4,761 shares of Class A common stock with a value of $30,000 to the electing director as consideration for accrued director's fees.
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NOTE 14. SHARE-BASED COMPENSATION
Effective September 30, 2017, the Company adopted the 2017 Omnibus Equity Incentive Plan (the “Plan”“Plan”). The Plan was amended on December 20, 2022 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 1,000,0005,000,000 shares available for grant.

On October 20, 2017,

The Company has periodically issued stock options under the Plan. All of the stock options issued by the Company granted stock options to purchase 337,500 shares under the Plan to directors and employees, each with an exercise price equal to $12.00 per share and subject todate have included a three-year vesting requirement,period of three years, with one-third of the optionseach grant vesting each year. Options that are not exercised will expire 10 years following the grant date. An additional 30,000 options were granted to non-employee consultants under the same terms.

annually. The weighted average fair value of the non-qualifiedCompany’s stock options granted during theoption activity for fiscal year ended December 31, 2017 and the25, 2022 can be summarized as follows:

Number of SharesWeighted
Average
Exercise
Price		Weighted Average Remaining Contractual
Life (Years)
Stock options outstanding at December 26, 20212,791,785 $10.50 9.1
Grants243,180 $7.09 7.1
Forfeited(286,059)$11.66 6.2
Expired— $— — 
Stock options outstanding at December 25, 20222,748,906 $10.06 8.3
Stock options exercisable at December 25, 20221,208,004 $7.75 7.8
The range of assumptions used in the Black-Scholes valuation model to record the stock-based compensationvalue to options granted in 2022 are as follows:

Weighted average fair value per option granted $2.37 
Expected dividend yield  4.00%
Expected volatility  31.73%
Risk-free interest rate  1.60%
Expected term (in years)  5.75 
Weighted average exercise price per share $12.00 

Based upon this valuation,

Expected dividend yield4.6% - 7.8%
Expected volatility84.2 %
Risk-free interest rate1.3% - 4.0%
Expected term (in years)6.0
During the year ended December 25, 2022 the Company granted a total of 150,000 restricted shares of its common stock to five Board members. During the year ended December 26, 2021 the Company granted a total of 300,000 restricted shares of its common stock to three employees (collectively, 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 $1.2 million and $2.8 million as of the date of grant, respectively. The related compensation expense will be recognized stock basedover the vesting period.
The Company recognized share-based compensation expense in the amount of $89,000$7.7 million and $1.6 million during the current period with a related tax benefitfiscal years ended December 25, 2022 and December 26, 2021, respectively. As of approximately $36,000. ThereDecember 25, 2022, there remains $782,000$6.8 million of related stock basedshare-based compensation expense relating to these non-vested grants, which will be recognized over the remaining vesting period, subject to future forfeitures.

NOTE 15. WARRANTS
As of December 25, 2022, the Company had issued outstanding warrants to purchase shares of its Class A common stock as follows:
Issue DateNumber of Warrants OutstandingCommencement DateTermination DateExercise PriceValue at Grant Date (in thousands)
06/07/2018102,125 06/07/201806/07/2023$7.12 $87 
06/27/201825,530 06/27/201806/27/2023$7.12 $25 
07/03/201857,439 07/03/201807/03/2023$7.12 $58 
07/03/201822,230 07/03/201807/03/2023$6.54 $26 
06/19/201946,875 12/24/202006/19/2024$7.27  N/A (1)
10/03/201960 10/03/201910/03/2024$7.73 $— 
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07/16/20201,318,349 12/24/202007/16/2025$3.76 $1,163 
07/16/202018,648 12/24/202007/16/2025$3.76 $64 
1,591,256 
(1)Values were not calculated at the issue date because the warrants were only exercisable in the event of a merger involving the Company and FCCG.
In addition to the warrants to purchase common stock described above, the Company has also granted warrants issued on July 16, 2020, to purchase 3,600 shares of the Company’s Series B Preferred Stock at an exercise price of $24.95 per share, exercisable beginning on the earlier of one year from the date of issuance, or the consummation of a merger or other similar business combination transaction involving the Company and FCCG, and will expire on July 16, 2025.
The Company’s activity in warrants to purchase Class A common stock optionfor the fiscal year ended December 25, 2022 was as follows:
Number of
Shares		Weighted
Average
Exercise Price (1)		Weighted
Average
Remaining
Contractual
Life (Years)
Warrants outstanding at December 26, 20211,707,670 $4.72 3.2
Grants— $— — 
Exercised(34,714)$3.57 2.6
Cancelled(81,700)$13.35 — 
Warrants outstanding at December 25, 20221,591,256 $3.88 2.4
Warrants exercisable at December 25, 20221,591,256 $3.88 2.4
(1)Exercise price adjusted due to cash dividends and Class B stock dividend.
The Company’s warrant activity for the period endingfiscal year ended December 26, 2021 was as follows:
Number of
Shares		Weighted
Average
Exercise Price		Weighted
Average
Remaining
Contractual
Life (Years)
Warrants outstanding at December 27, 20202,273,533 $5.68 4.3
Grants8,184 $3.76 3.6
Exercised(571,198)$3.85 3.5
Cancelled(2,849)$3.76 3.6
Warrants outstanding at December 26, 20211,707,670 $4.72 3.2
Warrants exercisable at December 26, 20211,707,670 $4.72 3.2
During the fiscal year ended December 25, 2022, a total of 34,714 warrants were exercised in exchange for 36,362 shares of common stock with net proceeds to the Company of $0.7 million.
The range of assumptions used to establish the initial value of the warrants using the Black-Scholes valuation model were as follows:
Warrants
Expected dividend yield4.00% - 6.63%
Expected volatility30.23% - 31.73%
Risk-free interest rate0.99% - 1.91%
Expected term (in years)3.8 - 5.0
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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 against the Company’s directors (Squire Junger, James Neuhauser, Edward Rensi and Andrew Wiederhorn (the “Individual Defendants”)), and the Company’s majority stockholders, Fog Cutter Holdings, LLC and Fog Cutter Capital Group, Inc. (collectively with the Individual Defendants, “Defendants”). Plaintiffs assert claims of breach of fiduciary duty, unjust enrichment and waste of corporate assets arising out of the Company’s December 2020 merger with Fog Cutter Capital Group, Inc. Defendants filed a motion to dismiss Plaintiffs’ complaint, which the Court denied in an oral ruling on February 11, 2022 and subsequent written order on May 25, 2022. On April 7, 2022, the Court entered a Scheduling Order setting forth the key dates and deadlines that will govern the litigation, including a discovery cutoff of March 24, 2023 and trial date of February 5-9, 2024. To date, the parties have engaged in substantial written discovery, though no depositions have been taken. On February 3, 2023, the Company’s board of directors appointed a Special Litigation Committee ("SLC"), which retained independent counsel and moved for a six-month stay of the action pending resolution of the SLC's investigation. On February 17, 2023, the Court granted the SLC’s motion to stay. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. We cannot predict the outcome of this lawsuit. This lawsuit does not assert any claims against the Company. However, subject to certain limitations, we are obligated to indemnify our directors in connection with the lawsuit and any related litigation or settlements amounts, which may be time-consuming, result in significant expense and divert the attention and resources of our management. An unfavorable outcome may exceed coverage provided under our insurance policies, could have an adverse effect on our financial condition and results of operations and could harm our reputation.

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

On March 17, 2022, plaintiffs James Harris and Adam Vignola (“Plaintiffs”), putative stockholders of the Company, filed a shareholder derivative action in the Delaware Court of Chancery nominally on behalf of the Company against the Company’s directors (Squire Junger, James Neuhauser, Edward Rensi and Andrew Wiederhorn (the “Individual Defendants”)), and the Company’s majority stockholder, Fog Cutter Holdings, LLC (collectively with the Individual Defendants, “Defendants”). Plaintiffs assert claims of breach of fiduciary duty in connection with the Company’s June 2021 recapitalization transaction. On May 27, 2022, Defendants filed a motion to dismiss Plaintiff's complaint (the "Motion"). Argument on the Motion was heard on November 17, 2022 and again on February 23, 2023, and the Court took its decision under advisement. To date, the Court has not issued a ruling on the Motion, nor has the Court issued a scheduling order in this matter. 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. 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
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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 could engage in voluntary mediation. In August 2022, after mediation, the Company reached an agreement in principle to settle this matter for a cash payment by the Company of $2.5 million and issuance of $0.5 million in Class A common stock. The Stipulation of Settlement and other documents pertinent to the settlement, along with a motion for preliminary approval thereof, were filed with the court on September 23, 2022. The Court granted the motion for preliminary approval on November 8, 2022, and on January 31, 20172023, plaintiffs moved for final approval of the settlement and certification of the settlement class. The hearing on the motion for final approval is set for February 28, 2023, at 9:00 am PT. Upon final approval by the court, the settlement will provide a full release of all claims by the settlement class members against all defendants, including the Company and the named officers and directors, will expressly deny any liability, wrongdoing or responsibility by any of the defendants, and will result in the dismissal of the litigation with prejudice.

Government Investigations

In December 2021, the U.S. Attorney’s Office for the Central District of California (the “U.S. Attorney”) and the U.S. Securities and Exchange Commission (the “SEC”) informed the Company that they had opened investigations relating to the Company and our Chief Executive Officer, Andrew Wiederhorn, and were formally seeking documents and materials concerning, among other things, the Company’s December 2020 merger with Fog Cutter Capital Group Inc., transactions between those entities and Mr. Wiederhorn, as well as compensation, extensions of credit and other benefits or payments received by Mr. Wiederhorn or his family from those entities. Our Board of Directors has formed a Special Review Committee (the “SRC”) comprised of directors other than Mr. Wiederhorn to oversee a review of the issues raised by the U.S. Attorney and SEC investigations, reach findings and make a recommendation to the Board with respect to these matters. The SRC is authorized to review such documents and interview such persons, and retain legal counsel and other consultants on behalf of the Company, as the SRC deems necessary or appropriate to complete its review. The Company intends to cooperate with the U.S. Attorney and the SEC regarding these matters and is continuing to actively respond to inquiries and requests from the U.S. Attorney and the SEC. We believe that the Company is not currently a target of the U.S. Attorney’s investigation. At this stage, we are not able to reasonably estimate or predict the outcome or duration of either of the U.S. Attorney’s or the SEC’s investigations.
Stratford Holding LLC v. Foot Locker Retail Inc. (U.S. District Court for the Western District of Oklahoma, Case No. 5:12-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 $12.0 million to $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 October 2023. 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 summarized as follows:

  Number of Shares  Weighted Average Exercise Price  Weighted Average Remaining Contractual Life (Years) 
Stock options outstanding at March 21, 2017 (Inception)  -         
Grants  367,500  $12.00   9.8 
Forfeited  (5,000) $12.00     
Expired  -         
Stock options outstanding at December 31, 2017  362,500  $12.00   9.8 
Stock options exercisable at December 31, 2017  -         

no assurance that the defendants will be successful in defending against these actions.

SBN FCCG LLC v FCCGI (Los Angeles Superior Court, Case No. BS172606)
SBN FCCG LLC (“SBN”) filed a complaint against Fog Cutter Capital Group, Inc. (“FCCG”) in New York state court for an indemnification claim (the “NY case”) stemming from an earlier lawsuit in Georgia regarding a certain lease portfolio formerly managed by a former FCCG subsidiary. In February 2018, SBN obtained a final judgment in the NY case for a total of $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 (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, including those involving the Company’s franchisees. The Company does not have a specific policy regarding the source of shares to be delivered upon the exercise of stock options. As such, new shares may be issued or shares may be repurchased in the market. As of December 31, 2017, the Company did not expect to repurchase shares during the next fiscal year.

The above information does not include warrants to purchase 80,000 shares of the Company’s stock granted to the selling agent in the Company’s initial public offering (the “Warrants”). The Warrants are exercisable commencing April 20, 2018 through October 20, 2022. The exercise price for the Warrants is $15 per share. The Warrants provide that upon exercise, the Company may elect to redeem the Warrants in cash by paying the difference between the applicable exercise price and the then-current fair market value of the Common Stock. At the time of the Offering, the Warrants were valued at approximately $124,000, using the Black-Scholes model and the following assumptions: market price of shares: $12.00; risk free interest rate: 0.99%; expected volatility: 31.73%; expected dividend yield: 4%; and expected term: 5 years.

Note 13. Commitments and Contingencies

Litigation

Periodically, the Company is involved in litigation in the normal course of business. The Company believesbelieve that the resultultimate resolution of any potential litigationthese actions will not have a material adverse effect on its business, financial condition, results of operations, liquidity or capital

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resources. As of December 25, 2022, the Company’s financial condition.

F-15
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.

Operating Leases

(See Also Note 9)

The Company leases corporateCompany's headquarters, including its principal administrative, sales and marketing, customer support, and research and development operations, are located in Beverly Hills, California, comprising 5,478approximately 13,000 square feet of space, pursuant to a lease that expires on September 29, 2025, as well as an additional approximately 3,000 square feet of space pursuant to a lease amendment that expires on February 29, 2024.

Our subsidiary, GFG Management, LLC, leases offices in Atlanta, Georgia comprising approximately 9,000 square feet under a lease expiring on March 1, 2023, and an approximately 16,000 square foot warehouse location under a lease expiring on May 31, 2024.
Our subsidiary, GAC Supply, LLC, owns and operates an approximately 40,000 square foot manufacturing and production facility in Atlanta, Georgia, which supplies our franchisees with cookie dough, pretzel dry mix and other ancillary products.

Our subsidiary, Twin Restaurant Holding, LLC, leases offices in Dallas, TX comprising approximately 8,300 square feet under a lease expiring on April 30, 2020.

We believe2025.


Our subsidiary, Fazoli's Holdings, LLC, leases offices located in Lexington, KY comprising approximately 19,200 square feet under a lease expiring on April 30, 2027.

Our subsidiary, Native Grill & Wings Franchising, LLC, leases offices located in Chandler, AZ comprising 5,825 square feet under a lease expiring on October 31, 2024.

In addition to the above locations, certain of our subsidiaries directly own and operate restaurant locations, substantially all of which are located in leased premises.As of December 25, 2022, we owned and operated approximately 130 restaurant locations.
The Company believes that all ourits existing facilities are in good operating condition and adequate to meet our current and foreseeable needs.

Additional information related to the Company’s operating leases are disclosed in Note 14. geographic information9.

NOTE 17. GEOGRAPHIC INFORMATION AND MAJOR FRANCHISEES

Revenues

Revenues by geographic area are as follows (in thousands)millions):

  

Year Ended

December 31, 2017

 
United States $1,681 
Other countries  492 
Total revenues $2,173 

Fiscal Year Ended December 25, 2022Fiscal Year Ended December 26, 2021
United States$397.4 $108.6 
Other countries9.8 10.3 
Total revenues$407.2 $118.9 
Revenues are shown based on the geographic location of our licensees.licensee restaurants. All of our owned restaurant assets are located in the United States.

During the periodfiscal years ended December 31, 2017,25, 2022 and December 26, 2021, no individual franchisee accounted for more than 10% of the Company’sCompany's revenues.

NOTE 15 – OPERATING SEGMENTS

Operating segments consist of (i) franchising operations conducted through Fatburger, (ii) franchising operations conducted through Buffalo’s and (iii) franchising operations conducted through Ponderosa. Each segment operates with its own management and personnel, with additional centralized support from the Company. The actual cost of the support provided by18. SUBSEQUENT EVENTS

In January 2023, the Company is allocated to each operating segment. The following is a summarysold $40.0 million aggregate principal amount of eachsecured debt as disclosed in Note 10.

F-31

Table of the operating segments (dollars in thousands):

  Fatburger  Buffalo’s  Ponderosa  Combined 
             
Revenues                
Royalties $985  $233  $805  $2,023 
Franchise fees  138   -   2   140 
Management fees  10   -   -   10 
                 
Total revenues  1,133   233   807   2,173 
                 
Expenses                
General and administrative  820   215   815   1,850 
                 
Income (loss) from operations  313   18   (8)   323 
                 
Other income (expense)  56   96   (18)   134 
                 
Income (loss) before income tax expense $369  $114  $(26)  $457 

Reconciliation to consolidated net income (in thousands)

  December 31, 2017 
    

Combined segment net income before taxes

 $457 
Corporate expenses  (273)
Corporate other expense  (390)
Income tax expense  (407)
Net loss $(613)

NOTE 16 – SUBSEQUENT EVENTS

Restaurant openings and Closures

Subsequent to December 31, 2017, Fatburger franchisees have opened three additional franchise locations and closed two franchise locations. Buffalo’s franchisees have opened two additional franchise locations and closed zero franchise locations. Ponderosa franchisees have opened zero additional franchise locations and closed six franchise locations.

Contents

FAT BRANDS INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

FOR THE PERIOD BEGINNING MARCH 21, 2017 (INCEPTION) THROUGHFISCAL YEAR ENDED DECEMBER 31, 2017

  Dollars in thousands    
  Balance at Beginning of Period  Charged to Costs and Expenses  Deductions (Recoveries)  Balance at End of Period 
Allowance for:            
Trade notes and accounts receivable $589  $124  $-  $713 

25, 2022

Dollars In Millions
Balance at
Beginning of
Period		Charged to
Costs and
Expenses		Deductions/ Recoveries/AcquisitionsBalance at
End of Period
Allowance for:
Trade notes and accounts receivable$4.4 20.7 $— $25.1 

F-32

ReportTable of Independent Registered Public Accounting Firm

Stockholder and BoardContents

ITEM 16. FORM 10-K SUMMARY
Not applicable.
51

Table of Directors

Fatburger North America Inc.

Beverly Hills, California

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Fatburger North America, Inc. (the “Company”) as of October 19, 2017, and the related statements of income, stockholder’s equity, and cash flows for the period December 26, 2016 through October 19, 2017, and the related notes to the financial statements (collectively, the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 19, 2017, and the results of its operations and its cash flows for the period December 26, 2016 through October 19, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Hutchinson and Bloodgood LLP

We, or a firm acquired by us in 2012, have continuously served as auditor for the Company since 2007.

Glendale, California

April 2, 2018

F-19
Contents

FATBURGER NORTH AMERICA, INC.

Balance Sheet

October 19, 2017

   
Assets   
Current assets   
Cash$- 
Accounts receivable, net of allowance for doubtful accounts of $463,506 350,320 
Other current assets 8,358 
Total current assets 358,678 
    
Due from affiliates 7,087,473 
    
Trademarks 2,134,800 
    
Goodwill 529,400 
    
Deferred income taxes 1,592,694 
Total assets$11,703,045 
    
Liabilities and STOCKholder’s Equity   
Current liabilities   
Deferred income$1,892,397 
Accounts payable 1,447,741 
Accrued expenses 882,828 
Accrued advertising 334,864 
Total current liabilities 4,557,830 
    
Deferred income – noncurrent 1,480,500 
    
Total liabilities 6,038,330 
    
Commitments and contingencies (Note 6)   
    
Stockholder’s equity   
Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding 10 
Additional paid-in capital 3,500,000 
Retained earnings 2,164,705 
    
Total stockholder’s equity 5,664,715 
    
Total liabilities and stockholder’s equity$11,703,045 

The accompanying notes are integral part of these financial statements.

FATBURGER NORTH AMERICA, INC.

Statement of Income

For the interim period from December 26, 2016 through October 19, 2017

   
Revenues   
Royalties$3,797,297 
Franchise fees 1,731,659 
Management fees 51,115 
    
Total revenues 5,580,071 
    
Expenses   
General and administrative 1,929,551 
    
Total expenses 1,929,551 
    
Income from operations 3,650,520 
    
Other income 211,471 
    
Income before income tax expense 3,861,991 
Income tax expense 1,344,247 
    
Net income$2,517,744 
    
Net income per common share - Basic$2,517.74 
    
Shares used in computing net income per common share 1,000 

The accompanying notes are integral part of these financial statements.

FATBURGER NORTH AMERICA, INC.

Statement of Stockholder’s Equity

For the interim period from December 26, 2016 through October 19, 2017

     Additional       
  Common Stock  Paid-In  Retained    
  Shares  Amount  Capital  Earnings  Total 
                
Balance at December 25, 2016  1,000  $10  $3,500,000  $4,326,961  $7,826,971 
                     
Net income  -   -   -   2,517,744   2,517,744 
                     
Dividends paid  -   -   -   (4,680,000)  (4,680,000)
                     
Balance at October 19, 2017  1,000  $10  $3,500,000  $2,164,705  $5,664,715 

The accompanying notes are integral part of these financial statements.

FATBURGER NORTH AMERICA, INC.

Statement of Cash Flows

For the interim period from December 26, 2016 through October 19, 2017

Cash flows from operating activities
Net income$2,517,744
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes2,172
Provision for bad debt expense182,465
Changes in operating assets and liabilities:
Accounts receivable(124,130)
Accounts payable377,188
Accrued expenses(254,700)
Accrued advertising485,864
Deferred income(780,871)
Total adjustments(112,012)
Net cash provided by operating activities2,405,732
Cash flows from financing activities
Dividends paid(4,680,000)
Change in due from affiliates2,274,268
Net cash used in financing activities(2,405,732)
Net increase in cash-
Cash, beginning of year-
Cash, end of year$-
Supplemental Disclosure of cash flow Information
Cash paid for income taxes$-
Supplemental Disclosure of Noncash INVESTINg and Financing Activities
Income tax payable offset against amounts due from affiliates$1,338,681

The accompanying notes are integral part of these financial statements.

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SIGNATURES

FATBURGER NORTH AMERICA, INC.

Notes to Financial Statements

For the interim period from December 26, 2016 through October 19, 2017 (the “Interim Period”)

Note 1.Nature of Business

Fatburger North America, Inc. (the Company), a Delaware corporation, was formed on March 28, 1990 and is a wholly-owned subsidiary of Fog Cutter Capital Group Inc. (the Parent). Prior to its transfer to the Parent on March 24, 2011, the Company was owned by Fatburger Holdings, Inc. (Holdings) as the result of a stock purchase transaction in August 2001.

Subsequent to the date of these financial statements, on October 20, 2017, the Parent contributed the Company to FAT Brands, Inc. as a wholly owned subsidiary. The Parent owns majority control of FAT Brands Inc. These financial statements have been produced to reflect the interim period beginning December 26, 2016 and ending on the date prior to the contribution to Fat Brands Inc.

The Company franchises and licenses the right to use the Fatburger name, operating procedures and method of merchandising to franchisees. Upon signing a franchise agreement, the Company is committed to provide training, some supervision and assistance, and access to Operations Manuals. As needed, the Company will also provide advice and written materials concerning techniques of managing and operating the restaurants. The franchises are operated under the name “Fatburger.” Each franchise agreement term is typically for 15 years with two additional 10-year options available. Additionally, the Company conducts a multi-market advertising campaign to enhance the corporate name and image, which is funded through advertising revenues received from its franchisees and to a lesser extent, other restaurant locations owned and operated by subsidiaries of the Parent.

As of October 19, 2017, there were 153 franchise restaurant locations operated by third parties in Arizona, California, Colorado, Nevada, Washington, Canada, China, UAE, the UK, Kuwait, Saudi Arabia, Egypt, Iraq, Pakistan, Philippines, Indonesia, Malaysia, Qatar, Panama and Tunisia (the Franchisees).

Note 2.Summary of Significant Accounting Policies

Fiscal Year End:The Company operates on a 52-week calendar and its fiscal year ends on the Sunday closest to December 31. Consistent with the industry, 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 method means a 53rd week is added to the fiscal year every 5 or 6 years. The accompanying financial statements reflect the Company’s interim period beginning December 26, 2016 and ending on October 19, 2017, the date prior to the contribution to Fat Brands Inc.

Accounts Receivable:Accounts receivable consist primarily of royalty and advertising fees from franchisees reduced by reserves for the estimated amount deemed uncollectible due to bad debts.

Credit and Depository Risks:Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company’s customer base consists of franchisees located in Arizona, California, Colorado, Nevada, Washington, Canada, China, UAE, the UK, Kuwait, Saudi Arabia, Egypt, Iraq, Pakistan, Philippines, Indonesia, Malaysia, Qatar, Panama and Tunisia. Management reviews each of its customer’s financial conditions prior to signing a franchise agreement and believes that it has adequately provided for any exposure to potential credit losses.

The Company maintains cash deposits in national financial institutions. The Company has not experienced any losses in such accounts and believes its cash balances are not exposed to significant risk of loss.

Compensated Absences:Employees of the Parent who provide reimbursed services to the Company earn vested rights to compensation for unused vacation time. Accordingly, the Company accrues the amount of vacation compensation that employees have earned but not yet taken at the end of each fiscal year.

Goodwill and Other Intangible Assets:Goodwill and other intangible assets with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually, or more frequently if indicators arise. No impairment has been identified for the Interim Period ended October 19, 2017 and prior.

Revenue Recognition:Franchise fee revenue from sales of individual franchises is recognized upon completion of training and the actual opening of a location. Typically, franchise fees are $50,000 for each domestic location and are collected 50% upon signing a deposit agreement and 50% at the signing of a lease and related franchise agreement. International franchise fees are typically $65,000 for each location and are payable 100% upon signing a deposit agreement. The franchise fee may be adjusted at management’s discretion or in situations involving store transfers. Deposits are non-refundable upon acceptance of the franchise application. These deposits are recorded as deferred income – current and noncurrent based upon the expected franchise restaurant openings dates. In situations where franchisees have not complied with their development timelines for opening franchise stores, the franchise rights are terminated and franchise fee revenue is recognized for non-refundable deposits.

During the Interim Period ended October 19, 2017, fifteen franchise locations were opened and twenty were closed or otherwise left the franchise system. Of the new franchise locations, four were in Canada, three were in the United States, three were in China, and one in each of Qatar, the UK, Egypt, Pakistan and Panama. Of the closed locations, three were in Canada, three were in California, two were in Washington, two were in Bahrain, two were in Saudi Arabia, and one in each of Hawaii, Pakistan, Fiji, China, Indonesia, India, Oman and Egypt.

In addition to franchise fee revenue, the Company collects a royalty of 3% to 6% of net sales from its franchisees. Royalties are recognized as revenue as the related sales are made by the franchisees. Royalties collected in advance are classified as deferred income until earned.

Segment information:The Company owns international and domestic licensed operations. Our chief operating decision maker (“CODM”) is our Chief Executive Officer; our CODM reviews financial performance and allocates resources at an overall level on a recurring basis. Therefore, management has determined that the Company has one operating segment and one reportable segment.

Advertising:The Company requires advertising payments of 1.95% of net sales from Fatburger restaurants located in the Los Angeles marketing area and up to 0.95% of net sales from stores located outside of the Los Angeles marketing area. International locations pay 0.20% to 0.95%. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Since advertising funds collected are required to be spent for specific advertising purposes, no revenue or expense is recorded for advertising funds.

Cumulative advertising expenditures in excess of collections are recorded as current assets and will be reimbursed by future advertising payments from franchises and other Fatburger affiliates.

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

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

Income Per Common Share:Income per share data was computed using the weighted-average number of shares outstanding during each reporting period.

Use of Estimates:The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Recently Issued Accounting Standards:In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. These standards are effective for the Company in our first quarter of 2018 and will be adopted using the modified retrospective method.

These standards require that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. The services provided by the Company related to upfront fees received from franchisees such as initial or renewal fees do not currently contain separate and distinct performance obligations from the franchise right and thus those upfront fees will be recognized as revenue over the term of each respective franchise agreement. We currently recognize upfront franchise fees such as initial and renewal fees when the related services have been provided, which is when a store opens for initial fees and when renewal options become effective for renewal fees. These standards require any unamortized portion of fees received prior to adoption be presented in the balance sheet as a contract liability. The Company is evaluating the effect the adoption of these standards will have on future financial statements.


These standards will also have an impact on transactions currently not included in the Company’s revenues and expenses such as franchisee contributions to and subsequent expenditures from advertising cooperatives that we are required to consolidate and other cost reimbursement arrangements we have with our franchisees. We do not currently include these contributions and expenditures in our Consolidated Statements of Income or Cash Flows. The new standards will impact the principal/agent determinations in these arrangements by superseding industry-specific guidance included in current GAAP. When we are the principal in these transactions we will include the related contributions and expenditures within our statements of income and cash flows. As a result of this change, we expect the increase in both total revenues and total costs and expenses, with no significant impact to net income.


These standards will not impact the recognition of our sales-based royalty fees from franchisees, which is generally our largest source of revenue. We are currently implementing internal controls related to the recognition and presentation of the Company’s revenues under these new standards.

In February 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. This ASU is effective for interim and annual period beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company does not currently have any leases that will have an impact on the financial statements or disclosures as a result of the adoption of this ASU.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how transactions are classified in the statement of cash flows. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, which simplifies the accounting for goodwill impairment. This ASU removes Step 2 of the goodwill impairment test, which requires hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance also requires disclosure of the amount of goodwill at reporting units with zero or negative carrying amounts. ASU 2017-04 is effective for the Company beginning January 1, 2020. The Company elected to early adopt this standard when performing its annual goodwill impairment test in 2017. The adoption of this ASU did not have a significant financial impact on the Company’s financial statements.

Note 3.DEFERRED INCOME

Deferred income is as follows:

  October 19, 2017 
    
Deferred franchise fees $2,366,267 
Deferred royalties  1,006,630 
Total $3,372,897 

Note 4.Income Taxes

The Company files its Federal and most state income tax returns on a consolidated basis with the Parent. For financial reporting purposes, the Company has recorded a tax provision calculated as if the Company files all of its tax returns on a stand-alone basis. The taxes payable to the Parent determined by this calculation of $1,338,681 was offset against amounts due from affiliates as of October 19, 2017 (see Note 5). Deferred taxes reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for calculating taxes payable on a stand-alone basis. Significant components of the Company’s deferred tax assets are as follows:

  October 19, 2017 
Current deferred tax assets (liabilities)    
Deferred revenue $1,187,260 
Reserves and accruals  423,967 
Deferred state income tax  (18,533)
Total $1,592,694 

Components of the income tax provision (benefit) are as follows:

  Interim Period Ended 
  October 19, 2017 
Current    
Federal $976,631 
State  36,262 
Foreign  38,851 
   1,051,744 
Deferred    
Federal  282,365 
State  10,138 
   292,503 
Total income tax provision $1,344,247 

The income tax provision related to continuing operations differ from amounts computed by applying the statutory income tax rate of 34% to pretax income is as follows:

  October 19, 2017 
    
Tax provision at statutory rate $1,313,078 
State and local income taxes  31,169 
Total income tax provision $1,344,247 

As of October 19, 2017, the Company’s annual tax filings for the prior three years are open for audit by Federal and for the prior four years for state tax agencies. Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of October 19, 2017.

Note 5.Related Party Transactions

The Company had open accounts with affiliated entities under the common control of the Parent resulting in net amounts due to the Company of $7,087,473 as of October 19, 2017. These advances are expected to be recovered from credits for the use of the Parents’ tax net operating losses, and to the lesser extent, from repayment by the affiliates from proceeds generated by their operations and investments.

During the Interim Period ended October 19, 2017, the receivable from affiliates was reduced in the amount of $2,274,268.

Effective in 2012, the Parent’s operations were structured in such a way that significant direct and indirect administrative functions were provided to the Company. These services include operational personnel to sell franchise rights, assist with training franchisees and assisting franchises with opening restaurants. The Parent also provides executive administration and accounting services for the Company.

The Company reimbursed the Parent for these expenses in the approximate amounts of $1,097,132 for the Interim Period ended October 19, 2017. Management reviewed the expenses recorded at the Parent and identified the common expenses that shall be allocated to the subsidiaries. These expenses were allocated based on an estimate of management’s time spent on the activities of the Parent and its subsidiaries, and further allocated among the subsidiaries pro rata based on each subsidiary’s respective revenues as a percentage of overall revenues of the subsidiaries. The Company believes that the allocation of expenses is not materially different from what it would have been if the Company was a stand-alone entity.

During the Interim Period ended October 19, 2017, the Company recognized payables to the Parent in the amount of $1,338,681 for use of the Parent’s net operating losses for tax purposes.

During the Interim Period ended October 19, 2017, the Company declared and paid dividends in the amount of $ 4,680,000 to the Parent.

Note 6.Commitments and Contingencies

Litigation

Periodically, the Company is involved in litigation in the normal course of business. The Company believes that the result of any potential litigation will not have a material adverse effect on the Company’s financial condition.

Note 7.geographic information AND MAJOR FRANCHISEES

Revenues by geographic area are as follows (dollars in thousands):

  Interim Period Ended
October 19, 2017		 
United States $2,855,347 
Other countries  2,724,724 
Total revenues $5,580,071 

Revenues are shown based on the geographic location of our licensees. All of our assets are located in the United States.

During the interim period ended October 19, 2017, there were no franchisees which accounted for more than 10% of the Company’s revenues.

F-29

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Stockholder

Fatburger North America, Inc.

Beverly Hills, California

We have audited the accompanying balance sheets of Fatburger North America, Inc. (Company) as of December 25, 2016 and December 27, 2015 and the related statements of income, stockholder’s equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fatburger North America, Inc. as of December 25, 2016 and December 27, 2015 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Hutchinson and Bloodgood LLP

Glendale, California

May 5, 2017

FATBURGER NORTH AMERICA, INC.

Balance Sheets

December 25, 2016 and December 27, 2015

  2016  2015 
Assets        
Current assets        
Cash $-  $210,872 
Accounts receivable, net of allowance for doubtful accounts of $281,041 and $128,041 for 2016 and 2015, respectively  408,655   350,346 
Other current assets  8,358   8,358 
Advertising expenditures in excess of collections  151,000   746,187 
Total current assets  568,013   1,315,763 
         
Due from affiliates  9,361,741   8,637,095 
         
Trademarks  2,134,800   2,134,800 
         
Goodwill  529,400   529,400 
         
Deferred income taxes  1,594,866   2,588,408 
Total assets $14,188,820  $15,205,466 
         
Liabilities and STOCKholder’s Equity        
Current liabilities        
Deferred income $1,339,080  $1,584,402 
Accounts payable  1,070,553   1,034,485 
Accrued expenses  1,137,528   1,098,180 
         
Total current liabilities  3,547,161   3,717,067 
         
Deferred income – noncurrent  2,814,688   5,507,500 
         
Total liabilities  6,361,849   9,224,567 
         
Commitments and contingencies (Note 7)        
         
Stockholder’s equity        
Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding  10   10 
Additional paid in capital  3,500,000   3,500,000 
Retained earnings  4,326,961   2,480,889 
         
Total stockholder’s equity  7,826,971   5,980,899 
         
Total liabilities and stockholder’s equity $14,188,820  $15,205,466 

The accompanying notes are integral part of these financial statements.

FATBURGER NORTH AMERICA, INC.

Statements of Income

Years Ended December 25, 2016 and December 27, 2015

  2016  2015 
Revenues        
Royalties $4,632,243  $5,143,702 
Franchise fees  3,750,374   2,305,950 
Management fees  74,388   82,851 
         
Total revenues  8,457,005   7,532,503 
         
Expenses        
General and administrative  2,932,326   2,589,604 
         
Total expenses  2,932,326   2,589,604 
         
Income before income tax expense  5,524,679   4,942,899 
Income tax expense  1,978,607   2,282,692 
         
Net income $3,546,072  $2,660,207 
         
Net income per common share - Basic $3,546.08  $2,660.21 
         
Shares used in computing net income per common share  1,000   1,000 

The accompanying notes are integral part of these financial statements.

FATBURGER NORTH AMERICA, INC.

Statements of Stockholder’s Equity

Years Ended December 25, 2016 and December 27, 2015

     Additional       
  Common Stock  Paid-In  Retained    
  Shares  Amount  Capital  Earnings  Total 
                
Balance at December 28, 2014  1,000  $10  $3,500,000  $6,820,682  $10,320,692 
                     
Net income  -   -   -   2,660,207   2,660,207 
                     
Dividends paid  -   -   -   (7,000,000)  (7,000,000)
                     
Balance at December 27, 2015  1,000   10   3,500,000   2,480,889   5,980,899 
                     
Net income  -   -   -   3,546,072   3,546,072 
                     
Dividends paid  -   -   -   (1,700,000)  (1,700,000)
                     
Balance at December 25, 2016  1,000  $10  $3,500,000  $4,326,961  $7,826,971 

The accompanying notes are integral part of these financial statements.

FATBURGER NORTH AMERICA, INC.

Statements of Cash Flows

Years Ended December 25, 2016 and December 27, 2015

  2016  2015 
Cash flows from operating activities        
Net income $3,546,072  $2,660,207 
Adjustments to reconcile net income to net cash provided by operating activities:        
Deferred income taxes  993,542   299,561 
Provision for bad debt expense  153,000   135,394 
Changes in operating assets and liabilities:        
Accounts receivable  (211,309)  (53,602)
Advertising expenditures in excess of collections  595,187   372,610 
Accounts payable  36,068   238,849 
Accrued expenses  39,348   181,237 
Deferred income  (2,938,134)  245,642 
         
Total adjustments  (1,332,298)  1,419,691 
         
Net cash provided by operating activities  2,213,774   4,079,898 
         
Cash flows from financing activities        
Dividends paid  (1,700,000)  (7,000,000)
Change in due from affiliates  (724,646)  3,130,974 
         
Net cash used in financing activities  (2,424,646)  (3,869,026)
         
Net increase (decrease) in cash  (210,872)  210,872 
Cash, beginning of year  210,872   - 
Cash, end of year $-  $210,872 
         
Supplemental Disclosure of cash flow Information        
Cash paid for income taxes $29,973  $152,275 
Supplemental Disclosure of Noncash INVESTINg and Financing Activities        
Note payable assumed by the Parent $-  $152,510 
         
Income tax payable offset against amounts due from affiliates $920,946  $1,793,283 

The accompanying notes are integral part of these financial statements.

FATBURGER NORTH AMERICA, INC.

Notes to Financial Statements

December 25, 2016 and December 27, 2015

Note 1.Nature of Business

Fatburger North America, Inc. (the Company), a Delaware corporation, was formed on March 28, 1990 and is a wholly-owned subsidiary of Fog Cutter Capital Group Inc. (the Parent). Prior to its transfer to the Parent on March 24, 2011, the Company was owned by Fatburger Holdings, Inc. (Holdings) as the result of a stock purchase transaction on August 2001.

The Company franchises and licenses the right to use the Fatburger name, operating procedures and method of merchandising to franchisees. Upon signing a franchise agreement, the Company is committed to provide training, some supervision and assistance, and access to Operations Manuals. As needed, the Company will also provide advice and written materials concerning techniques of managing and operating the restaurants. The franchises are operated under the name “Fatburger.” Each franchise agreement term is typically for 15 years with two additional 10-year options available. Additionally, the Company conducts a multi-market advertising campaign to enhance the corporate name and image, which is funded through advertising revenues received from its franchisees and to a lesser extent, other restaurant locations owned and operated by subsidiaries of the Parent.

As of December 25, 2016, there were 161 franchise restaurant locations operated by third parties in Arizona, California, Colorado, Hawaii, Nevada, Washington, Canada, China, UAE, the UK, Kuwait, Saudi Arabia, Bahrain, Egypt, Iraq, Pakistan, Philippines, Indonesia, India, Malaysia, Fiji, Oman, Qatar and Tunisia (the Franchisees).

Note 2.Summary of Significant Accounting Policies

Fiscal Year End:The Company operates on a 52-week calendar and its fiscal year ends on the Sunday closest to December 31. Consistent with the industry, 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. Accordingly, the accompanying financial statements reflect the Company’s fiscal year ends of December 25, 2016 and December 27, 2015. The use of this fiscal year means a 53rd week is added to the fiscal year every 5 or 6 years.

Accounts Receivable:Accounts receivable consist primarily of royalty and advertising fees from franchisees reduced by reserves for the estimated amount deemed uncollectible due to bad debts.

Credit and Depository Risks:Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company’s customer base consists of franchisees located in Arizona, California, Colorado, Hawaii, Nevada, Washington, Canada, China, UAE, the UK, Kuwait, Saudi Arabia, Bahrain, Egypt, Iraq, Pakistan, Philippines, Indonesia, India, Malaysia, Fiji, Oman, Qatar and Tunisia. Management reviews each of its customer’s financial conditions prior to signing a franchise agreement and believes that it has adequately provided for any exposure to potential credit losses.

The Company maintains cash deposits in national financial institutions. The Company has not experienced any losses in such accounts and believes its cash balances are not exposed to significant risk of loss.

Note 2.Summary of Significant Accounting Policies (Continued)

Compensated Absences:Employees of the Parent who provide reimbursed services to the Company earn vested rights to compensation for unused vacation time. Accordingly, the Company accrues the amount of vacation compensation that employees have earned but not yet taken at the end of each fiscal year.

Goodwill and Other Intangible Assets:Goodwill and other intangible assets with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually, or more frequently if indicators arise. No impairment has been identified for the years ended December 25, 2016 and prior.

Revenue Recognition:Franchise fee revenue from sales of individual franchises is recognized upon completion of training and the actual opening of a location. Typically, franchise fees are $50,000 for each domestic location and are collected 50% upon signing a deposit agreement and 50% at the signing of a lease and related franchise agreement. International franchise fees are typically $65,000 for each location, and are payable 100% upon signing a deposit agreement. The franchise fee may be adjusted at management’s discretion or in situations involving store transfers. Deposits are nonrefundable upon acceptance of the franchise application. These deposits are recorded as deferred income – current and noncurrent based upon the expected franchise restaurant openings dates. The Company acknowledges that some of its franchisees have not complied with their development timelines for opening franchise stores. These franchise rights are terminated and franchise fee revenue is recognized for non-refundable deposits.

During the year ended December 25, 2016, thirteen franchise locations were opened and ten were closed or otherwise left the franchise system. Of the new franchise locations, three were in Canada; three were in the United States; two were in Pakistan; and one in each of Tunisia, China, Philippines, Egypt and Iraq. Of the closed locations, three were in California, and one in each of Nevada, Washington, Maryland, Pakistan, Indonesia, Kuwait, and Malaysia.

During the year ended December 27, 2015, eighteen franchise locations were opened and ten were closed or otherwise left the franchise system. Of the new franchise locations, five were in Canada; four were in California; two were in Malaysia; and one in each of Tunisia, Kuwait, the UK, Qatar, UAE Fiji, and, Iraq. Of the closed locations, three were in California, and one in each of Nevada, New York, Michigan, Lebanon, UAE, Bahrain, and Saudi Arabia.

In addition to franchise fee revenue, the Company collects a royalty of 3% to 6% of net sales from its franchisees. Royalties are recognized as revenue as the related sales are made by the franchisees. Royalties collected in advance are classified as deferred income until earned.

Segment information:The Company owns international and domestic licensed operations. Our chief operating decision maker (“CODM”) is our Chief Executive Officer; our CODM reviews financial performance and allocates resources at an overall level on a recurring basis. Therefore, Management has determined that the Company has one operating segment and one reportable segment.

Advertising:The Company requires advertising payments of 1.95% of net sales from Fatburger restaurants located in the Los Angeles marketing area and up to 0.95% of net sales from stores located outside of the Los Angeles marketing area. International locations pay 0.20% to 0.95%. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Since advertising funds collected are required to be spent for specific advertising purposes, no revenue or expense is recorded for advertising funds.

Cumulative advertising expenditures in excess of collections are recorded as current assets and will be reimbursed by future advertising payments from franchises and other Fatburger affiliates

Note 2.Summary of Significant Accounting Policies (Continued)

Income Taxes:The Company accounts for income taxes using the asset and liability approach. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred taxes are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate.

Income Per Common Share:Income per share data was computed using the weighted-average number of shares outstanding during each year.

Joint and Several Liabilities:Joint and several liabilities are recorded for the amount the Company agreed to pay on the basis of its arrangement among its co-obligors. See note 7 for further detail. The Company has not recorded any obligations under this arrangement as of December 25, 2016 and December 27, 2015.

Use of Estimates:The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Joint and Several Liabilities:Joint and several liabilities are recorded for the amount the Company agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the Company expects to pay on behalf of the co-obligors. See note 7 for further detail. The Company has not recorded any obligations under this arrangement as of December 25, 2016 and December 27, 2015.

Recently Issued Accounting Standards:In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 by one year, making it effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the effects adoption of this guidance will have on its financial statements.

Note 2.Summary of Significant Accounting Policies (Continued)

Recently Issued Accounting Standards (continued):In February 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. This ASU is effective for interim and annual period beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company does not currently have any leases that will have an impact on the financial statements or disclosures as a result of the adoption of this ASU.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how transactions are classified in the statement of cash flows. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Note 3.DEFERRED INCOME

Deferred income is as follows:

  December 25, 2016  December 27, 2015 
       
Deferred franchise fees $3,214,016  $5,902,500 
Deferred royalties  939,752   1,189,402 
         
Total $4,153,768  $7,091,902 

Note 4.Income Taxes

The Company files its Federal and most state income tax returns on a consolidated basis with the Parent. For financial reporting purposes, the Company has recorded a tax provision calculated as if the Company files all of its tax returns on a stand-alone basis. The taxes payable to the Parent determined by this calculation of $920,946 and $1,793,283 were offset against amounts due from affiliates as of December 25, 2016 and December 27, 2015, respectively (see Note 6). As of December 25, 2016, the Parent has estimated aggregate federal net operating loss carryforwards of $71,370,000 available to offset future federal taxable income generated by the Company. These carryforwards begin to expire in 2018.

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

  December 25, 2016  December 27, 2015 
Current deferred tax assets        
Deferred franchise fees $1,132,728  $2,082,014 
Deferred royalties  331,200   419,543 
Allowances  99,048   45,164 
Accruals and other  20,280   18,983 
State tax accrual  11,610   22,704 
Total $1,594,866  $2,588,408 

Components of the income tax provision (benefit) are as follows:

  Year Ended  Year Ended 
  December 25, 2016  December 27, 2015 
Current        
Federal $920,946  $1,764,078 
State  34,146   66,778 
Foreign  29,973   152,275 
   985,065   1,983,131 
Deferred        
Federal  956,783   (2,831)
State  36,759   302,392 
   993,542   299,561 
Total income tax provision $1,978,607  $2,282,692 

A reconciliation of the statutory income tax rate to the effective tax rate is as follows:

  December 25, 2016  December 27, 2015 
       
Statutory rate  34%  34%
State and local income taxes  1   7 
Foreign withholding taxes  1   3 
Other  -   2 
Effective tax rate  36%  46%

As of December 25, 2016, the Company’s annual tax filings for the prior three years are open for audit by Federal and for the prior four years for state tax agencies. Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of December 25, 2016 and December 27, 2015.

Note 5.NOTE PAYABLE

During 2014, one of the selling stockholders of an affiliate of the Company, Buffalo’s Franchise Concepts, Inc. made advances to the Company in the amount of $150,000, which is evidenced by a promissory note with interest at 10% per annum and a stated maturity date of December 31, 2014. The proceeds from the borrowing were advanced to the Company’s parent and used in relation to the purchase of one franchise location. During 2015, the unpaid balance of the note was combined with a note payable entered into by the Parent and the selling stockholder. As a result, the note balance was applied against amounts due from affiliates during the year ended December 27, 2015.

Note 6.Related Party Transactions

The Company had open accounts with affiliated entities under the common control of the Parent resulting in net amounts due to the Company of $9,361,739 and $8,637,095 as of December 25, 2016 and December 27, 2015, respectively.

During the years ended December 25, 2016 and December 27, 2015, the Company made net cash advances to affiliates in the amount of $6,285,035 and $6,984,203, respectively. These advances are expected to be recovered from credits for the use of the Parents’ tax net operating losses, and to the lesser extent, from repayment by the affiliates from proceeds generated by their operations and investments.

Effective in 2012, the Parent’s operations were structured in such a way that significant direct and indirect administrative functions were provided to the Company. These services include operational personnel to sell franchise rights, assist with training franchisees and assisting franchises with opening restaurants. The Parent also provides executive administration and accounting services for the Company.

The Company reimbursed the Parent for these expenses in the approximate amounts of $1,699,947 and $1,474,404 for the years ended December 25, 2016 and December 27, 2015, respectively. Management reviewed the expenses recorded at the Parent and identified the common expenses that shall be allocated to the subsidiaries. These expenses were allocated based on an estimate of management’s time spent on the activities of the Parent and its subsidiaries, and further allocated among the subsidiaries pro rata based on each subsidiary’s respective revenues as a percentage of overall revenues of the subsidiaries. The Company believes that the allocation of expenses is not materially different from what it would have been if the Company was a stand-alone entity.

During the years ended December 25, 2016 and December 27, 2015, the Company recognized payables to the Parent in the amount of $920,946 and $1,793,283, respectively, for use of the Parent’s net operating losses for tax purposes.

During the years ended December 25, 2016 and December 27, 2015, the Company declared and paid dividends in the amount of $ 1,700,000 and $7,000,000, respectively.

Note 7.Commitments and Contingencies

Litigation

Periodically, the Company is involved in litigation in the normal course of business. The Company believes that the result of any potential litigation will not have a material adverse effect on the Company’s financial condition.

On June 1, 2010, the Company and certain of its affiliates became subject to a judgment payable to GE Capital Franchise Finance Corporation (GEFFC) for approximately $4,300,000. On October 11, 2011, GEFFC agreed to accept payments in full satisfaction of the obligation totaling approximately $2,600,000 plus interest at 5%. Subsequently, the Parent made payments totaling approximately $2,000,000, plus interest to GEFFC. As of December 25, 2016, the balance remaining to be paid on the discounted judgment was approximately $580,000. No proceeds were received by the Company, however the Company is jointly and severally liable as a co-borrower.

Lease Guarantees

The Company had guaranteed the operating lease for one Fatburger restaurant that was to be a joint venture between an affiliate of the Company and a separate third party. This lease went into default in 2008, and the landlord called the Company on its guarantee. The Company settled with this landlord for approximately $271,000, to be paid out in monthly installments of $12,000 until paid in full. The Company fulfilled its obligation and obtained a release from the landlord in 2014.

The Company had guaranteed the operating lease for one Fatburger restaurant owned by an affiliate of the Company. This lease went into default in 2008, and the landlord called the Company on its guarantee. The Company settled with this landlord for approximately $60,000, to be paid out in monthly installments of $2,000 over a period of 30 months beginning in October 2009. The liability of $60,000 was recorded in the financial statements as of December 28, 2008. The Company made $4,000 in payments after the settlement and has not heard from the landlord since then. In 2014, the Company wrote off the debt from its balance sheet.

Note 8.geographic information AND MAJOR FRANCHISEES

Revenues by geographic area are as follows:

  Year Ended
December 25, 2016		  Year Ended
December 27, 2015		 
United States $3,591,953  $3,875,580 
Other countries  4,865,052   3,656,923 
Total revenues $8,457,005  $7,532,503 

Revenues are shown based on the geographic location of our licensees. All of our assets are located in the United States.

During the year ended December 25, 2016, one franchisee accounted for more than 10% of the Company’s revenues, with total revenues of $1,053,337. During the year ended December 27, 2015, the Company had no single franchisee that accounted for more than 10% of its revenues.

Report of Independent Registered Public Accounting Firm

Stockholder and Board of Directors

Buffalo’s Franchise Concepts, Inc. and Subsidiary

Beverly Hills, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Buffalo’s Franchise Concepts, Inc. (the “Company”) and subsidiary as of October 19, 2017, and the related statements of income, stockholder’s equity, and cash flows for the period December 26, 2016 through October 19, 2017, and the related notes to the financial statements (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiary as of October 19, 2017, and the results of their operations and their cash flows for the period December 26, 2016 through October 19, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

\s\ Hutchinson and Bloodgood LLP

We, or a firm acquired by us in 2012, have continuously served as auditor for the Company since 2011.

Glendale, California

April 2, 2018

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Balance Sheet

October 19, 2017

Assets   
Current assets    
Cash $35,335 
Accounts receivable, net of allowance for doubtful accounts of $15,616  31,753 
Other current assets  11 
Total current assets  67,099 
     
Due from affiliates  904,197 
Trademarks  27,000 
Goodwill  5,365,100 
Deferred tax assets  104,011 
Buffalo’s creative and advertising fund  397,995 
Total assets $6,865,402 
     
Liabilities and Stockholder’s Equity    
Current liabilities    
Accounts payable $182,682 
Accrued expenses  81,570 
Deferred income  116,958 
Total current liabilities  381,210 
     
Deferred income – noncurrent  147,980 
Buffalo’s creative and advertising fund - contra  397,995 
Total liabilities  927,185 
     
Commitments and contingencies (Notes 6 and 7)    
     
Stockholder’s equity    
Common stock, $.001 par value, 50,000,000 shares authorized  — 
Additional paid-in capital  5,138,946 
Retained earnings  799,271 
Total stockholder’s equity  5,938,217 
Total liabilities and stockholder’s equity $6,865,402 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Statement of Operations

For the interim period from December 26, 2016 through October 19, 2017

Revenues    
Royalties $992,855 
Franchise fees  529,944 
Total revenues  1,522,799 
     
Expenses    
General and administrative  568,167 
Total expenses  568,167 
     
Income from operations  954,632 
     
Other income  - 
     
Income before taxes  954,632 
     
Income tax expense  353,330 
     
Net income $601,302 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Statements of Stockholder’s Equity

For the interim period from December 26, 2016 through October 19, 2017

  Additional       
  Paid-In  Retained    
  Capital  Earnings  Total 
          
Balance, December 25, 2016 $5,138,946  $1,847,969  $6,986,915 
             
Net income  —   601,302   601,302 
             
Dividend distribution  —   (1,650,000)  (1,650,000)
             
Balance, October 19, 2017 $5,138,946  $799,271  $5,938,217 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Statement of Cash Flows

For the interim period from December 26, 2016 through October 19, 2017

Cash flows from operating activities    
Net income $601,302 
Adjustments to reconcile net income to net cash flows provided by operating activities:    
Provision for bad debt expense  15,616 
Deferred income taxes  146,033 
Changes in current operating assets and liabilities:    
Accounts receivable  6,145 
Other current assets  - 
Accounts payable  85,298 
Accrued expenses  (6,086)
Deferred income  (551,319)
Total adjustments  (304,313)
Net cash flows provided by operating activities  296,989 
     
Cash flows from financing activities    
Change in advances to affiliates  1,388,346 
Dividend distribution  (1,650,000)
Net cash flows used in financing activities  (261,654)
     
Net increase in cash  35,335 
     
Cash, beginning of year  — 
     
Cash, end of year $35,335 
     
Supplemental Disclosure of cash flow Information   
Cash paid for income taxes $- 
     
Supplemental Disclosure of Noncash INVESTING and Financing Activities    
     
Income tax payable offset against amounts due from affiliates $187,702 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the interim period from December 26, 2016 through October 19, 2017 (the “Interim Period”)

Note 1. Nature of business

Buffalo’s Franchise Concepts, Inc. is a Nevada corporation formed in June 2006. On December 8, 2006, the Nevada corporation acquired all the issued and outstanding common stock of Buffalo’s Franchise Concepts, Inc., a Georgia corporation (BFCI-GA), which became a wholly-owned subsidiary. On November 28, 2011, all the issued and outstanding stock of the Nevada corporation was acquired by Fog Cap Development LLC (Fog Cap), a wholly-owned subsidiary of Fog Cutter Capital Group Inc. (the “Parent”).

Subsequent to the date of these financial statements, on October 20, 2017, the Parent contributed the Company to FAT Brands, Inc. as a wholly-owned subsidiary. The Parent owns majority control FAT Brands Inc. These financial statements have been produced to reflect the interim period beginning December 26, 2017 and ending on the date prior to the contribution to FAT Brands.

Buffalo’s Franchise Concepts, Inc., through its wholly-owned subsidiary, grants store franchise and development agreements for the operation of casual dining restaurants (Buffalo’s Southwest Cafés) and quick service restaurants outlets (Buffalo’s Express). The restaurants specialize in the sale of Buffalo-Style chicken wings, chicken tenders, burgers, ribs, wrap sandwiches, and salads. Franchisees are licensed to use the Company’s trade name, service marks, trademarks, logos, and unique methods of food preparation and presentation.

In 2012, the Parent began co-branding its Buffalo’s Express restaurants with Fatburger restaurants, the Parent’s other fast casual brand. These co-branded restaurants sell products of both brands and share back-of-the-house facilities.

At October 19, 2017, there were 18 operating Buffalo’s Southwest Cafés restaurants and 72 co-branded Buffalo’s Express restaurants. All these restaurants were franchise locations except for one Buffalo’s Southwest Café restaurant which was owned by an affiliate.

Note 2. Summary of significant accounting policies

Principles of Consolidation:The accompanying consolidated financial statements include the accounts of Buffalo’s Franchise Concepts, Inc. and its wholly-owned subsidiary, Buffalo’s Franchise Concepts, Inc., a Georgia corporation, (collectively, the Company). All significant intercompany accounts have been eliminated in consolidation.

Accounts Receivable:Accounts receivable consist of royalty fees from franchisees reduced by reserves for the estimated amount deemed uncollectible due to bad debts. As of October 19, 2017, the accounts receivable was net of an allowance for doubtful accounts in the amount of $15,616.

Credit and Depository Risks:The Company maintains its cash accounts at high credit quality financial institutions. The balances, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes its cash balances are not exposed to significant risk of loss.

The Company’s customer base consists of franchisees located in Georgia, Texas, California, Canada, the UK, Qatar, Saudi Arabia, Tunisia, Malaysia, Panama, and the Philippines. Management reviews each of its customer’s financial conditions prior to signing a franchise agreement and believes that it has adequately provided for any exposure to potential credit losses.

Fiscal Year End:The Company operates on a 52-week calendar year. The fiscal year ends on the Sunday closest to December 31. Consistent with the industry, Buffalo 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 method means a 53rd week is added to the fiscal year every 5 or 6 years. The accompanying consolidated financial statements reflect the Company’s interim period beginning December 26, 2016 and ending on October 19, 2017, the date prior to the contribution to FAT Brands.

Goodwill and Other Intangible Assets:Goodwill and other intangible assets with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually or more frequently if indicators arise. Intangible assets that are not deemed to have indefinite lives are amortized over their useful lives and are also reviewed for impairment annually or more frequently if indications arise. No impairment has been identified as of October 19, 2017.

Franchise rights are amortized over the remaining lives of the agreements at the date of acquisition. All franchise rights were fully amortized prior to the Interim Period.

Revenue Recognition:The Company recognizes revenues from franchise sales upon commencement of operations by a franchisee. Franchise fee revenue from sales of individual franchises is recognized upon completion of training and the actual opening of a location. Typically, franchise fees are $50,000 for each domestic location and are collected 50% upon signing a deposit agreement and 50% at the signing of a lease and related franchise agreement. International franchise fees are typically $65,000 for each location and are payable 100% upon signing a deposit agreement. The Company typically charges a $25,000 co-brand conversion fee.

The franchise fee may be adjusted at management’s discretion or in a situation involving store transfers. Deposits are non-refundable upon acceptance of the franchise application. These deposits are recorded as deferred income – current and noncurrent based upon the expected franchise restaurant opening dates. In situations where franchisees have not complied with their development timelines for opening franchise stores, the franchise rights are terminated and franchise fee revenue is recognized for non-refundable deposits.

In addition to franchise fee revenue, the Company collects a royalty calculated as a percentage of net sales from its franchisees. Royalties are recognized as revenue when the related sales are made by the franchisees.

During 2008 and 2009, the Company received a total of $500,000 from a franchisee of three restaurants in exchange for an exclusive area agreement for ten counties in the state of Georgia and reduced service fees for the franchisee’s restaurants for a ten-year period. The franchisee is required to open four new franchise restaurants in the exclusive territory during the ten-year term of the agreement. The deferred fee is being amortized into income ratably over the ten-year term. Service fee revenues recognized in the Interim Period pursuant to the agreement totaled $36,375. As of October 19, 2017, there remained deferred fees of $32,333 relating to the exclusive area agreement.

Advertising:The Company generally requires advertising payments of 2.0% of net sales from Buffalo’s Southwest Café restaurants. Co-branded restaurants generally pay 0.20% to 1.95%. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Since the Company acts in a fiduciary role to collect and disburse these advertising funds, no revenue or expense is recorded.

Advertising funds are segregated from other Company assets and the balance of the Buffalo’s Creative and Advertising Fund is recorded as an asset by the Company with the offsetting advertising obligation recorded as a liability, Buffalo’s Creative and Advertising Fund – Contra.

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

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

Estimates:The preparation of financial statements in accordance with GAAP requires the use of estimates in determining assets, liabilities, revenues and expenses. Actual results may differ from those estimates.

Recently Issued Accounting Standards:In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. These standards are effective for the Company in our first quarter of 2018 and will be adopted using the modified retrospective method.

These standards require that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. The services provided by the Company related to upfront fees received from franchisees such as initial or renewal fees do not currently contain separate and distinct performance obligations from the franchise right and thus those upfront fees will be recognized as revenue over the term of each respective franchise agreement. We currently recognize upfront franchise fees such as initial and renewal fees when the related services have been provided, which is when a store opens for initial fees and when renewal options become effective for renewal fees. These standards require any unamortized portion of fees received prior to adoption be presented in the consolidated balance sheet as a contract liability. The Company is evaluating the effect the adoption of these standards will have on the future financial statements.

These standards will also have an impact on transactions currently not included in the Company’s revenues and expenses such as franchisee contributions to and subsequent expenditures from advertising cooperatives that we are required to consolidate and other cost reimbursement arrangements we have with our franchisees. We do not currently include these contributions and expenditures in our consolidated statements of income or cash flows. The new standards will impact the principal/agent determinations in these arrangements by superseding industry-specific guidance included in current GAAP. When we are the principal in these transactions we will include the related contributions and expenditures within our consolidated statements of income and cash flows. As a result of this change, we expect the increase in both total revenues and total costs and expenses, with no significant impact to Net Income. The assets and liabilities held by advertising cooperatives, which have historically been reported as Buffalo’s Creative and Advertising Fund is recorded as an asset by the Company with the offsetting advertising obligation recorded as a liability, Buffalo’s Creative and Advertising Fund – Contra, respectively, will be included within the respective balance sheet caption to which the assets and liabilities relate.

These standards will not impact the recognition of our sales-based royalty fees from franchisees, which is generally our largest source of revenue. We are currently implementing internal controls related to the recognition and presentation of the Company’s revenues under these new standards.

In February 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. This ASU is effective for interim and annual period beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company does not currently have any leases that will have an impact on the consolidated financial statements or disclosures as a result of the adoption of this ASU.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how transactions are classified in the statement of cash flows. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, which simplifies the accounting for goodwill impairment. This ASU removes Step 2 of the goodwill impairment test, which requires hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance also requires disclosure of the amount of goodwill at reporting units with zero or negative carrying amounts. ASU 2017-04 is effective for the Company beginning January 1, 2020. The Company elected to early adopt this standard when performing its annual goodwill impairment test in 2017. The adoption of this ASU did not have a significant financial impact on the Company’s financial statements.

Note 3. Related party transactions

The Company has made cumulative net advances to affiliated entities under the common control of the Parent in the amount of $904,197 as of October 19, 2017. These advances are expected to be recovered through repayment for the use of the Parent’s tax net operating losses and from proceeds generated by the affiliates’ operations and investments.

Effective in 2013, the Parent’s operations were structured in such a way that significant direct and indirect administrative functions were provided to the Company. These services include operational personnel to sell franchise rights, assist with training franchisees and assisting franchisees with opening restaurants. The Parent also provides executive administration and accounting services for the Company. Expenses are allocated based on an estimate of management’s time spent on the activities of the Parent and its subsidiaries, and further allocated among the subsidiaries pro rata based on each subsidiary’s respective revenues as a percentage of overall revenues of the subsidiaries. The Company believes that the allocation of expenses is not materially different from what it would have been if the Company was a stand-alone entity. These expenses were $236,108 for the 2017 Interim Period and were reimbursed to the Parent in cash.

During the Interim Period, the Company recorded obligations to the Parent in the amount of $187,702 for use of the Parent’s net operating losses for tax purposes.

During the Interim Period, the Company declared and paid dividends in the amount of $1,650,000.

Note 4. Income taxes

The Company files its Federal and most state income tax returns on a consolidated basis with the Parent. For financial reporting purposes, the Company calculates its tax provision as if the Company files its tax returns on a stand-alone basis. The taxes payable to the Parent determined by this calculation of $187,702 were offset against the balances due from affiliates as of October 19, 2017.

Deferred taxes reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for calculating taxes payable on a stand-alone basis.

Significant components of the Company’s net deferred tax assets are as follows:

  October 19, 2017 
Net deferred tax assets (liabilities)    
Deferred revenue $102,028 
Reserves and accruals  6,285 
Deferred state income tax  (4,302)
Total $104,011 

Components of the income tax provision are as follows for the years ended:

  October 19, 2017 
Current    
Federal $136,048 
State  19,594 
   155,642 
Deferred    
Federal  173,718 
State  23,969 
   197,687 
Total income tax expense $353,329 

Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 34% to pretax loss as follows:

October 19, 2017
Tax provision at statutory rate$324,574
State taxes28,755
Total income tax provision$353,329

As of October 19, 2017, the Company’s annual tax filings for the prior three years are open for audit by Federal and for the prior four years for state tax agencies. Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of October 19, 2017.

Note 5. Buffalo’s creative and advertising fund

Under the terms of its franchise agreements, the Company collects fees for creative development and advertising from its franchisees based on percentages of sales as outlined in franchise agreements. The Company is to oversee all advertising and promotional programs and is to have sole discretion over expenditures from the fund.

During the Interim Period, the Company collected advertising fees and vender contributions of $430,098. Advertising expenditures for the same period totaled $222,159. The accompanying consolidated financial statements reflect the year-end balance of the advertising fund and the related advertising obligation, which was approximately $397,995 as of October 19, 2017.

Note 6. commitments AND CONTINGENCIES

Litigation:Periodically, the Company is involved in litigation in the normal course of business. The Company believes that the result of any potential litigation will not have a material adverse effect on the Company’s financial condition.

Note 7. Retirement plan

The Company has a profit sharing plan (the Plan) with a 401(k) feature covering substantially all employees. There were no contributions made by the Company under the Plan for the Interim Period.

Note 8. geographic location and major franchisees

Revenues by geographic area are as follows:

  Interim Period Ended 
  October 19, 2017 
    
United States $849,139 
Other countries  673,660 
Total revenues $1,522,799 

Revenues are shown based on the geographic location of our licensees. All our assets are located in the United States.

During the 2017 Interim Period, four franchisees each accounted for more than 10% of the Company’s revenues, with total revenues of $197,429, $176,428, $230,757 and $325,000.

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Stockholder

Buffalo’s Franchise Concepts, Inc.

Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of Buffalo’s Franchise Concepts, Inc. and Subsidiary (Company) as of December 25, 2016 and December 27, 2015 and the related consolidated statements of operations, stockholder’s equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Buffalo’s Franchise Concepts, Inc. and Subsidiary as of December 25, 2016 and December 27, 2015 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Hutchinson and Bloodgood LLP
Glendale, California
May 5, 2017

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Balance Sheets

December 25, 2016 and December 27, 2015

  2016  2015 
Assets        
Current assets        
Cash $—  $40,899 
Accounts receivable  53,514   44,672 
Other current assets  11   11 
Total current assets  53,525   85,582 
         
Due from affiliates  2,292,543   1,946,744 
Trademarks  27,000   27,000 
Goodwill  5,365,100   5,365,100 
Deferred tax assets  250,044   322,294 
Buffalo’s creative and advertising fund  191,058   24,079 
Total assets $8,179,270  $7,770,799 
         
Liabilities and Stockholder’s Equity        
Current liabilities        
Accounts payable $97,384  $83,033 
Accrued expenses  87,656   21,967 
Deferred income  253,333   389,333 
Amount due selling stockholders  —   35,890 
Total current liabilities  438,373   530,223 
         
Deferred income – noncurrent  562,924   687,924 
Buffalo’s creative and advertising fund - contra  191,058   24,079 
Total liabilities  1,192,355   1,242,226 
         
Commitments and contingencies (Notes 6 and 7)        
         
Stockholder’s equity        
Common stock, $.001 par value, 50,000,000 shares authorized  —   — 
Additional paid-in capital  5,138,946   5,138,946 
Retained earnings  1,847,969   1,389,627 
Total stockholder’s equity  6,986,915   6,528,573 
Total liabilities and stockholder’s equity  8,179,270   7,770,799 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Statements of Operations

Years Ended December 25, 2016 and December 27, 2015

  2016  2015 
Revenues        
Royalties $1,348,910  $1,317,050 
Franchise fees  255,000   706,366 
Total revenues  1,603,910   2,023,416 
         
Expenses        
General and administrative  663,212   732,402 
Total expenses  663,212   732,402 
         
Income from operations  940,698   1,291,014 
         
Other income  35,890   85,421 
         
Income before taxes  976,588   1,376,435 
         
Income tax expense  318,246   528,317 
         
Net income $658,342  $848,118 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Statements of Stockholder’s Equity

For the Years Ended December 25, 2016 and December 27, 2015

  Additional       
  Paid-In  Retained    
  Capital  Earnings  Total 
          
Balance, December 28, 2014 $5,138,946  $941,509  $6,080,455 
             
Net income  —   848,118   848,118 
             
Dividend distribution  —   (400,000)  (400,000)
             
Balance, December 27, 2015  5,138,946   1,389,627   6,528,573 
             
Net income  —   658,342   658,342 
             
Dividend distribution  —   (200,000)  (200,000)
             
Balance, December 25, 2016 $5,138,946  $1,847,969  $6,986,915 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the Years Ended December 25, 2016 and December 27, 2015

  2016  2015 
Cash flows from operating activities        
Net income $658,342  $848,118 
Adjustments to reconcile net income to net cash flows provided by operating activities:        
Amortization  —   10,000 
Deferred income taxes  72,250   272,315 
Changes in current operating assets and liabilities:        
Accounts receivable  (8,842)  44,278 
Other current assets  —   23,822 
Accounts payable  14,351   (4,462)
Accrued expenses  65,689   (5,604)
Deferred income  (261,000)  (658,500)
Total adjustments  (117,552)  (318,151)
Net cash flows provided by operating activities  540,790   529,967 
         
Cash flows from financing activities        
Advances to affiliates  (345,799)  (60,751)
Repayments of loans from selling stockholders  (35,890)  (28,317)
Dividend distribution  (200,000)  (400,000)
Net cash flows used in financing activities  (581,689)  (489,068)
         
Net increase (decrease) in cash  (40,899)  40,899 
         
Cash, beginning of year  40,899   — 
         
Cash, end of year $—  $40,899 
         
Supplemental Disclosure of cash flow Information        
Cash paid for income taxes $2,323  $17,511 
         
Supplemental Disclosure of Noncash INVESTING and Financing Activities        
         
Income tax payable offset against amounts due from affiliates $243,673  $238,491 

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

BUFFALO’S FRANCHISE CONCEPTS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Years Ended December 25, 2016 and December 27, 2015

Note 1. Nature of business

Buffalo’s Franchise Concepts, Inc. is a Nevada corporation formed in June 2006. On December 8, 2006, the Nevada corporation acquired all of the issued and outstanding common stock of Buffalo’s Franchise Concepts, Inc., a Georgia corporation (BFCI-GA), which became a wholly-owned subsidiary. On November 28, 2011, all of the issued and outstanding stock of the Nevada corporation was acquired by Fog Cap Development LLC (Fog Cap), a wholly-owned subsidiary of Fog Cutter Capital Group Inc. (the Parent).

Buffalo’s Franchise Concepts, Inc., through its wholly-owned subsidiary, grants store franchise and development agreements for the operation of casual dining restaurants (Buffalo’s Southwest Cafés) and quick service restaurants outlets (Buffalo’s Express). The restaurants specialize in the sale of Buffalo-Style chicken wings, chicken tenders, burgers, ribs, wrap sandwiches, and salads. Franchisees are licensed to use the Company’s trade name, service marks, trademarks, logos, and unique methods of food preparation and presentation.

In 2012, the Parent began co-branding its Buffalo’s Express restaurants with Fatburger restaurants, the Parent’s other fast casual brand. These co-branded restaurants sell products of both brands and share back-of-the-house facilities.

At December 25, 2016, there were 21 operating Buffalo’s Southwest Cafés restaurants and 64 co-branded Buffalo’s Express restaurants. All of these restaurants were franchise locations except for one Buffalo’s Southwest Café restaurant which was owned by an affiliate. At December 27, 2015, there were 19 operating Buffalo’s Southwest Cafés restaurants and 62 co-branded Buffalo’s Express restaurants.

Note 2. Summary of significant accounting policies

Principles of Consolidation:The accompanying consolidated financial statements include the accounts of Buffalo’s Franchise Concepts, Inc. and its wholly-owned subsidiary, Buffalo’s Franchise Concepts, Inc., a Georgia corporation, (collectively, the Company). All significant intercompany accounts have been eliminated in consolidation.

Accounts Receivable:Accounts receivable consist of royalty fees from franchisees reduced by reserves for the estimated amount deemed uncollectible due to bad debts. As of December 25, 2016 and December 27, 2015, no allowance for doubtful accounts was recorded as the collectability of the receivable was reasonably assured.

Credit and Depository Risks:The Company maintains its cash accounts at high credit quality financial institutions. The balances, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes its cash balances are not exposed to significant risk of loss.

The Company’s customer base consists of franchisees located in Georgia, Texas, California, Canada, the UK, the UAE, Qatar, Saudi Arabia, Pakistan, Tunisia Malaysia, and the Philippines. Management reviews each of its customer’s financial conditions prior to signing a franchise agreement and believes that it has adequately provided for any exposure to potential credit losses.

Note 2. Summary of significant accounting policies (Continued)

Fiscal Year End:The Company operates on a 52-week calendar year. The fiscal year ends on the Sunday closest to December 31. Consistent with the industry, Buffalo 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. Accordingly, the accompanying financial statements reflect the Company’s fiscal year ends of December 25, 2016 and December 27, 2015. The use of this fiscal year means a 53rd week is added to the fiscal year every 5 or 6 years.

Goodwill and Other Intangible Assets:Goodwill and other intangible assets with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually or more frequently if indicators arise. Intangible assets that are not deemed to have indefinite lives are amortized over their useful lives, but are also reviewed for impairment annually or more frequently if indications arise. No impairment has been identified as of December 25, 2016 and December 27, 2015.

Franchise rights are amortized over the remaining lives of the agreements at the date of acquisition in December 2011. The weighted average amortization period is 64 months. Amortization expense for the year ended December 27, 2015 was approximately $10,000 and the rights were fully amortized as of December 27, 2015.

Revenue Recognition:The Company recognizes revenues from franchise sales upon commencement of operations by a franchisee. Franchise fee revenue from sales of individual franchises is recognized upon completion of training and the actual opening of a location. Typically, franchise fees are $50,000 for each domestic location and are collected 50% upon signing a deposit agreement and 50% at the signing of a lease and related franchise agreement. International franchise fees are typically $65,000 for each location, and are payable 100% upon signing a deposit agreement. The Company typically charges a $25,000 co-brand conversion fee.

The franchise fee may be adjusted at management’s discretion or in a situation involving store transfers. Deposits are non-refundable upon acceptance of the franchise application. These deposits are recorded as deferred income – current and noncurrent based upon the expected franchise restaurant opening dates. The Company acknowledges some of its franchisees have not compiled with their development timelines for opening franchise stores. These franchise rights are terminated and franchise fee revenue is recognized for non-refundable deposits.

In addition to franchise fee revenue, the Company collects a royalty calculated as a percentage of net sales from its franchisees. Royalties are recognized as revenue when the related sales are made by the franchisees.

During 2008 and 2009, the Company received a total of $500,000 from a franchisee of three restaurants in exchange for an exclusive area agreement for ten counties in the state of Georgia and reduced service fees for the franchisee’s restaurants for a ten-year period. The franchisee is required to open four new franchise restaurants in the exclusive territory during the ten-year term of the agreement.

Segment information:The Company owns international and domestic licensed operations. Our chief operating decision maker (“CODM”) is our Chief Executive Officer; our CODM reviews financial performance and allocates resources at an overall level on a recurring basis. Therefore, Management has determined that the Company has one operating segment and one reportable segment.

Note 2. Summary of significant accounting policies (Continued)

Revenue Recognition (continued):The deferred fee is being amortized into income ratably over the ten-year term. Service fee revenues recognized in 2016 and 2015 pursuant to the agreement were $48,500 each year. As of December 25, 2016 and December 27, 2015, there remained deferred fees of approximately $80,800 and $129,300, respectively, relating to the exclusive area agreement.

Advertising:The Company generally requires advertising payments of 2.0% of net sales from Buffalo’s Southwest Café restaurants. Co-branded restaurants generally pay 0.20% to 1.95%. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Since the Company acts in a fiduciary role to collect and disburse these advertising funds, no revenue or expense is recorded.

Advertising funds are segregated from other Company assets and the balance of the Buffalo’s Creative and Advertising Fund is recorded as an asset by the Company with the offsetting advertising obligation recorded as a liability, Buffalo’s Creative and Advertising Fund - Contra.

Income Taxes:The Company accounts for income taxes using the asset and liability approach. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred taxes are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate.

Estimates:The preparation of financial statements in accordance with GAAP requires the use of estimates in determining assets, liabilities, revenues and expenses. Actual results may differ from those estimates.

Recently Issued Accounting Standards:In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU 2015-04, which defers the effective date of ASU 2014-09 by one year, making it effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements.

Recently Issued Accounting Standards (continued):In February 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. This ASU is effective for interim and annual period beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company does not currently have any leases that will have an impact on the consolidated financial statements or disclosures as a result of the adoption of this ASU.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how transactions are classified in the statement of cash flows. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

Note 3. Related party transactions

The Company has made cumulative advances to affiliated entities under the common control of the Parent in the amount of $2,492,543 and $1,946,744 as of December 25, 2016 and December 27, 2015, respectively. These advances are expected to be recovered through repayment for the use of the Parent’s tax net operating losses, and to a lesser extent from proceeds generated by the affiliates operations and investments.

Effective in 2013, the Parent’s operations were structured in such a way that significant direct and indirect administrative functions were provided to the Company. These services include operational personnel to sell franchise rights, assist with training franchisees and assisting franchisees with opening restaurants. The Parent also provides executive administration and accounting services for the Company. Expenses are allocated based on an estimate of management’s time spent on the activities of the Parent and its subsidiaries, and further allocated among the subsidiaries pro rata based on each subsidiary’s respective revenues as a percentage of overall revenues of the subsidiaries. The Company believes that the allocation of expenses is not materially different from what it would have been if the Company was a stand-alone entity. These expenses were approximately $294,000 and $240,000, for the years ended December 25, 2016 and December 27, 2015, respectively and were reimbursed to the Parent in cash.

During the years ended December 25, 2016 and December 27, 2015, the Company recorded obligations to the Parent in the amount of $243,673 and $238,491 for use of the Parent’s net operating losses for tax purposes, respectively.

As of December 25, 2016, and December 27, 2015, one Buffalo’s Southwest Café was operated by a relative of an officer. Royalty fees from this related party in 2016 and 2015 were approximately $64,000 and $68,000, respectively.

During the years ended December 25, 2016 and December 27, 2015, the Company declared and paid dividends in the amount of $200,000 and $400,000, respectively.

Note 4. Income taxes

The Company files its Federal and most state income tax returns on a consolidated basis with the Parent. For financial reporting purposes, the Company calculates its tax provision as if the Company files its tax returns on a stand-alone basis. The taxes payable to the Parent determined by this calculation of $243,673 and $238,491 were offset against the balances due from affiliates as of December 25, 2016 and December 27, 2015, respectively. As of December 25, 2016, the Parent has estimated aggregate federal net operating loss carry forwards of $71,370,000 to offset future federal taxable income generated by the Parent and its subsidiaries, including the Company. These carryforwards begin to expire in 2018.

Deferred taxes reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for calculating taxes payable on a stand-alone basis.

Significant components of the Company’s net deferred tax assets are as follows:

  December 25, 2016  December 27, 2015 
Net deferred tax assets        
Deferred franchise fees $250,044  $322,294 
Deferred royalties  27,483   43,973 
Reserve  (27,483)  (43,973)
Total $250,044  $322,294 

Components of the income tax provision are as follows for the years ended:

  December 25, 2016  December 27, 2015 
Current        
Federal $243,673  $238,491 
State  —   — 
Foreign  2,323   17,511 
   245,996   256,002 
Deferred        
Federal  72,250   272,315 
State  —   — 
   72,250   272,315 
Total income tax expense $318,246  $528,317 

A reconciliation of the statutory income tax rate to the effective tax rate is as follows:

  December 25, 2016  December 27, 2015 
       
Statutory rate  34%  34%
Foreign withholding taxes  —   1 
Effect of differences in estimated tax rates  (1)  3 
Effective tax rate  33%  38%

As of December 25, 2016, the Company’s annual tax filings for the prior three years are open for audit by Federal and for the prior four years for state tax agencies. Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of December 25, 2016 and December 27, 2015.

Note 5. Buffalo’s creative and advertising fund

Under the terms of its franchise agreements, the Company collects fees for creative development and advertising from its franchisees based on percentages of sales as outlined in franchise agreements. The Company is to oversee all advertising and promotional programs and is to have sole discretion over expenditures from the fund.

During the years ended December 25, 2016 and December 27, 2015, the Company collected advertising fees and vender contributions of approximately $559,000 and $569,000, respectively. Advertising expenditures for the years 2016 and 2015 totaled approximately $392,000 and $591,000, respectively. The accompanying consolidated financial statements reflect the year-end balance of the advertising fund and the related advertising obligation, which were approximately $191,000 and $24,000 as of December 25, 2016 and December 27, 2015, respectively.

Note 6. commitments AND CONTINGENCIES

Litigation:Periodically, the Company is involved in litigation in the normal course of business. The Company believes that the result of any potential litigation will not have a material adverse effect on the Company’s financial condition.

Operating Leases:The Company entered into an office lease on March 1, 2012 with an unrelated entity. The lease had a one year term with multiple twelve month extensions, and terminated on June 30, 2016.

Total rent expense under operating leases for the years ended December 25, 2016 and December 27, 2015 was approximately $5,000 and $18,000, respectively.

Note 7. Retirement plan

The Company has a profit sharing plan (the Plan) with a 401(k) feature covering substantially all employees. There were no contributions made by the Company under the Plan for 2016 and 2015.

Note 8. geographic location and major franchisees

Revenues by geographic area are as follows:

  Year Ended  Year Ended 
  December 25, 2016  December 27, 2015 
       
United States $1,083,692  $1,116,243 
Other countries  520,218   907,173 
Total revenues $1,603,910  $2,023,416 

Revenues are shown based on the geographic location of our licensees. All of our assets are located in the United States.

During the year ended December 25, 2016, three franchisees each accounted for more than 10% of the Company’s revenues, with total revenues of $345,759, $236,843 and $219,000. During the year ended December 25, 2016, three franchisees each accounted for more than 10% of the Company’s revenues, with total revenues of $470,000, $231,641 and $222,253.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FAT BRANDS INC.
By:/s/ Andrew A. Wiederhorn
Andrew A. Wiederhorn
Chief Executive Officer

The undersigned directors and officers of FAT Brands Inc. do hereby constitute and appoint Andrew A. Wiederhorn and Ron Roe,Kenneth J. Kuick, and each of them, with full power of substitution and resubstitution, as their true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney and agent, may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto, and we do hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

DATE
DATENAME AND TITLE
April 2, 2018 February 24, 2023/s/ Andrew A. Wiederhorn
Andrew A. Wiederhorn
Chief Executive Officer and Director (Principal Executive Officer)
 April 2, 2018February 24, 2023/s/ Ron RoeKenneth J. Kuick
Ron RoeKenneth J. Kuick
Chief Financial Officer (Principal Financial and Accounting Officer)
 April 2, 2018February 24, 2023/s/ Edward Rensi
Edward Rensi, Chairman of the BoardDirector
 April 2, 2018February 24, 2023/s/ Marc L. HoltzmanKenneth J. Anderson
Marc L. Holtzman,Kenneth J. Anderson, Director
 April 2, 2018February 24, 2023/s/ Squire JungerLynne Collier
Squire Junger,Lynne Collier, Director
 April 2, 2018February 24, 2023/s/ Silvia KesselAmy V. Forrestal
Silvia Kessel,Amy V. Forrestal, Director
 April 2, 2018February 24, 2023/s/ Jeff Lotman
Jeff Lotman, Director
 April 2, 2018/s/ James Neuhauser
James Neuhauser, DirectorExecutive Chairman

EXHIBITS

Exhibit   Incorporated By Reference to Filed

Number

 Description Form Exhibit Filing Date 

Herewith

3.1 Amended and Restated Certificate of Incorporation of the Company, effective October 19, 2017. 10-Q 3.1 12/04/2017  
3.2 Bylawsof the Company, effective May 21, 2017 1-A 3.2 

09/27/2017

  
4.1 Common Stock Purchase Warrant, dated October 20, 2017, issued to Tripoint Global Equities, LLC. 10-Q 4.1 12/04/2017  
10.1 Contribution Agreement, dated October 20, 2017, between the Company and Fog Cutter Capital Group Inc. 10-Q 10.1 12/04/2017  
10.2 Tax Sharing Agreement, dated October 20, 2017, between the Company and Fog Cutter Capital Group Inc. 10-Q 10.2 12/04/2017  
10.3 Voting Agreement, dated October 20, 2017, between the Company and Fog Cutter Capital Group Inc. 10-Q 10.3 12/04/2017  
10.4 Promissory Note, dated October 20, 2017, issued by the Company to Fog Cutter Capital Group Inc. 10-Q 10.4 12/04/2017  
10.5 Intercompany Promissory Note, dated October 20, 2017, issued by Fog Cutter Capital Group Inc. to the Company. 10-Q 10.5 12/04/2017  
10.6 Form of Indemnification Agreement, dated October 20, 2017, between the Company and each director and executive officer. 1-A 6.3 09/06/2017  
10.7 Selling Agency Agreement, dated October 20, 2017, between the Company and Tripoint Global Equities, LLC. 1-A 1.1 10/03/2017  
10.8 Membership Interest Purchase Agreement (Hurricane AMT, LLC), dated November 14, 2017, between the Company and Gama Group LLC, Salient Point Trust, Satovsky Enterprises, LLC, Mapes Holdings LLC and Martin O’Dowd. 8-K 2.1 11/17/2017  
10.9 2017Omnibus Equity Incentive Plan 1-A 6.1 09/27/2017  
10.10 Office Lease, dated November 10, 2016,by and among Duesenberg Investment Company, LLC, Fatburger North America, Inc., Fog Cutter Capital Group Inc., and Fatburger Corporation 1-A 6.2 

09/06/2017

  
11.1 Computation of Loss Per Common Share       X
21.1 Significant Subsidiaries       X
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

52

Table of Contents
EXHIBIT INDEX
Exhibit NumberDescriptionIncorporated By Reference to
Filed
Herewith
FormExhibitFiling Date
3.18-K3.108/19/2021
3.28-K3.108/30/2021
3.38-K3.109/16/2021
3.48-K3.110/28/2021
3.58-K3.112/23/2022
3.6X
4.18-K10.107/16/2020
4.210-Q4.108/15/2018
4.310-Q4.208/15/2018
4.48-K4.107/10/2018
4.58-K4.207/10/2018
4.68-K4.104/26/2021
4.78-K4.204/26/2021
4.88-K4.210/25/2022
4.98-K4.107/26/2021
53

Table of Contents
4.108-K4.207/26/2021
4.118-K4.201/31/2023
4.128-K4.110/06/2021
4.138-K4.210/06/2021
4.148-K4.112/16/2021
4.158-K4.212/16/2021
4.16X
10.11-A6.309/06/2017
10.2*
Schedule 14A
(proxy statement)
Appendix A09/09/2021
10.3*
Schedule 14A
(proxy statement)
Appendix B11/28/2022
10.410-K10.1204/28/2020
10.58-K10.204/26/2021
10.68-K10.207/26/2021
54

Table of Contents
10.78-K10.210/06/2021
10.88-K10.212/16/2021
10.98-K10.312/16/2021
10.108-K10.104/26/2021
10.118-K10.107/26/2021
10.128-K10.110/06/2021
10.138-K10.112/16/2021
10.148-K10.307/26/2021
10.158-K10.310/06/2021
10.168-K10.110/25/2022
10.17*8-K10.111/24/2021
10.18*8-K10.104/05/2022
10.198-K10.111/14/2022
21.1X
23.1X
31.1X
55

Table of Contents
31.2X
32.1X
101.INSXBRL Instance DocumentX
(Furnished)
101.SCHXBRL Taxonomy Extension Schema DocumentX
(Furnished)
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
(Furnished)
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
(Furnished)
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
(Furnished)
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX
(Furnished)
•Indicates management contract or compensatory plan or arrangement.
56