As of November ~~12, 2020,~~3, 2021, there were ~~11,926,264~~15,077,498 shares of Class A common stock and 1,270,805 shares of Class B common stock outstanding.

FAT BRANDS INC.

QUARTERLY REPORT ON FORM 10-Q

September ~~27, 2020~~

26, 2021

TABLE OF CONTENTS

~~PART I.~~	~~FINANCIAL INFORMATION~~	3
PART I.			FINANCIAL INFORMATION	4
Item 1.			Condensed Consolidated Financial Statements (Unaudited)	3 4

			FAT Brands Inc. and Subsidiaries:
			Condensed Consolidated Balance Sheets (Unaudited)	3 4
			Condensed Consolidated Statements of Operations (Unaudited)	4 6
			Condensed Consolidated Statements of Changes in Stockholders’ ~~Equity~~Deficit (Unaudited)	5 7
			Condensed Consolidated Statements of Cash Flows (Unaudited)	7 11
			Notes to Condensed Consolidated Financial Statements (Unaudited)	8 13

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	35 34
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	45 43
Item 4.			Controls and Procedures	45 43

PART II.			OTHER INFORMATION	46 44
Item 1.			Legal Proceedings	46 44
Item 1A.			Risk Factors	47 44
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	47 45
Item 3.			Defaults Upon Senior Securities	47 45
Item 4.			Mine Safety Disclosures	47 45
Item 5.			Other Information	47 45
Item 6.			Exhibits	48 45

SIGNATURES				49

247

Table of Con tents

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FAT BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

September 27, 2020 December 29, 2019
(Unaudited) (Audited)
Assets
Current assets
Cash $ 12,110 $ 25
Restricted cash 1,758 -
Accounts receivable, net of allowance for doubtful accounts of $670 and $595, as of September 27, 2020 and December 29, 2019, respectively 4,453 4,144
Trade and other notes receivable, net of allowance for doubtful accounts of $0 and $37 as of September 27, 2020 and December 29, 2019, respectively 206 262
Assets classified as held for sale 11,048 5,128
Other current assets 1,611 929
Total current assets 31,186 10,488

Noncurrent restricted cash 400 -
Notes receivable – noncurrent, net of allowance for doubtful accounts of $0 and $112, as of September 27, 2020 and December 29, 2019, respectively 1,604 1,802
Due from affiliates 38,732 25,967
Deferred income tax asset, net - 2,032
Operating lease right of use assets 4,708 860
Goodwill 19,141 10,912
Other intangible assets, net 52,959 29,734
Other assets 863 755
Total assets $ 149,593 $ 82,550

Liabilities and Stockholders’ Equity
Liabilities
Current liabilities
Accounts payable $ 8,159 $ 7,183
Accrued expenses 8,373 6,013
Deferred income, current portion 1,812 895
Accrued advertising 271 762
Accrued interest payable 864 1,268
Dividend payable on preferred shares (includes amounts due to related parties of $8 and $149 as of September 27, 2020 and December 29, 2019, respectively) 272 1,422
Liabilities related to assets classified as held for sale 9,959 3,325
Current portion of operating lease liability 585 241
Current portion of long-term debt 1,571 24,502
Total current liabilities 31,866 45,611

Deferred income – noncurrent 8,872 5,247
Acquisition purchase price payable 2,704 4,504
Preferred shares, net 7,945 15,327
Deferred dividend payable on preferred shares (includes amounts due to related parties of $0 and $99 as of September 27, 2020 and December 29, 2019, respectively) 418 628
Deferred income tax liability, net 2,367 -
Operating lease liability, net of current portion 4,298 639
Long-term debt, net of current portion 78,440 5,216
Other liabilities 201 -
Total liabilities 137,111 77,172

Commitments and contingencies (Note 17)

Stockholders’ equity
Preferred stock, $.0001 par value; 5,000,000 shares authorized; 663,127 and 0 shares issued and outstanding at September 27, 2020 and December 29, 2019, respectively 13,041 -
Common stock, $.0001 par value; 25,000,000 shares authorized; 11,926,264 and 11,860,299 shares issued and outstanding at September 27, 2020 and December 29, 2019, respectively 12,666 11,414
Accumulated deficit (13,225 ) (6,036 )
Total stockholders’ equity 12,482 5,378
Total liabilities and stockholders’ equity $ 149,593 $ 82,550


	September 26, 2021		December 27, 2020
	Unaudited
Assets
Current assets
Cash	$	23,565	$	3,944
Restricted cash	13,557		2,867
Accounts receivable, net of allowance for doubtful accounts of $2,208 and $739, as of September 26, 2021 and December 27, 2020, respectively	14,255		4,208
Trade and other notes receivable, net of allowance for doubtful accounts of $103 as of September 26, 2021 and December 27, 2020	224		208
Assets classified as held for sale	5,591		10,831
Other current assets	6,290		2,365
Total current assets	63,482		24,423

Noncurrent restricted cash	6,406		400
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271, as of September 26, 2021 and December 27, 2020	2,054		1,622
Deferred income tax asset, net	15,069		30,551
Operating lease right of use assets	12,604		4,469
Goodwill	185,861		10,909
Other intangible assets, net	322,688		47,711
Property and equipment, net	10,227		483
Other assets	1,417		576
Total assets	$	619,808	$	121,144

Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable	$	12,859	$	8,625
Accrued expenses and other liabilities	25,646		19,833
Deferred income, current portion	1,746		1,887
Accrued advertising	6,012		2,160
Accrued interest payable	5,644		1,847
Dividend payable on preferred shares	16		893
Liabilities related to assets classified as held for sale	4,906		9,892
Current portion of operating lease liability	4,784		748
Current portion of preferred shares, net	—		7,961
Current portion of long-term debt	605		19,314
Other	—		17
Total current liabilities	62,218		73,177

Table of Con tents



Deferred income – noncurrent	11,354		9,099
Acquisition purchase price payable	800		2,806
Operating lease liability, net of current portion	10,858		4,011
Long-term debt, net of current portion	485,470		73,852
Other liabilities	1,117		82
Total liabilities	571,817		163,027

Commitments and contingencies (Note 19)	0		0

Redeemable preferred stock	66,810		—

Stockholders’ deficit
Preferred stock, $0.0001 par value; 15,000,000 and 5,000,000 shares authorized; 1,643,272 and 1,183,272 shares issued and outstanding at September 26, 2021 and December 27, 2020, respectively; liquidation preference $25 per share	37,908		21,788
Class A and Class B common stock and additional paid-in capital as of September 26, 2021: $0.0001 par value per share: 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,283,684 shares issued and outstanding (Class A 15,013,001, Class B 1,270,683). Common stock and additional paid-in capital as of December 27, 2020: $0.0001 par value; 25,000,000 shares authorized; 11,926,264 shares issued and outstanding.	(23,931)		(42,775)
Accumulated deficit	(32,875)		(20,896)
Stockholders’ deficit attributable to FAT Brands Inc.	(18,898)		(41,883)
Noncontrolling interests	79		—
Total stockholders’ deficit	(18,819)		(41,883)
Total liabilities and stockholders’ deficit	$	619,808	$	121,144

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

Table of Contents

FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

For the ~~thirteen~~Thirteen and ~~thirty-nine weeks ended~~Thirty-nine Weeks Ended September 26, 2021 and September 27, 2020 ~~and September 29, 2019~~ (Unaudited)

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Revenue
Royalties $ 3,156 $ 3,937 $ 8,678 $ 11,064
Franchise fees 122 1,272 571 2,578
Store opening fees - 109 - 398
Advertising fees 803 1,151 2,347 3,159
Management fees and other income 8 15 23 54
Total revenue 4,089 6,484 11,619 17,253

Costs and expenses
General and administrative expense 2,990 3,422 10,626 9,242
Impairment of assets 753 - 3,927 -
Refranchising loss (gain) 325 (902 ) 1,869 (851 )
Advertising expense 814 1,151 2,358 3,159
Total costs and expenses 4,882 3,671 18,780 11,550

(Loss) income from operations (793 ) 2,813 (7,161 ) 5,703

Other income (expense), net
Interest expense, net (123 ) (1,544 ) (2,034 ) (4,064 )
Interest expense related to preferred shares (323 ) (431 ) (1,251 ) (1,293 )
Change in fair value-derivative liability (374 ) - 887 -
Loss on extinguishment of debt (88 ) - (88 ) -
Gain on contingent consideration payable adjustment 1,680 - 1,680 -
Other expense, net (566 ) (56 ) (627 ) (157 )
Total other income (expense), net 206 (2,031 ) (1,433 ) (5,514 )

(Loss) income before income tax (benefit) expense (587 ) 782 (8,594 ) 189

Income tax (benefit) expense (19 ) (372 ) (1,405 ) 253

Net (loss) income $ (568 ) $ 1,154 $ (7,189 ) $ (64 )

Basic and diluted (loss) income per common share $ (0.05 ) $ 0.10 $ (0.60 ) $ (0.01 )
Basic and diluted weighted average shares outstanding 11,910,719 11,827,706 11,888,618 11,568,560

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020
Revenue
Royalties $ 13,742 $ 3,156 $ 24,800 $ 8,678
Franchise fees 1,087 122 2,109 571
Advertising fees 5,483 803 8,043 2,347
Restaurant sales 3,879 — 4,113 —
Factory revenue 5,480 — 5,480 —
Management fees and other income 90 8 148 23
Total revenue 29,761 4,089 44,693 11,619
Costs and expenses
General and administrative expense 12,966 2,990 23,375 10,626
Restaurant operating expenses 3,660 — 3,904 —
Factory operating expenses 3,473 — 3,473 —
Impairment of assets — 753 — 3,927
Refranchising (gain) loss (250) 325 (679) 1,869
Acquisition costs 2,053 503 2,985 633
Advertising expense 5,483 814 8,043 2,358
Total costs and expenses 27,385 5,385 41,101 19,413
Income (loss) from operations 2,376 (1,296) 3,592 (7,794)
Other income (expense), net
Interest expense, net of interest income of $836 and $1,554 due from affiliates during the thirteen and thirty-nine weeks ended September 27, 2020, respectively. There was no interest income earned from affiliates in 2021. (7,072) (123) (11,939) (2,034)
Interest expense related to preferred shares (173) (323) (725) (1,251)
Net loss on extinguishment of debt (13) (88) (6,418) (88)
Change in fair value of derivative liability — (374) — 887
Gain on contingent consideration payable adjustment — 1,680 — 1,680
Other income (expense), net 64 (63) 189 6
Total other (expense) income, net (7,194) 709 (18,893) (800)
Loss before income tax expense (4,818) (587) (15,301) (8,594)
Income tax benefit (1,183) (19) (3,303) (1,405)
Net loss (3,635) (568) (11,998) (7,189)
Less: Net loss attributable to noncontrolling interest (14) — (19) —
Net loss attributable to FAT Brands Inc. $ (3,621) $ (568) $ (11,979) $ (7,189)
Basic and diluted loss per common share $ (0.26) $ (0.04) $ (0.85) $ (0.55)
Basic and diluted weighted average shares outstanding 14,144,857 13,101,791 14,094,772 13,077,480
Cash dividends declared per common share $ 0.13 $ — $ 0.39 $ —

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

Table of Con tents

FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ ~~EQUITY~~

DEFICIT

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

~~Unaudited~~

data, unaudited)

For the ~~thirty-nine weeks ended~~Thirty-nine Weeks Ended September 26, 2021


	Common Stock										Preferred Stock
	Class A Shares	Class B Shares	Class A par value		Class B par value		Additional paid-in capital		Total Common Stock		Shares	Par value		Additional paid-in capital		Total Preferred Stock		Non- controlling interest		Accum- ulated deficit		Total

Balance at December 27, 2020– audited	11,926,264	—	$	1	$	—	$	(42,776)	$	(42,775)	1,183,272	$	—	$	21,788	$	21,788	$	—	$	(20,896)	$	(41,883)
Net loss	—	—	—		—		—		—		—	—		—		—		(19)		(11,979)		(11,998)
Issuance of common stock through exercise of warrants	464,643	—	—		—		1,799		1,799		—	—		394		394		—		—		2,193
Issuance of preferred stock	—	—	—		—		—		—		460,000	—		8,246		8246		—		—		8,246
Share-based compensation	300,000	—	—		—		488		488		—	—		—		—		—		—		488
Measurement period adjustment in accordance with ASU 2015-16	—	—	—		—		(1,381)		(1,381)		—	—		—		—		—		—		(1,381)
Stock contracted for issue in payment of debt	62,500	—	—		—		816		816		—	—		—		—		—		—		816
Sale of interest in operating restaurant	—	—	—		—		651		651		—	—		—		—		98		—		749
Dividends declared on common stock	—	—	—		—		(5,313)		(5,313)		—	—		—		—		—		—		(5,313)
Dividends declared on Series B preferred stock	—	—	—		—		—		—		—	—		(2,084)		(2084)		—		—		(2,084)
Issuance of common stock in connection with acquisition of LS GFG Holdings Inc. (1)	1,964,865	—	—		—		21,809		21,809		—	—		0		—		—		—		21,809
Stock dividend of Class B Shares	294,729	1,270,683	1		—		(26)		(25)		—	—		0		—		—		—		(25)
Series A Preferred shares retired through issuance of Series B Preferred shares	—	—	—		—		—		—		—	—		9,564		9564		—		—		9,564

Balance at September 26, 2021	15,013,001	1,270,683	$	2	$	—	$	(23,933)	$	(23,931)	1,643,272	$	—	$	37,908	$	37,908	$	79	$	(32,875)	$	(18,819)


			(1)			Excludes 3,089,245 shares of preferred stock classified as redeemable preferred stock as of September 26, 2021. (See Note 15)

Table of Con tents

For the Thirty-nine Weeks Ended September 27, 2020

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

Balance at December 29, 2019 11,860,299 $ 1 $ 11,413 $ 11,414 - $ - $ - $ - $ (6,036 ) $ 5,378
Net loss - - - - - - - - (7,189 ) (7,189 )
Issuance of common stock in lieu of cash director fees payable 65,965 - 240 240 - - - - - 240
Issuance of Series B preferred stock - - - 360,000 - 6,033 6,033 - 6,033
Exchange of original Series B preferred stock for newly issued Series B preferred stock - - - - 60,677 - 1,224 1,224 - 1,224
Exchange of Series A preferred stock for newly issued Series B preferred stock - - - - 74,449 - 1,861 1,861 - 1,861
Exchange of Series A-1 preferred stock for newly issued Series B preferred stock - - - - 168,001 - 4,200 4,200 - 4,200
Share-based compensation - - 61 61 - - - - - 61
Extinguishment of derivative liability - - (887 ) (887 ) - - - - - (887 )
Grant of warrants to purchase stock - - 2,258 2,258 - - - - - 2,258
Repurchase of warrants - - (330 ) (330 ) - - - - - (330 )
Dividends declared on Series B preferred stock - - - - - - (277 ) (277 ) - (277 )
Correction of recorded conversion rights associated with Series A-1 preferred shares - - (90 ) (90 ) - - - - - (90 )

Balance at September 27, 2020 11,926,264 $ 1 $ 12,665 $ 12,666 663,127 $ - $ 13,041 $ 13,041 $ (13,225 ) $ 12,482


	Common Stock											Preferred Stock
	Class A Shares	Class B Shares		Class A par value		Class B par value		Additional paid-in capital		Total Common Stock		Shares	Par value		Additional paid-in capital		Total Preferred Stock		Non- controlling interest		Accum- ulated deficit		Total

Balance at December 29, 2019- audited	11,860,299	—		$	1	$	—	$	11,413	$	11,414	—	$	—	$	—	$	—	$	—	$	(6,036)	$	5,378
Net loss	—	—		—		—		—		—		—	—		—		—		—		(7,189)		(7,189)
Issuance of common stock in lieu of cash directors’ fees payable	65,965	—		—		—		240		240		—	—		—		—		—		—		240
Issuance of Series B preferred stock	—	—		—		—		—		—		360,000	—		6,033		6,033		—		—		6,033
Exchange of original Series B preferred stock for newly issued Series B preferred stock	—	—		—		—		—		—		60,677	—		1,224		1,224		—		—		1,224
Exchange of Series A preferred stock for newly issued Series B preferred stock	—	—		—		—		—		—		74,449	—		1,861		1,861		—		—		1,861
Exchange of Series A-1 preferred stock for newly issued Series B preferred stock	—	—		—		—		—		—		168,001	—		4,200		4,200		—		—		4,200
Share-based compensation	—	—		—		—		61		61		—	—		—		—		—		—		61
Extinguishment of derivative liability	—	—		—		—		(887)		(887)		—	—		—		—		—		—		(887)
Grant of warrants to purchase stock	—	—		—		—		2,258		2,258		—	—		—		—		—		—		2,258
Repurchase of warrants	—	—		—		—		(330)		(330)		—	—		—		—		—		—		(330)
Dividends declared on Series B preferred stock	—	—		—		—		—		—		—	—		(277)		(277)		—		—		(277)
Correction of recorded conversion rights associated with Series A-1 preferred shares	—	—		—		—		(90)		(90)		—	—		—		—		—		—		(90)

Balance at September 27, 2020	11,926,264	$	—	$	1	$	—	$	12,665	$	12,666	663,127	$	—	$	13,041	$	13,041	$	—	$	(13,225)	$	12,482

Table of Con tents

For the ~~thirty-nine weeks ended~~Thirteen Weeks Ended September ~~29, 2019~~

26, 2021


	Common Stock										Preferred Stock
	Class A Shares	Class B Shares	Class A par value		Class B par value		Additional paid-in capital		Total Common Stock		Shares	Par value		Additional paid-in capital		Total Preferred Stock		Non- controlling interest		Accum- ulated deficit		Total

Balance at June 27, 2021	12,491,528	—	$	1	$	—	$	(45,087)	$	(45,086)	1,643,272	$	—	$	29,092	$	29,092	$	93	$	(29,254)	$	(45,155)
Net loss	—	—	—		—		—		$	—	—	—		—		—		(14)		(3,621)		(3,635)
Issuance of common stock through exercise of warrants	199,379	—	—		—		659		659		—	—		151		151		—		—		810
Issuance of preferred stock	—	—	—		—				—		—	—		(35)		(35)		—		—		(35)
Share-based compensation	—	—	—		—		258		258		—	—		—		—		—		—		258
Measurement period adjustment in accordance with ASU 2015-16	—	—	—		—		70		70		—	—		—		—		—		—		70
Stock contracted for issue in payment of debt	62,500	—	—		—		—		—		—	—		—		—		—		—		—
Sale of interest in operating restaurant	—	—	—		—		500		500		—	—		—		—		—		—		500
Dividends declared on common stock	—	—	—		—		(2,116)		(2,116)		—	—		—		—		—		—		(2,116)
Dividends declared on Series B preferred stock	—	—	—		—		—		—		—	—		(864)		(864)		—		—		(864)
Issuance of common stock in connection with acquisition of LS GFG Holdings Inc. (1)	1,964,865	—	—		—		21,809		21,809		—	—		—		—		—		—		21,809
Stock dividend of Class B Shares	294,729	1,270,683	1		—		(26)		(25)		—	—		—		—		—		—		(25)
Series A Preferred shares retired through issuance of Series B Preferred shares	—	—	—		—		—		—		—	—		9,564		9,564		—		—		9,564

Balance at September 26, 2021	15,013,001	1,270,683	$	2	$	—	$	(23,933)	$	(23,931)	1,643,272	$	—	$	37,908	$	37,908	$	79	$	(32,875)	$	(18,819)

5
			(1)			Excludes 3,089,245 shares of preferred stock classified as redeemable preferred stock as of September 26, 2021. (See Note 15)

Table of Con tents

For the ~~thirteen weeks ended~~Thirteen Weeks Ended September 27, 2020

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

Balance at June 28, 2020 11,894,895 $ 1 $ 9,068 $ 9,069 - $ - $ - $ - $ (12,657 ) $ (3,588 )
Net loss - - - - - - - - (568 ) (568 )
Issuance of common stock in lieu of cash directors fees payable 31,369 - 105 105 - - - - - 105
Issuance of Series B preferred stock - - - - 360,000 - 6,033 6,033 - 6,033
Exchange of original Series B preferred stock for newly issued Series B preferred stock - - - - 60,677 - 1,224 1,224 - 1,224
Exchange of Series A preferred stock for newly issued Series B preferred stock - - - - 74,449 - 1,861 1,861 - 1,861
Exchange of Series A-1 preferred stock for newly issued Series B preferred stock - - - - 168,001 - 4,200 4,200 - 4,200
Share-based compensation - - 45 45 - - - - - 45
Extinguishment of derivative liability - - 1,516 1,516 - - - - - 1,516
Grant of warrants to purchase stock - - 2,261 2,261 - - - - - 2,261
Repurchase of warrants - - (330 ) (330 ) - - - - - (330 )
Dividends declared on Series B preferred stock - - - - - - (277 ) (277 ) - (277 )

Balance at September 27, 2020 11,926,264 $ 1 $ 12,665 $ 12,666 663,127 $ - $ 13,041 $ 13,041 $ (13,225 ) $ 12,482

~~For the thirteen weeks ended September 29, 2019~~


	Common Stock										Preferred Stock
	Class A Shares	Class B Shares	Class A par value		Class B par value		Additional paid-in capital		Total Common Stock		Shares	Par value		Additional paid-in capital		Total Preferred Stock		Non- controlling interest		Accum- ulated deficit		Total

Balance at June 28, 2020	11,894,895	—	$	1	$	—	$	9,068	$	9,069	—	$	—	$	—	$	—	$	—	$	(12,657)	$	(3,588)
Net loss	—	—	—		—		—		—		—	—		—		—		—		(568)		(568)
Issuance of common stock in lieu of cash directors’ fees payable	31,369	—	—		—		105		105		—	—		—		—		—		—		105
Issuance of Series B preferred stock	—	—	—		—		—		—		360,000	—		6,033		6,033		—		—		6,033
Exchange of original Series B preferred stock for newly issued Series B preferred stock	—	—	—		—		—		—		60,677	—		1,224		1,224		—		—		1,224
Exchange of Series A preferred stock for newly issued Series B preferred stock	—	—	—		—		—		—		74,449	—		1,861		1,861		—		—		1,861
Exchange of Series A-1 preferred stock for newly issued Series B preferred stock	—	—	—		—		—		—		168,001	—		4,200		4,200		—		—		4,200
Share-based compensation	—	—	—		—		45		45		—	—		—		—		—		—		45
Extinguishment of derivative liability	—	—	—		—		1,516		1,516		—	—		—		—		—		—		1,516
Grant of warrants to purchase stock	—	—	—		—		2,261		2,261		—	—		—		—		—		—		2,261
Repurchase of warrants	—	—	—		—		(330)		(330)		—	—		—		—		—		—		(330)
Dividends declared on Series B preferred stock	—	—	—		—		—		—		—	—		(277)		(277)		—		—		(277)

Balance at September 27, 2020	11,926,264	—	$	1	$	—	$	12,665	$	12,666	663,127	$	—	$	13,041	$	13,041	$	—	$	(13,225)	$	12,482

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

Table of Con tents

FAT BRANDS INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF CASH FLOWS

(dollars in ~~thousands)~~

thousands, unaudited)

For the ~~thirty-nine weeks ended~~Thirty-nine Weeks Ended September 26, 2021 and September 27, 2020 ~~and September 29, 2019 (Unaudited)~~

Thirty-nine Weeks Ended
September 27, 2020 September 29, 2019
Cash flows from operating activities
Net loss $ (7,189 ) $ (64 )
Adjustments to reconcile net loss to net cash (used in) provided by operations:
Deferred income taxes (1,633 ) 77
Depreciation and amortization 763 535
Share-based compensation 61 218
Accretion of loan fees and interest 589 1,718
Change in operating lease right of use assets 750 510
Loss on extinguishment of debt 88 -
Gain on contingent consideration payable adjustment (1,680 ) -
Net loss (gain) on disposition of refranchising restaurants 55 (2,249 )
Accretion of preferred shares 47 48
Accretion of purchase price liability 381 426
Impairment of assets 3,927 -
Change in fair value of derivative liability (887 ) -
Provision for (recovery of) bad debts 900 (91 )
Change in operating assets and liabilities:
Accounts receivable 130 (731 )
Trade and other notes receivable - 21
Prepaid expenses and other current assets (295 ) 59
Accounts payable 312 2,863
Accrued expenses (87 ) 512
Accrued advertising (382 ) 80
Accrued interest receivable from affiliate (2,613 ) (1,332 )
Tax Sharing Agreement liability (158 ) (30 )
Accrued interest payable (404 ) (941 )
Deferred income (446 ) (2,129 )
Dividend payable on preferred shares (809 ) 992
Other 74 (281 )
Total adjustments (1,317 ) 275
Net cash (used in) provided by operating activities (8,506 ) 211

Cash flows from investing activities
Additions to property and equipment (239 ) (49 )
Payments received on loans receivable 69 -
Proceeds from disposition of refranchised restaurants 1,093 1,710
Change in due from affiliates (10,103 ) (6,009 )
Acquisition of subsidiary, net of cash acquired (23,944 ) (2,332 )
Net cash used in investing activities (33,124 ) (6,680 )

Cash flows from financing activities
Proceeds from borrowings and associated warrants, net of issuance costs 74,045 23,022
Repayments of borrowings (24,224 ) (16,500 )
Proceeds from preferred stock offering and associated warrants, net of issuance costs 8,021 -
Payments made on acquisition purchase price liability (500 ) -
Redemption of preferred stock (500 ) -
Dividends paid in cash (175 ) (2 )
Repurchase of warrants (330 ) -
Change in operating lease liabilities (464 ) (287 )
Other - (106 )
Net cash provided by financing activities 55,873 6,127

Net increase (decrease) in cash and restricted cash 14,243 (342 )
Cash and restricted cash at beginning of period 25 653
Cash and restricted cash at end of period $ 14,268 $ 311

Supplemental disclosures of cash flow information:
Cash paid for interest $ 5,420 $ 4,576
Cash paid for income taxes $ 84 $ 190

Supplemental disclosure of non-cash financing and investing activities:
Issuance of preferred stock in lieu of cash preferred dividends payable $ 450 $ -
Issuance of common stock in lieu of cash director fees payable $ 240 $ 270
Income taxes receivable to adjust amounts due from affiliates $ (158 ) $ 30


	2021		2020
Cash flows from operating activities
Net loss	$	(11,998)	$	(7,189)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes	(3,384)		(1,633)
Net loss on extinguishment of debt	4,872		88
Depreciation and amortization	3,161		763
Share-based compensation	488		61
Change in operating right of use assets	1,662		750
Accretion of loan fees and interest	1,249		589
Accretion of preferred shares	26		47
Accretion of purchase price liability	72		381
Gain on sale of refranchised assets	(869)		55
Change in fair value of derivative liability	—		(887)
Impairment of assets	—		3,927
Provision for bad debts	225		900
Gain on adjustment of contingent consideration payable	—		(1,680)
Change in:
Accounts receivable	(3,023)		130
Accrued interest receivable from affiliate	—		(2,613)
Tax Sharing Agreement liability	—		(158)
Other current assets	(768)		(295)
Deferred income	1,244		(446)
Accounts payable	1,646		312
Accrued expense	(3,672)		(87)
Accrued advertising	646		(382)
Accrued interest payable	3,797		(404)
Dividend payable on preferred shares	699		(809)
Other	(79)		74
Total adjustments	7,992		(1,317)
Net cash used in operating activities	(4,006)		(8,506)

Cash flows from investing activities
Change in due from affiliates	—		(10,103)
Acquisition of subsidiary, net of cash acquired	(346,484)		(23,944)
Payments received on loans receivable	140		69
Net proceeds from sale of refranchised restaurants	1,942		1,093
Purchases of property and equipment	(1,661)		(239)
Other	(87)		—
Net cash provided by (used in) investing activities	(346,150)		(33,124)

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Cash flows from financing activities
Proceeds from borrowings, net of issuance costs	479,721		74,045
Repayments of borrowings	(93,046)		(24,224)
Issuance of preferred shares, net	8,246		8,021
Change in operating lease liabilities	(1,441)		(464)
Payments made on acquisition purchase price liability	(1,075)		(500)
Exercise of warrants	2,192		—
Repurchase of warrants	—		(330)
Redemption of preferred stock	—		(500)
Dividends paid on redeemable preferred stock	(690)		—
Dividends paid on common shares	(5,337)		—
Dividends paid on preferred shares	(2,097)		(175)
Net cash provided by financing activities	386,473		55,873

Net increase in cash and restricted cash	36,317		14,243
Cash and restricted cash at beginning of the period	7,211		25
Cash and restricted cash at end of the period	$	43,528	$	14,268

Supplemental disclosures of cash flow information:
Cash paid for interest	$	5,874	$	5,420
Cash paid for income taxes	$	639	$	84

Supplemental disclosure of non-cash financing and investing activities:
Director fees converted to common stock	$	—	$	240
Issuance of preferred stock in lieu of cash preferred dividends payable	$	—	$	450
Income taxes receivable included in amounts due from affiliates	$	—	$	(158)

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

statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Unaudited)~~

NOTE 1. ORGANIZATION AND RELATIONSHIPS

Organization and Nature of Business

FAT Brands Inc. (the ~~“Company”~~"Company" or "FAT") ~~was formed on~~is a leading multi-brand restaurant franchising company that develops, markets and acquires primarily quick-service, fast casual and casual dining restaurant concepts around the world. Organized in March ~~21,~~ 2017 as a wholly owned subsidiary of Fog Cutter Capital Group, Inc. (“FCCG”)~~. On October 20, 2017,~~, the Company completed an initial public offering on October 20, 2017 and issued additional shares of common stock representing 20 percent of its ~~ownership~~ownership. During the fourth quarter of 2020, the Company completed a transaction in which FCCG merged into a wholly owned subsidiary of FAT (the ~~“Initial Public Offering”~~“Merger”)~~. The Company’s common stock trades on~~ and FAT became the ~~Nasdaq Capital Market under the symbol “FAT.”~~ indirect parent company of FCCG.

As of September ~~27, 2020, FCCG continues to control a significant voting majority of the Company.~~

~~The Company is a multi-brand franchisor specializing in fast casual and casual dining restaurant concepts around the world. As of September 27, 2020,~~26, 2021, the Company owns and franchises ~~nine~~14 restaurant ~~brands:~~brands through various wholly owned subsidiaries: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe ~~Buffalo’s~~& Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Yalla Mediterranean, Ponderosa ~~Steakhouses,~~and Bonanza Steakhouses ~~Yalla Mediterranean and Elevation Burger.~~. Combined, ~~as of September 27, 2020,~~ these brands ~~franchise over 700~~have approximately 2,000 locations, including units ~~worldwide~~under construction, and ~~have~~ more than 200 ~~additional units~~ under development.

~~The Company~~

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

With minor exceptions, the Company’s operations are comprised exclusively of franchising a growing portfolio of restaurant brands. This growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and corporate accounting services. As part of its ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations. During the refranchising period, the Company will generally operate the restaurants and classifies the operational activities as refranchising gains or losses and the assets and associated liabilities as held-for sale.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and other countries. As a result, Company franchisees ~~have~~ temporarily closed some retail locations, modified store operating hours, adopted a “to-go” only operating model or a combination of these actions. These actions ~~have~~ reduced consumer traffic, all resulting in a negative impact to franchisee and Company ~~revenues.~~revenue. While the disruption to our business from the COVID-19 pandemic is currently expected to be temporary, there is still a great deal of uncertainty around the severity and duration of the disruption. We may experience longer-term effects on our business and economic growth and changes in consumer demand in the U.S. and worldwide. The effects of COVID-19 may materially adversely affect our business, results of operations, liquidity and ability to service our existing debt, particularly if these effects continue in place for a significant amount of time.

Liquidity

The Company recognized income from operations of $3.6 million during the thirty-nine weeks ended September 26, 2021 compared to a loss from operations of ~~$7,161,000~~$7.8 million for the thirty-nine weeks ended September 27, 2020. The Company recognized a net loss of $12.0 million during the thirty-nine weeks ended September 26, 2021 compared to a net loss of $7.2 million during the thirty-nine weeks ended September 27, ~~2020 and income from~~2020. A one-time net charge of $6.4 million relating to the refinance of the Company’s debt was included in the net loss for 2021. Net cash used in operations ~~of $5,703,000~~totaled $4.0 million for the thirty-nine weeks ended September ~~29, 2019. The Company recognized net losses of $7,189,000 and $64,000 during the~~26, 2021 compared to $8.5 million for thirty-nine weeks ended September 27, 2020. As of September 26, 2021, the Company’s total liabilities exceeded total assets by $18.8 million compared to $41.9 million as of December 27, 2020.

In the Company’s 2020 Annual Report on Form 10-K (“2020 Form 10-K”), the Company disclosed that the combination of the operating performance during the twelve months ended December 27, 2020 and ~~September 29, 2019, respectively. The reduction in earnings~~the Company’s financial position as of December 27, 2020 raised substantial doubt about the Company’s ability to continue as a going concern as assessed under the

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framework of FASB’s Accounting Standard Codification (“ASC”) 205 for ~~2020 is primarily due to reductions in revenues and impairment~~the twelve months following the date of ~~assets due to the effects of COVID-19, coupled with higher general and administrative costs.~~

On March 6, 2020, the Company completed a whole-business securitization (the “Securitization”) through the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”) in which FAT Royalty issued new notes (the “Securitization Notes”) pursuant to an indenture and the supplement thereto (collectively, the “Indenture”). Net proceeds from the issuance of the ~~Securitization Notes were $37,314,000, which consisted~~2020 Form 10-K.

On April 26, 2021, the Company completed the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured notes. Proceeds of the ~~combined face amount of $40,000,000, net of discounts and debt offering costs (See Note 10). A portion of the proceeds from the Securitization was~~Offering were used to repay ~~the remaining $26,771,000~~ in ~~outstanding debt balance under the Lion Loan and Security Agreement and to pay the Securitization debt offering costs with the remaining proceeds being used for working capital.~~

~~On September 21,~~full its 2020 ~~FAT Royalty completed the sale of an additional $40 million of Series 2020-2 Fixed Rate Asset-Backed Notes (the “Series~~ ~~M-2 Notes”), increasing the Company’s~~ Securitization Notes ~~to $80 million.~~ ~~Net proceeds from the issuance of the Series M-2 Notes were $35,241,000, which consist of the face amount of $40,000,000, net of discounts of $3,200,000 and debt offering costs of $1,559,000.~~ ~~Approximately $24,838,000~~ ~~of the proceeds from the~~ ~~Series~~ ~~M-2 Notes were used to acquire Johnny Rockets, with the~~ ~~remaining proceeds from the Securitizations are being used for working capital.~~

During the second quarter of 2020, the Company received loan proceeds in the amount of $1,532,000 from the Paycheck Protection Program administered by the Small Business Administration (“PPP”) in response to economic difficulties resulting from the outbreak of COVID-19. These loan proceeds relate to FAT Brands Inc. as well as ~~five restaurant locations that were part of~~fees and expenses related to the ~~Company’s refranchising program.~~

~~On July 13, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) to issue and sell~~Offering, resulting 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 (the “2020 Series B Warrants”) to purchase common stock at $5.00 per share. The Offering closed on July 16, 2020 with net proceeds to the Company of ~~$8,021,000,~~approximately $57.0 million (see Note 11).

The Company utilized a portion of the net proceeds from the Offering to repay approximately $12.5 million of indebtedness assumed as a result of the Merger (see Note 11). The Company has successfully completed other subsequent debt and equity transactions which ~~was net~~demonstrate its ability to raise capital for acquisitions and working capital. (See Notes 3, 11 and 12)

The change in the Company’s financial position reflects operating improvements as the effects of ~~$979,000 in underwriting and offering costs.~~

~~While~~COVID-19 began to stabilize. In addition to the liquidity provided by the successful completion of the Offering, the Company ~~expects~~has experienced improvement in its operating performance subsequent to December 27, 2020 as COVID-19 vaccinations have become more prevalent in the ~~COVID-19 pandemic to negatively impact~~United States and federal, state and local restrictions have eased in many of the markets where its ~~business, results of operations, and financial position, the related financial impact cannot be reasonably estimated at this time. However, the Company~~franchisees operate. Management believes that the working capital from the Securitization, Series B Preferred Stock Offering, and PPP proceeds, combined with royalties and franchise fees collected from the operations of its franchisees, and disciplined management of the Company’ operating expenses,Company will be in compliance with its debt covenants and has sufficient sources of cash to meet its liquidity needs for the next twelve ~~months of operations following the issuance of this Form 10-Q.~~

months.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of ~~Presentation~~

~~Nature~~presentation – The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The operations of Johnny Rockets have been included since its acquisition on September 21, 2020; the operations of FCCG have been included since the merger on December 24, 2020; and the operations of LS GFG Holdings, Inc. (See Note 3) have been included since its acquisition on July 22, 2021. All intercompany accounts and transactions have been eliminated in consolidation. The Company operates its business as one operating and reportable segment.

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

Fiscal year – The Company operates on a 52-week calendar and its fiscal year ends on the last Sunday of the calendar year. Consistent with ~~the~~ industry practice, the Company measures its stores’ performance based upon 7-day work weeks. Using the 52-week cycle ensures consistent weekly reporting for operations and ensures that each week has the same days since certain days are more profitable than others. The use of this fiscal year means a 53^rd53rd week is added to the fiscal year every 5 or 6 years. In a 52-week year, all four quarters are comprised of 13 weeks. In a 53-week year, one extra week is added to the fourth quarter. ~~Both fiscal 2020 and 2019 are 52-week years.~~

With minor exceptions, the Company’s operations are comprised exclusively of franchising a growing portfolio of restaurant brands. This growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and accounting services. As part of these ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations. During the refranchising period, the Company may operate the restaurants and classifies the operational activities as refranchising gains or losses and the assets and associated liabilities as held-for sale.

~~Principles of consolidation~~ – The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. The operations of Elevation Burger have been included since its acquisition on June 19, 2019 and Johnny Rockets has been included since its acquisition on September 21, 2020. Intercompany accounts have been eliminated in consolidation.

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

Financial statement reclassification – Certain account balances from prior periods have been reclassified in these condensed consolidated financial statements to conform to current period ~~classifications.~~

classifications including measurement period adjustments to the preliminary purchase price allocations relating to the acquisition of Johnny Rockets and the Merger in accordance with ASU 2015-16. During 2021, adjustments were made to provisional amounts reclassifying $1.4 million between goodwill and additional paid in capital on the condensed consolidated balance sheet. These adjustments did not impact the Company’s condensed consolidated statement of operations during the current or prior periods.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments,and ~~Depository Risks~~ – later amended the ASU in 2019, as described below. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required

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to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts.

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

NOTE 3. MERGERS AND ACQUISITIONS

Acquisition of GFG Holdings Inc.

On July 22, 2021, the Company completed the acquisition of LS GFG Holdings Inc. (“GFG”), for a total purchase price of $444.5 million paid by the Company in the form of $355.2 million in cash, 3,089,245 shares of the Company’s Series B Cumulative Preferred Stock and 1,964,865 shares of the Company’s Common Stock. (the “GFG Acquisition”). Additionally, on July 22, 2021, the Company entered into a put/call agreement with the GFG Sellers, pursuant to which the Company may purchase, or the GFG Sellers may require the Company to ~~concentrations~~purchase 3,089,245 shares of ~~credit risk consist principally~~Series B Cumulative Preferred Stock for $67.5 million plus any accrued but unpaid dividends on or before April 22, 2022. (See Note 15)

GFG is a franchisor of ~~cash~~5 franchised brands. GFG’s brands (Great American Cookies, Marble Slab Creamery, Pretzelmaker, Hot Dog on a Stick and ~~accounts receivable. Management reviews each~~Round Table Pizza) are in the quick service restaurant (QSR) industry. The franchise network, across all of ~~its franchisee’s financial condition prior to entry into a franchise or other agreement, as well as~~the Company’s brands, consists of approximately 1,450 retail stores in 10 countries.

The preliminary assessment of the fair value of the net assets and liabilities acquired by the Company through the ~~term~~acquisition of GFG was estimated at $444.5 million. This preliminary assessment of fair value of the ~~agreement, and believes that it has adequately provided for any exposure to potential credit losses. As of September 27, 2020, accounts receivable,~~ net of allowance for doubtful accounts, totaled $4,453,000, with no franchisee representing more than 10% of that amount. As of December 29, 2019, the Company had two franchisees each representing 20% of accounts receivable, net of allowance for doubtful accounts.

The Company maintains cash deposits in national financial institutions. From time to time the balances for these accounts exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insured amount. Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per account. As of September 27, 2020, the Company had uninsured deposits in the amount of $13,009,000. As of December 29, 2019, the Company had no accounts with uninsured balances.

~~Restricted Cash –~~ The Company has restricted cash consisting of funds required to be held in trust in connection with the Company’s Securitization. The current portion of restricted cash at September 27, 2020 consisted of $1,758,000. Non-current restricted cash of $400,000 at September 27, 2020 represents interest reserves required to be set aside for the duration of the securitized debt. There were no restricted cash balances as of December 29, 2019.

~~Accounts receivable~~ – Accounts receivable are recorded at the invoiced amount and are stated net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is based on historical collection data and current franchisee information. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 27, 2020, and December 29, 2019, accounts receivable were stated net of an allowance for doubtful accounts of $670,000 and $595,000, respectively.

~~Trade notes receivable –~~ Trade notes receivable are created when an agreement is reached to settle a delinquent franchisee receivable account 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 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 September 27, 2020, there were no trade notes receivables recorded on the financial statements.

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

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

~~Fair Value Measurements -~~ ~~The Company determines the fair market values of its financial~~ assets and liabilities as well as ~~non-financial assets~~the final purchase price were estimated at closing and ~~liabilities that~~ are ~~recognized or disclosed at fair value on~~subject to change. Under Sections 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a ~~recurring basis, based~~“loss corporation,” as defined, there are annual limitations on the ~~fair value hierarchy established in U.S. GAAP. As necessary,~~amount of the NOLs and certain other deductions and credits which are available to the Company ~~measures its financial assets~~(the “Section 382 and ~~liabilities using inputs from the following three levels~~383 Limitations”). The portion of the ~~fair value hierarchy:~~

NOLs and other tax benefits accumulated by GFG prior to the Acquisition are subject to these Section 382 and 382 Limitations. Analysis of these Section 382 and 383 Limitations are ongoing.

The preliminary allocation of the consideration to the net tangible and intangible assets acquired is presented in the table below (in thousands):

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●	~~Level 1 inputs are quoted prices in active markets for identical assets or liabilities.~~
●Cash		~~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.~~$	8,693
●Accounts receivable		~~Level 3 inputs are unobservable~~7,246
Prepaid and ~~reflect the Company’s own assumptions.~~other current assets		3,818

10Other intangible assets, net	277,700
Goodwill	176,155
Right of use assets	6,514
Fixed assets	8,380
Other assets	1,229
Accounts payable	(2,408)
Accrued expenses	(10,168)
Accrued Advertising	(3,207)
Deferred income	(869)
Operating lease liability	(8,744)
Deferred tax liability	(18,867)
Other liabilities	(985)
Total net identifiable assets	$	444,487

~~Other than the derivative liability, the Company does not have a material amount~~

The values of financial assets or liabilities that are required to be measured at fair value on a recurring basis under U.S. GAAP (See Note 11). None of the Company’s non-financial assets or non-financial liabilities are required to be measured at fair value on a recurring basis. Assets recognized or disclosed at fair value in the consolidated financial statements on a nonrecurring basis include items such as property and equipment, operating lease assets, goodwill and other intangible assets ~~which~~were initially considered as of the acquisition date. Descriptions of the Company’s subsequent assessments of impairment of the goodwill and other intangible assets acquired in this acquisition related to COVID-19 are ~~measured at fair value if determined to be impaired.~~

The Company has not elected to use fair value measurement for any assets or liabilities for which fair value measurement is not presently required by U.S. GAAP. However, the Company believes the fair values of cash equivalents, restricted cash, accounts receivable, assets held for salein Note 6 and ~~accounts payable approximate their carrying amounts.~~

~~Income taxes~~ ~~– Effective October 20, 2017,~~Note 7.

Merger with Fog Cutter Capital Group Inc.

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

Pursuant to the ~~extent permitted by applicable law, file consolidated federal, California~~Merger Agreement, FCCG agreed to merge with and ~~Oregon (and possibly other jurisdictions where revenue is generated, at FCCG’s election) income tax returns~~into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of the Company ~~and its subsidiaries. The Company will pay~~(the “Merger”). Upon closing of the Merger on December 24, 2020, the former stockholders of FCCG ~~the amount that its tax liability would have been had it filed a separate return. As such,~~became direct stockholders of 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.

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~~holding, in the ~~form~~aggregate, 9,679,288 shares 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~~Company’s common stock (the same number of shares of common stock held by FCCG immediately prior to the ~~franchisee, but instead represent a single performance obligation, which includes the transfer of the franchise license. The services provided by the Company are highly interrelated~~Merger) and received certain limited registration rights 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 relationrespect to the ~~sale of franchises are recorded as deferred franchise fees.~~

The franchise fee may be adjusted at management’s discretion or in a situation involving store transfers between franchisees. Deposits are non-refundable upon acceptance of the franchise application. In the event a franchisee does not comply with their development timeline for opening franchise stores, the franchise rights may be terminated, at which point the franchise fee revenue is recognized for non-refundable deposits.

~~Store opening fees~~ ~~– Prior to September 29, 2019, the Company recognized store opening fees~~shares received in the amount of $35,000 to $60,000 from the up-front fees collected from franchisees upon store opening. The amount of the fee was dependent on brand and location (generally domestic versus international stores). The remaining balance of the up-front fees were then amortized as franchise fees over the life of the franchise agreement. If the fees collected were less than the respective store opening fee amounts, the full up-front fees were recognized at store opening. The store opening fees were based on out-of-pocket costs to the Company for each store opening and are primarily comprised of labor expenses associated with training, store design, and supply chain setup. International fees recognized were higher due to the additional cost of travel.

During the fourth quarter of 2019, the Company performed a study of other public company restaurant franchisors’ application of ASC 606 and determined that a preferred, alternative industry application exists in which the store opening fee portion of the franchise fees is amortized over the life of the franchise agreement rather than at milestones of standalone performance obligations in the franchise agreements. In order to provide financial reporting consistent with other franchise industry peers, the Company applied this preferred, alternative application of ASC 606 during the fourth quarter of 2019 on a prospective basis.Merger. As a result of the ~~adoption~~Merger, FCCG and certain of ~~this preferred accounting treatment~~its wholly owned subsidiaries, Homestyle Dining, LLC, Fog Cap Development LLC, Fog Cap Acceptance Inc. and BC Canyon LLC, became indirect wholly owned subsidiaries of the Company (the “Merged Entities”).

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

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

The Company undertook the Merger primarily to simplify its corporate structure and eliminate limitations that restrict the Company’s ability to issue additional Common Stock for acquisitions and capital raising. FCCG holds a substantial amount of net operating loss carryforwards (“NOLs”), which could only be made available to the Company as long as FCCG owned at least 80% of FAT Brands. With the Merger, the NOLs will be held directly by the Company, which will then have greater

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flexibility in managing its capital structure. In addition, after the Merger the Company will no longer be required to compensate FCCG for utilizing its NOLs under the Tax Sharing Agreement previously in effect between the Company and FCCG.

The Merger is treated under ASC ~~606,~~805-50-30-6, which provides that when there is a transfer of assets or exchange of shares between entities under common control, the ~~Company discontinued~~receiving entity shall recognize those assets and liabilities at their net carrying amounts at the ~~recognition~~date of ~~store opening fees upon store opening~~transfer. As such, on the date of the Merger, all of the transferred assets and ~~began accounting for~~assumed liabilities of the ~~entire up-front deposit received from franchisees as described above in~~ ~~Franchise Fees.~~ ~~A cumulative adjustment to store opening fees and franchise fees was recorded in the fourth quarter of 2019 for store opening fees recognized during the first three quarters of 2019. (See “~~~~Immaterial Adjustments Related to Prior Periods”,~~ ~~below.)~~

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

~~Advertising –~~ The Company requires advertising payments from franchisees based on a percent of net sales. The Company also receives, from time to time, payments from vendors that are to be used for advertising. Advertising funds collected are required to be spent for specific advertising purposes. Advertising revenue and associated expense isMerged Entities were recorded on the Company’s ~~consolidated statement~~books at the Merged Entities’ book value. The consolidation of ~~operations. Assets and liabilities associated~~the operations of the Merged Entities with the ~~related advertising fees are reflected in the Company’s consolidated balance sheet.~~

~~Share-based compensation~~ ~~– The~~ Company has a stock option plan which provides for options to purchase shares of the Company’s common stock. Options issued under the plan may have a variety of terms as determined by the Board of Directors including the option term, the exercise price and the vesting period. Options granted to employees and directors are valued at the date of grant and recognized as an expense over the vesting period in which the options are earned. Cancellations or forfeitures are accounted for as they occur. Stock options issued to non-employees as compensation for services are accounted for based upon the estimated fair value of the stock option. The Company recognizes this expense over the period in which the services are provided. Management utilizes the Black-Scholes option-pricing model to determine the fair value of the stock options issued by the Company. See Note 14 for more details on the Company’s share-based compensation.

~~Earnings per share~~ ~~– The Company reports basic earnings or loss per share in accordance with FASB ASC 260, “Earnings Per Share”. Basic earnings per share~~ is computed using the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed using the weighted average number of common shares outstanding plus the effect of dilutive securities during the reporting period. Any potentially dilutive securities that have an anti-dilutive impact on the per share calculation are excluded. During periods in which the Company reports a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of the inclusion of all potentially dilutive securities would be anti-dilutive. As of September 27, 2020, and September 29, 2019, there were no potentially dilutive securities excluded from the calculation of diluted loss per common share due to a loss for the period.

The Company declared a stock dividend on February 7, 2019 and issued 245,376 shares of common stock in satisfaction of the stock dividend (See Note 16). Unless otherwise noted, earnings per share and other share-based information for 2020 and 2019 have been adjusted retrospectively to reflect the impact of that stock dividend.

~~Immaterial Adjustments Related to Prior Periods~~

During the fourth quarter of 2019, the Company identified two immaterial potential adjustments to its previously issued financial statements. These potential adjustments are related to (1) its assessment of the Series A-1 Fixed Rate Cumulative Preferred Stock and (2) its treatment of the store opening component of its franchise fees under ASC 606. Based on its assessment of the Series A-1 Fixed Rate Cumulative Preferred Stock, the Company determined that an error occurred in the analysis of the rights that the holders of the Series A-1 Fixed Rate Cumulative Preferred Stock have with respect to the conversion of the securities into shares of the Company’s common stock. In our reassessment, the conversion rights did not represent a beneficial conversion feature as we had initially concluded at the time of issuance. A cumulative correction was recorded to additional paid in capital during the first quarter of 2020 in the amount of $90,000.

The Company originally adopted ASC 606 on January 1, 2018. During the fourth quarter of 2019, the Company performed a study of other public company restaurant franchisors’ application of ASC 606 and determined that a preferred, alternative industry application exists in which the store opening fee portion of the franchise fees is amortized over the life of the franchise agreement rather than at milestones of standalone performance obligations in the franchise agreements. In order to provide financial reporting consistent with other franchise industry peers, the Company applied this preferred, alternative application of ASC 606 during the fourth quarter of 2019presented on a prospective basis ~~effective December 31, 2018.~~

~~In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, codified~~from the date of transfer.

The Merger resulted in ~~ASC 250 (“ASC 250”), Presentation of Financial Statements,~~the following assets and ~~SAB 108, Considering~~liabilities being included in the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Consolidated Statements of Income, Balance Sheets, Shareholders Equity and Cash Flows, also codified in ASC 250, management assessed the materiality of (1) the error in its treatmentcondensed consolidated financial statements of the ~~beneficial conversion feature related to the Series A-1 Fixed Rate Cumulative Preferred Stock and (2) the adoption~~Company as of the preferential accounting treatment under ASC 606. Based on such analysis of quantitative and qualitative factors, the Company has determined that neither the error nor the adoption of the preferential accounting treatment under ASC 606, in aggregate or individually, were material to any of the reporting periods affected, and no amendments to previously filed 10-Q or 10-K reports with the SEC are required.

~~Recently Adopted Accounting Standards~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820)~~Merger date (in thousands): ~~Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.~~” This ASU adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

~~The FASB issued ASU No. 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40).~~ The new guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

~~The FASB issued ASU 2019-12,~~ ~~Simplifying the Accounting for Income Taxes:~~ This standard removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations and calculating income taxes in interim periods. It also adds guidance in certain areas, including the recognition of franchise taxes, recognition of deferred taxes for tax goodwill, allocation of taxes to members of a consolidated group, computation of annual effective tax rates related to enacted changes in tax laws, and minor improvements related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

~~NOTE 3. ACQUISITIONS AND SIGNIFICANT TRANSACTIONS~~


Prepaid assets	$	33
Deferred tax assets	20,402
Other assets	100
Accounts payable	(926)
Accrued expense	(6,973)
Current portion of debt	(12,486)
Litigation reserve	(3,980)
Due to affiliates	(43,653)
Total net identifiable liabilities (net deficit)	$	(47,483)

Acquisition of Johnny Rockets

On September 21, 2020, the Company completed the acquisition of Johnny Rockets Holding Co., a Delaware corporation (“Johnny Rockets”) for a cash purchase price of approximately ~~$24.8~~$24.7 million. The purchase price was subject to certain post-closing adjustments, including with respect to net working capital, Johnny Rockets’ cash on hand, tax liabilities and outstanding indebtedness as of the closing and certain transaction expenses payable at closing, all of which were estimated at closing and, pursuant to the stock purchase agreement, will be finalized no later than no later than 75 days after the closing. The transaction was funded with proceeds from an increase in the Company’s securitization facility (See Note ~~10)~~11).Fees and expenses related to the Johnny Rockets acquisition totaled approximately $574,000, consisting primarily of professional fees, all of which are classified as other expenses in the accompanying consolidated statement of operations. These fees and expenses were funded through cash on hand and proceeds from borrowings.

Immediately following the closing of the acquisition of Johnny Rockets, the Company contributed the franchising subsidiaries of Johnny Rockets to FAT Royalty I, LLC pursuant to a Contribution Agreement. (See Note ~~10)~~11).

The ~~preliminary~~ assessment of the fair value of the net assets and liabilities acquired by the Company through the acquisition of Johnny Rockets was ~~estimated at $24,838,000. This preliminary assessment of fair value of the net assets and liabilities as well as the final purchase price were estimated at closing and are subject to change.~~$24.7 million. The ~~preliminary~~ allocation of the consideration to the ~~preliminary~~ valuation of net tangible and intangible assets acquired is presented in the table below (in thousands):

Cash $ 894
Accounts receivable 1,193
Assets held for sale 11,126
Goodwill 9,691
Other intangible assets 26,400
Other assets 412
Accounts payable (1,169 )
Accrued expenses (2,486 )
Deferred franchise fees (4,988 )
Deferred tax liability (6,032 )
Operating lease liability (10,028 )
Other liabilities (175 )
Total net identifiable assets $ 24,838

Revenues of $134,000 and net income $19,000 attributed to Johnny Rockets from the date of acquisition are included in the accompanying consolidated statements of operations for thirteen and thirty-nine weeks ended September 27, 2020.

14
Cash	$	812
Accounts receivable	1,452
Assets held for sale	10,765
Goodwill	258
Other intangible assets	26,900
Deferred tax assets	4,039
Other assets	438
Accounts payable	(1,113)
Accrued expenses	(3,740)
Deferred franchise fees	(4,988)
Operating lease liability	(10,028)
Other liabilities	(65)
Total net identifiable assets	$	24,730

The values of goodwill and other intangible assets were initially considered as of the acquisition date. Descriptions of the Company’s subsequent assessments of impairment of the goodwill and other intangible assets acquired in this acquisition related to COVID-19 are in Note 6 and Note 7.

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Proforma Information

The table below presents the combined proforma revenue and net ~~(loss) income~~loss of the Company and GFG, FCCG and Johnny Rockets (the "Acquired Entities"), for the thirteen and thirty-nine weeks ended September ~~27, 2020~~26, 2021 and September ~~29, 2019,~~27, 2020, assuming the acquisition of ~~Johnny Rockets~~the Acquired Entities had occurred on December ~~31, 2018~~30, 2019 (the beginning of the Company’s ~~2019~~2020 fiscal year), pursuant to ASC 805-10-50 (in thousands). Actual consolidated results are presented in the proforma information for any period in which an Acquired Entity was actually a consolidated subsidiary of the Company. This proforma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition of ~~Johnny Rockets~~the Acquired Entities occurred on this date nor does it purport to predict the results of operations for future periods.

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Revenues $ 5,722 $ 11,039 $ 17,209 $ 30,004
Net (loss) income $ (702 ) $ 2,771 $ (8,694 ) $ 3,604


	Thirteen Weeks Ended September 26, 2021		Thirty-nine Weeks Ended September 26, 2021		Thirteen Weeks Ended September 27, 2020		Thirty-nine Weeks Ended September 27, 2020

Revenue	$	36,517	$	109,997	$	36,563	$	113,942
Net loss	$	(3,839)	$	(8,439)	$	(5,550)	$	(23,578)

The proforma information above reflects the combination of the Company’s unaudited results as disclosed in the accompanying condensed consolidated statements of operations ~~for thirteen and thirty-nine weeks ended September 27, 2020 and the unaudited results of Johnny Rockets~~ for the thirteen and thirty-nine weeks ended September 26, 2021 and September 27, 2020, together with the unaudited results of each of the Acquired Entities for the thirteen and thirty-nine weeks ended September 26, 2021 and September ~~29, 2019~~27, 2020, with the following adjustments:


			For the acquisition of GFG:

			●			~~Revenue –~~ Amortization of intangible assets has been adjusted to reflect the preliminary fair value at the assumed acquisition date.
			●			The proforma interest expense has been adjusted to exclude actual GFG interest expense incurred prior to the acquisition. All interest-bearing liabilities were paid off at closing.
			●			The proforma interest expense has been adjusted to include proforma interest expense that would have been incurred relating to the acquisition financing obtained by the Company.
			●			Income tax effect is based on an assumed statutory income tax rate of 26%.

			For the merger with FCCG:

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

			For the acquisition of Johnny Rockets:

			●			The unaudited proforma ~~revenues~~revenue and net (loss) income present franchise fee revenue and advertising revenue in accordance with ASC 606 in a manner consistent with the Company’s application thereof. As a non-public company, Johnny Rockets had not yet been required to adopt ASC 606.
			●			Overhead allocations from the former parent company have been adjusted to the estimated amount the Company would have ~~allocated for the thirteen and thirty-nine weeks ended September 27, 2020 and September 29, 2019.~~allocated.
			●			Former parent company management fees have been eliminated from the proforma.

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			●			Amortization of intangible assets has been adjusted to reflect the preliminary fair value at the assumed acquisition date.
			●			Depreciation on assets treated as held for sale by the Company has been eliminated.
			●			The proforma adjustments ~~also~~ include advertising expenses in accordance with ASC 606.
			●			The proforma interest expense has been adjusted to exclude actual Johnny Rockets interest expense incurred prior to the acquisition. All interest-bearing liabilities were paid off at closing.
			●			The proforma interest expense has been adjusted to include proforma interest expense that would have been incurred relating to the acquisition financing obtained by the Company.
			●			Non-recurring ~~non-operating~~ gains and losses have been eliminated from the proforma statements.

~~Acquisition~~

NOTE 4. REFRANCHISING

As part of ~~Elevation Burger~~

~~On June 19, 2019,~~its ongoing franchising efforts, the Company ~~completed~~may, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations or acquire existing franchise locations to resell to another franchisee across all of its brands.

The Company meets all of the acquisition of EB Franchises, LLC, a Virginia limited liability company, and its related companies (collectively, “Elevation Burger”) for a purchase price of up to $10,050,000. Elevation Burger is the franchisor of Elevation Burger restaurants, with 44 locationscriteria requiring that acquired assets used in the ~~U.S.~~operation of certain restaurants be classified as held for sale. As a result, the following assets have been classified as held for sale on the accompanying condensed consolidated balance sheets as of September 26, 2021 and ~~internationally at~~December 27, 2020 (in thousands):


	September 26, 2021		December 27, 2020

Property, plant and equipment	$	776	$	1,352
Operating lease right of use assets	$	4,815	$	9,479
Total	$	5,591	$	10,831

Operating lease liabilities related to the ~~time~~assets classified as held for sale in the amount of $4.9 million and $9.9 million have been classified as current liabilities on the accompanying condensed consolidated balance sheets as of September 26, 2021 and December 27, 2020, respectively.

Refranchising gains in the thirty-nine weeks ended September 26, 2021 were comprised of $1.6 million in net gains related to refranchised restaurants, partially offset by $0.9 million of restaurant operating costs, net of food sales. Refranchising losses in the thirty-nine weeks ended September 27, 2020 were comprised of $1.1 million of restaurant operating costs, net of food sales, plus $0.8 million in net losses related to the sale or closure of refranchised restaurants.

Refranchising gains for the thirteen weeks ended September 26, 2021 were comprised of $0.5 million in net gains related to refranchised restaurants, partially offset by $0.2 million of restaurant operating costs, net of food sales. Refranchising losses in the thirteen weeks ended September 27, 2020 were comprised of $0.3 million of restaurant operating costs, net of food sales.

During the thirty-nine weeks ended September 26, 2021, 2 restaurant locations were sold to 2 entities which are 49% owned by a subsidiary of the ~~acquisition.~~

Company. The ~~purchase price consists~~51% owners of ~~$50,000~~these entities are not affiliated with the Company. In addition to its significant equity interests in ~~cash, a contingent warrant to purchase 46,875 shares~~the 2 restaurants, the Company provides virtually all of the management functions associated with the operation of the businesses. As a result, the assets, liabilities and operating results of the restaurants are included in the Company’s ~~common stock at an exercise price of $8.00 per share (the “Elevation Warrant”), and the issuance~~condensed consolidated financial statements, subject to the ~~Seller~~noncontrolling interests of ~~a convertible subordinated promissory note (the “Elevation Note”) with a principal amount of $7,509,816, bearing interest at 6.0% per year and maturing in July 2026.~~ the non-affiliated investors.

NOTE 5. NOTE RECEIVABLE

The Elevation ~~Warrant is only exercisable~~Buyer Note was funded in ~~the event that the Company merges with FCCG. The Seller Note is convertible under certain circumstances into shares of the Company’s common stock at $12.00 per share. In~~ connection with the purchase ~~the~~of Elevation Burger in 2019. The Company ~~also~~ loaned ~~$2,300,000~~$2.3 million in cash to the Seller under a subordinated promissory note ~~(the “Elevation Buyer Note”)~~ bearing interest at 6.0% per year and maturing in August ~~2026.~~2026 . The balance owing to the Company under the Elevation Buyer Note may be used by the Company to offset amounts owing to the Seller under the Elevation Note under certain circumstances. In addition, the Seller will be entitled to receive earn-out payments of up to $2,500,000 if Elevation Burger realizes royalty fee revenue in excess of certain amounts. As of the date of the acquisition, the fair market value of this contingent consideration totaled $531,000. As of September 27, 2020, and December 29, 2019, the contingent purchase price payable totaled $704,000 and $633,000, respectively, which includes the accretion of interest expense at an effective interest rate of 18%.

The assessment of the fair value of the net assets and liabilities acquired by the Company for the acquisition of Elevation Burger was $7,193,000. The allocation of the consideration to the valuation of net tangible and intangible assets acquired is presented in the table below (in thousands):

Cash $ 10
Goodwill 521
Other intangible assets 7,140
Other assets 558
Current liabilities (91 )
Deferred franchise fees (758 )
Other liabilities (187 )
Total net identifiable assets $ 7,193

~~Descriptions of the Company’s assessment of impairment of the goodwill and other intangible assets acquired in this acquisition related to COVID-19 are in Note 6.~~

~~nOTE 4. REFRANCHISING~~

With minor exceptions, the Company’s operations are comprised exclusively of franchising a growing portfolio of restaurant brands. This growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and accounting services. As part of these ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations. During the refranchising period, the Company may operate the restaurants and classifies the operational activities as refranchising gains or losses and the assets and associated liabilities as held-for sale.

Assets designated by the Company for refranchising meet the criteria requiring that they be classified as held for sale. As a result, the following assets have been classified as held for sale on the accompanying consolidated balance sheet as of September 27, 2020 and December 29, 2019 (in thousands):

September 27, 2020 December 29, 2019

Property and equipment $ 1,106 $ 1,912
Operating lease right of use assets 9,942 3,216
Total $ 11,048 $ 5,128

Operating lease liabilities related to the assets classified as held for sale in the amount of $9,959,000 and $3,325,000, have been classified as current liabilities on the accompanying consolidated balance sheets as of September 27, 2020 and December 29, 2019.

During the thirteen and thirty-nine weeks ended September 27, 2020, refranchising operations incurred losses of $325,000 and $1,869,000, respectively, compared to gains of $902,000 and $851,000, respectively, for the corresponding periods in 2019. The refranchising results for the thirty-nine weeks ended September 27, 2020, included operating expenses, net of food sales, in the amount of $1,114,000, a gain of $560,000 relating to the sale and refranchising of four restaurant locations, a loss of $615,000 on the closure and disposition of three restaurant locations and the establishment of a reserve of $700,000 relating to a prior sale. The 2019 period included gains on the sale and refranchising of two restaurants in the amount of $2,249,000 which were partially offset by restaurant operating expenses, net of food sales, in the amount of $1,398,000.

~~Note 5. NOTES RECEIVABLE~~

~~Notes receivable consist of trade notes receivable and the Elevation Buyer Note.~~

Trade notes receivable are created when a settlement is reached relating to a delinquent franchisee account and the entire balance is not immediately paid. Trade notes receivable generally include personal guarantees from the franchisee. The notes are made for the shortest time frame negotiable and 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 September 27, 2020, there were no trade notes receivable. At December 29, 2019, trade notes receivable totaled $250,000, net of reserves of $123,000.

~~The Elevation Buyer Note was funded in connection with the purchase of Elevation Burger~~circumstances (See Note 3)11). The Company loaned $2,300,000 in cash to the Seller under a subordinated promissory note bearing interest at 6.0% per year and maturing in August 2026. This Note is subordinated in right of payment to all indebtedness of the Seller arising under any agreement or instrument to which the Seller or any of its affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment to the Elevation Buyer Note, whether existing on the effective date of the Elevation Buyer Note or arising thereafter. The balance owing to the Company under the Elevation Buyer Note may be used by the Company to offset amounts owing to the Seller under the Elevation Note under certain circumstances. As part of the total consideration for the Elevation acquisition, the Elevation Buyer Note was recorded at a carrying value of ~~$1,903,000,~~$1.9 million, which was net of a

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discount of ~~$397,000.~~$0.4 million. As of September ~~27, 2020,~~26, 2021 and December ~~29, 2019,~~27, 2020, the balance of the Elevation Note was ~~$1,809,000~~$1.7 million and ~~$1,814,000,~~$1.8 million, respectively, which were net of discounts of ~~$288,000~~$0.2 million and ~~$352,000,~~$0.3 million, respectively. During the thirteen and thirty-nine weeks ended September 26, 2021, the Company recognized $49,000 and $151,000 in interest income on the Elevation Buyer Note, respectively. During the thirteen and thirty-nine weeks ended September 27, 2020, the Company recognized $52,000 and $158,000, respectively, in interest ~~income. During~~income on the ~~thirteen and thirty-nine weeks ended September 29, 2019, the Company recognized $55,000 and $59,000 in interest income, respectively.~~

~~Note~~Elevation Buyer Note.

NOTE 6. GOODWILL ~~and other intangible assets~~

~~Goodwill~~

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

September 27, 2020 December 29, 2019
Goodwill:
Fatburger $ 529 $ 529
Buffalo’s 5,365 5,365
Hurricane 2,772 2,772
Ponderosa and Bonanza - 1,462
Yalla 263 263
Johnny Rockets 9,691 -
Elevation Burger 521 521
Total goodwill $ 19,141 $ 10,912


	September 26, 2021		December 27, 2020
Goodwill:
Fatburger	$	529	$	529
Global Franchise Group	176,155		—
Buffalo’s	5,365		5,365
Hurricane	2,772		2,772
Yalla	261		261
Elevation Burger	521		521
Johnny Rockets	258		1,461
Total goodwill	$	185,861	$	10,909

~~Other Intangible Assets~~

A review of the carrying value of goodwill as of September 26, 2021 did not result in any impairment charges for the thirty-nine weeks ended as of that date. When considering the available facts, assessments and judgments, as of September 27, 2020, the Company recorded goodwill impairment charges of $1.5 million relating to the Ponderosa and Bonanza brands for the thirty-nine weeks ended as of that date.

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

Table of Con tents

NOTE 7. OTHER INTANGIBLE ASSETS

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

September 27, 2020 December 29, 2019
Trademarks:
Fatburger $ 2,135 $ 2,135
Buffalo’s 27 27
Hurricane 6,840 6,840
Ponderosa and Bonanza 5,518 7,230
Yalla 777 1,530
Johnny Rockets 19,900 -
Elevation Burger 4,690 4,690
Total trademarks 39,887 22,452

Franchise agreements:
Hurricane – cost 4,180 4,180
Hurricane – accumulated amortization (723 ) (482 )
Ponderosa and Bonanza – cost 1,640 1,640
Ponderosa and Bonanza – accumulated amortization (326 ) (243 )
Johnny Rockets – cost 6,500 -
Johnny Rockets – accumulated amortization (12 ) -
Elevation Burger – cost 2,450 2,450
Elevation Burger – accumulated amortization (637 ) (263 )
Total franchise agreements 13,072 7,282
Total other intangible assets $ 52,959 $ 29,734


	September 26, 2021		December 27, 2020
Trademarks:
Fatburger	$	2,135	$	2,135
Global Franchise Group	149,800		—
Buffalo’s	27		27
Hurricane	6,840		6,840
Ponderosa	300		300
Yalla	776		776
Elevation Burger	4,690		4,690
Johnny Rockets	20,300		20,300
Total trademarks	184,868		35,068

Franchise agreements:
Hurricane – cost	4,180		4,180
Hurricane – accumulated amortization	(1,045)		(804)
Global Franchise Group - cost	43,300		—
Global Franchise Group - accumulated amortization	(601)		—
Ponderosa – cost	1,477		1,477
Ponderosa – accumulated amortization	(414)		(337)
Elevation Burger – cost	2,450		2,450
Elevation Burger – accumulated amortization	(1,135)		(761)
Johnny Rockets – cost	6,600		6,600
Johnny Rockets – accumulated amortization	(507)		(162)
Total franchise agreements	54,305		12,643

Customer relationships:
Global Franchise Group - cost	84,600		—
Global Franchise Group - accumulated amortization	(1,085)		—
Total customer relationships	83,515		—

Total Other Intangible Assets	$	322,688	$	47,711

The ~~scheduled future amortization~~Company reviewed the carrying value of ~~the Company’s capitalized franchise agreements is as follows (in thousands):~~

Fiscal year:
2020 $ 381
2021 1,523
2022 1,523
2023 1,523
2024 1,523
Thereafter 6,599
Total $ 13,072

~~In response to the adverse effects of COVID-19, we considered whether goodwill and~~its other intangible assets ~~needed to be evaluated for impairment~~ as of September 26, 2021 and September 27, ~~2020, specifically related to goodwill and~~2020. During the ~~trademark assets. Given the uncertainty regarding the severity, duration and long-term effects of COVID-19, making estimates of the fair value of these~~thirty-nine weeks ended September 26, 2021, no impairment charges for other intangible assets at this time is significantly affected by assumptions related to ongoing operations including but not limited to the timing and extent of restrictions on restaurant operating hours, in-house dining limitations or other restrictions that have largely limited restaurants to take-out and delivery sales, customer engagement with our brands, the short-term and long-term impact on consumer discretionary spending, and overall global economic conditions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The fair value technique used in this instance is classified as Level 3, where unobservable inputs are used when little or no market data is available. In performing the quantitative test for impairment of goodwill, the Company used the income approach method of valuation that includes the discounted cash flow method to determine the fair value of goodwill and intangible assets. Significant assumptions made by management in estimating fair value under the discounted cash flow model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital, along with an appropriate discount rate based on the Company’s estimated cost of equity capital and after-tax cost of debt.

In performing the impairment review of the tradename, the Company used the relief of royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief of royalty method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.

In performing the impairment review of the franchise agreement assets, the Company used the residual earnings method under the income approach method of valuation. Significant assumptions used to determine fair value under the residual earnings method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.

were deemed necessary. As a result of these analyses, when considering the available facts, assessments and judgments, during the thirty-nine weeks ended September 27, 2020, the Company recorded goodwill impairment charges of ~~$1,462,000~~$1.5 million and tradename impairment charges of ~~$2,465,000~~$2.5 million relating to the Ponderosa, Yalla and Bonanza brands. ~~The Company had not recognized impairment charges on its goodwill or intangible assets prior to the second quarter of 2020.~~

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

~~Note 7. DEFERRED INCOME~~

~~Deferred income~~

Table of Con tents

The expected future amortization of the Company’s franchise agreements and customer relationships as of September 26, 2021 is as follows (in thousands):

September 27, 2020 December 29, 2019

Deferred franchise fees $ 9,890 $ 5,417
Deferred royalties 275 422
Deferred vendor incentives 519 303
Total $ 10,684 $ 6,142

~~Note~~


Fiscal year:
Remaining 2021	$	2,909
2022	11,638
2023	11,638
2024	11,333
2025	11,139
Thereafter	89,163
Total	$	137,820

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)DEFERRED INCOME

Deferred 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. An inter-company receivable of approximately $33,382,000 due from FCCG and its affiliates will be applied first to reduce excess income tax payment obligations to FCCG under the Tax Sharing Agreement.

For financial reporting purposes, the Company has recorded a tax benefit as of September 27, 2020, calculated as if the Company files its tax returns on a stand-alone basis. The amount receivable from FCCG determined by this calculation of $158,000 and $30,000 was ~~added to amounts due from FCCG as of September 27, 2020 and September 29, 2019, respectively. (See Note 12.)~~

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):

September 27, 2020 December 29, 2019
Deferred tax (liabilities) assets
Deferred income $ 1,372 $ 1,353
Reserves and accruals 218 208
Intangibles (6,420 ) (614 )
Deferred state income tax (19 ) (91 )
Tax credits 313 244
Share-based compensation 193 192
Property and equipment (125 ) (137 )
Net operating loss carryforwards 2,069 894
Other 32 (17 )
Total $ (2,367 ) $ 2,032

~~Components~~


	September 26, 2021		December 27, 2020

Deferred franchise fees	$	12,328	$	10,003
Deferred royalties	160		291
Deferred vendor incentives	611		692
Total	$	13,099	$	10,986

NOTE 9. INCOME TAXES

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


	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020
Benefit for income taxes	$	(1,183)		$	(19)		$	(3,303)		$	(1,405)
Effective tax rate	24.6		%	3.2		%	21.6		%	16.3		%

The difference between the statutory tax rate of 21% and the effective tax rate in the thirty-nine weeks ended September 26, 2021 was primarily due to the impact of state income taxes.

The Company's net deferred income tax asset decreased $15.5 million during the thirty-nine weeks ended September 26, 2021 primarily due to the acquisition and consolidation of GFG. The preliminary assessment of the ~~income~~fair value of the net assets and liabilities acquired in the GFG transaction included a net deferred tax ~~(benefit) expense are as follows (in thousands):~~

Thirty-nine Weeks
Ended
September 27, 2020 Thirty-nine Weeks
Ended
September 29, 2019
Current
Federal $ (118 ) $ 116
State 33 30
Foreign 313 30
228 176
Deferred
Federal (1,359 ) 139
State (274 ) (62 )
(1,633 ) 77
Total income tax (benefit) expense $ (1,405 ) $ 253

~~Income tax provision related~~liability of $18.9 million. This preliminary assessment of fair value of the net assets and liabilities of GFG was estimated at closing and is subject to ~~continuing operations differ from the amounts computed by applying the statutory income tax rate to pretax income as follows (in thousands):~~

Thirty-nine Weeks
Ended Thirty-nine Weeks
Ended
September 27, 2020 September 29, 2019

Tax benefit at statutory rate $ (1,805 ) $ 40
State and local income taxes (190 ) -
Foreign taxes 313 30
Tax credits (92 ) 112
Dividends on preferred stock 123 51
Impairment of goodwill 266 -
Other (20 ) 20
Total income tax (benefit) expense $ (1,405 ) $ 253

change (See Note 3).

NOTE 10. LEASES

As of September ~~27, 2020,~~26, 2021, 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 certain of its subsidiaries for tax liabilities related to periods prior to its ownership of the subsidiaries. Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of September 27, 2020.

~~NOTE 9. LEASES~~

~~The~~ Company has ~~recorded fifteen~~NaN operating leases for ~~its~~ corporate offices, NaN Company owned stores and for certain restaurant properties that are in the process of being ~~refranchised and classified as held for sale.~~refranchised. The leases have remaining ~~lease~~ terms ranging from ~~three months~~0.5 to ~~eighteen~~7.7 years. The Company recognized lease expense of ~~$1,092,000~~$1.4 million and ~~$1,089,000 for the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively. The Company recognized lease expense of $372,000 and $355,000~~$0.4 million for the thirteen weeks ended September 26, 2021 and September 27, 2020, respectively. For the thirty-nine weeks ended September 26, 2021 and September ~~29, 2019,~~27, 2020, the Company recognized lease expense of $2.8 million and $1.1 million, respectively. The weighted average remaining lease term of the operating leases ~~(not including optional lease extensions) at~~as of September ~~27, 2020~~26, 2021 was ~~7.8~~4.8 years.

Table of Con tents

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

September 27, 2020 December 29, 2019

Right of use assets $ 14,650 $ 4,076
Lease liabilities $ 14,842 $ 4,206

~~At the adoption of ASC 842, the~~


	September 26, 2021		December 27, 2020

Right of use assets	$	17,419	$	13,948
Lease liabilities	$	20,548	$	14,651

The weighted average discount rate used to calculate the carrying value of the right of use assets and lease liabilities was ~~15.9% as this~~9.3% in each case, which was ~~consistent with~~based on the Company’s incremental borrowing rate at ~~that time. Subsequent to~~ the ~~adoption of ASC 842,~~time the ~~Company calculated the carrying value of new right of use assets and~~ lease ~~liabilities at the then prevailing incremental borrowing rate which ranged from 8.7% to 9.1% during the nine months ended September 27, 2020.~~

was acquired.

The contractual future maturities of the Company’s operating lease liabilities as of September ~~27, 2020,~~26, 2021, including anticipated lease extensions, are as follows (in thousands):

Fiscal year:
2020 $ 676
2021 2,951
2022 3,124
2023 3,227
2024 3,137
Thereafter 7,645
Total lease payments 20,760
Less imputed interest (5,918 )
Total $ 14,842


Fiscal year:
2021	$	3,943
2022	5,119
2023	4,212
2024	3,975
2025	3,262
Thereafter	3,901
Total lease payments	24,412
Less imputed interest	3,864
Total	$	20,548

The current portion of the operating lease liability as of September 26, 2021 was $4.8 million.

Supplemental cash flow information for the thirty-nine weeks ended September ~~27, 2020~~26, 2021 related to leases iswas as follows (in thousands):

Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases $ 633
Operating lease right of use assets obtained in exchange for new lease obligations:
Operating lease liabilities $ 12,168

21
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	2,282
Operating lease right of use assets obtained in exchange for new lease obligations:
Operating lease liabilities	$	—

~~Note 10.~~

NOTE 11. DEBT

2021 GFG Royalty Securitization

~~On March 6, 2020,~~

In connection with the acquisition of GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC (“GFG Royalty”), a special purpose, wholly-owned subsidiary of the Company, completed the issuance and sale in a ~~whole-business securitization~~private offering (the ~~“Securitization”~~“GFG Offering”) ~~through the creation~~

Table of ~~a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”), in which FAT Royalty issued~~Con tents

of three tranches of fixed rate senior secured notes (the ~~“Securitization Notes”) pursuant to an indenture and the supplement thereto, each dated March 6, 2020 (collectively, the “Indenture”~~"GFG Securitization Notes").

The GFG Securitization Notes were issued in ~~March 2020 consist of~~a securitization transaction and had the following ~~(the “Series AB Notes”):~~

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

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

terms:


Closing Date	Class	Seniority	Principal Balance		Coupon		Weighted Average Life (Years)	Non-Call Period (Months)	Anticipated Call Date	Final Legal Maturity Date
7/22/2021	A-2	Senior	$	209,000,000	6.00	%	2.01	6	7/25/2023	7/25/2051
7/22/2021	B-2	Senior Subordinated	$	84,000,000	7.00	%	2.01	6	7/25/2023	7/25/2051
7/22/2021	M-2	Subordinated	$	57,000,000	9.50	%	2.01	6	7/25/2023	7/25/2051

Net proceeds from the issuance of the ~~Series AB~~GFG Securitization Notes ~~were $37,314,000,~~totaled $338.9 million, which ~~consists~~consisted of the combined face amount of ~~$40,000,000,~~$350.0 million, net of ~~discounts of $246,000 and~~ debt offering costs of ~~$2,440,000. The~~$6.0 million and original issue discount ~~and offering costs will be accreted as additional interest expense over the expected term~~ of ~~the Series AB Notes.~~

~~A portion~~$5.1 million. Substantially all of the proceeds ~~from the Series AB Notes~~ were used to ~~repay~~acquire GFG.

As of September 26, 2021, the ~~remaining $26,771,000 in outstanding balance under~~carrying value of the Loan and Security Agreement (the “Loan and Security Agreement”) with The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, “Lion”) and to pay Securitization debt offering costs. The remaining proceeds from the Securitization were available for working capital.

~~On September 21, 2020, FAT Royalty completed the sale of an additional $40 million face amount of Series 2020-2 Fixed Rate Asset-Backed Notes (the “Series M-2 Notes”), increasing the Company’s~~GFG Securitization Notes ~~to $80 million.~~

~~The Series M-2 Notes consist~~was $339.3 million (net of ~~the following:~~

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

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

~~Net proceeds from the issuance of the Series M-2 Notes were $35,241,000, which consists of the face amount of $40,000,000, net of discounts of $3,200,000 and~~ debt offering costs of ~~$1,559,000.~~$5.8 million and original issue discount of $4.9 million). The ~~discount~~Company recognized interest expense on the GFG Securitization Notes of $4.6 million for the thirteen and thirty-nine weeks ended September 26, 2021, which includes $0.2 million for amortization of debt offering costs ~~will be accreted as additional interest expense over the expected term~~and $0.2 million for amortization of the ~~Series M-2 Notes.~~

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

The GFG Securitization Notes require that the principal (if any) and interest obligations be segregated to ensure appropriate funds are ~~subordinate~~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 Series A-2 Notes and Series B-2 Notes. All Securitization Notes issued under the Base Indenture are secured by an interest in substantially all of the assets of FAT Royalty, including the Johnny Rockets companies, that have been contributed to FAT Royalty and are obligations only of FAT Royalty under the Base Indenture and not obligations of the Company.

~~While the Securitization Notes are outstanding, scheduled~~ Interest payments ~~of principal and interest~~ are required to be made on a quarterly basis ~~with the scheduled principal payments of $1,000,000~~and, unless repaid on or before July 25, 2023 additional interest equal to 1.0% per ~~quarter~~annum will accrue on each tranche. The material terms of the ~~Series A-2 and Series B-2 Notes and $200,000 per quarter on the Series M-2 Notes beginning the second quarter of 2021. It is expected that the~~GFG Securitization Notes ~~will be repaid prior to~~also include, among other things, the ~~Final Legal Maturity Date, with the anticipated repayment date occurring in January 2023 for the A-2 Notes, October 2023 for the B-2 Notes~~following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and ~~April 2026 for the Series M-2 Notes (the “Anticipated Repayment Dates”). If~~(iii) senior leverage ratio. As of September 26, 2021, the Company ~~has not repaid or refinanced~~was in compliance with these covenants.

Immediately following the closing of the acquisition of GFG, the Company contributed the franchising subsidiaries of GFG to GFG Royalty, pursuant to a Contribution Agreement. The GFG Securitization Notes prior to the applicable Anticipated Repayment Date, additional interest expense will begin to accrue and all additional proceeds will be utilized for additional principal amortization, as defined in the Indenture.

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

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

2021 FB Royalty Securitization

On April 26, 2021, FAT Brands Royalty I, LLC (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the Offering of three tranches of fixed rate senior secured notes (collectively, the “2021 Securitization Notes”) as follows:


Closing Date	Class	Seniority	Principal Balance		Coupon		Weighted Average Life (Years)	Non-Call Period (Months)	Anticipated Call Date	Final Legal Maturity Date
4/26/2021	A-2	Senior	$	97,104,000	4.75	%	2.25	6	7/25/2023	4/25/2051
4/26/2021	B-2	Senior Subordinated	$	32,368,000	8.00	%	2.25	6	7/25/2023	4/25/2051
4/26/2021	M-2	Subordinated	$	15,000,000	9.00	%	2.25	6	7/25/2023	4/25/2051

Net proceeds from the issuance of the 2021 Securitization Notes totaled $140.8 million, which consisted of the combined face amount of $144.5 million, net of debt offering costs of $3.0 million and original issue discount of $0.7 million. As of September 26, 2021, the carrying value of the 2021 Securitization Notes was $141.1 million (net of debt offering costs of $2.7 million and original issue discount of $0.7 million). The Company recognized interest expense on the 2021 Securitization Notes of $2.3 million and $3.9 million for the thirteen and thirty-nine weeks ended September 26, 2021, respectively, which includes $0.1 million and $0.2 million for amortization of debt offering costs, respectively, and $35,000 and $69,000 for amortization of the original issue discount, respectively. The average annualized effective interest rate of the 2021 Securitization Notes,

Table of Con tents

including the ~~equity interests in~~amortization of debt offering costs and original issue discount, was 6.6% for the ~~Franchise Entities.~~ time the debt was outstanding during the thirty-nine weeks ended September 26, 2021.

The ~~restrictions placed on the Company’s subsidiaries~~2021 Securitization Notes require that the ~~Company’s~~ principal (if any) and interest obligations ~~have first priority, after the payment of the Management Fee and certain other FAT Royalty expenses (as defined in the Indenture), and amounts are~~be segregated monthly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of monthly cash flow that exceeds the required monthly ~~debt service~~interest reserve is generally remitted to the Company. ~~Once the~~Interest payments are required ~~obligations are satisfied, there are no further restrictions, including payment of dividends,~~to be made on ~~the cash flows~~a quarterly basis and, unless repaid on or before July 25, 2023 additional interest equal to 1.0% per annum will accrue on each tranche. The material terms of the ~~subsidiaries.~~

~~The~~2021 Securitization Notes ~~have not been and will not be registered under~~also include, among other things, the ~~Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any jurisdiction.~~

~~The Notes are subject to certain~~following financial ~~and non-financial covenants, including a~~covenants: (i) debt service coverage ratio, ~~calculation, as defined in the Indenture. In the event that certain covenants are not met, the Notes may become partially or fully due~~(ii) leverage ratio and ~~payable on an accelerated schedule. In addition, the Company may voluntarily prepay, in part or in full, the Notes in accordance with the provisions in the Indenture.~~(iii) senior leverage ratio. As of September ~~27, 2020,~~26, 2021, the Company was in compliance with these covenants.

The 2021 Securitization Notes are generally secured by a security interest in substantially all the assets of ~~September 27, 2020, the recorded balance~~FB Royalty and its subsidiaries.

A portion of the proceeds of the 2021 Securitization Notes ~~was $72,791,000,~~were used to repay and retire the following notes issued in 2020 under the Base Indenture:

Note

Public
Rating

Seniority

Issue Amount

Coupon

First Call Date

Final Legal Maturity
Date

Series A-2

Senior

20,000,000

6.50

4/27/2021

4/27/2026

Series B-2

Senior Subordinated

20,000,000

9.00

4/27/2021

4/27/2026

Series M-2

N/A

Subordinated

40,000,000

9.75

4/27/2021

4/27/2026

The payoff amount totaled $83.7 million, which ~~is net~~included principal of $80.0 million, accrued interest of $2.2 million and prepayment premiums of $1.5 million. FB Royalty recognized a loss on extinguishment of debt ~~offering costs~~ of ~~$3,797,000 and original issue discount of $3,412,000.~~ $7.8 million in connection with the refinance.

The Company recognized interest expense on the 2020 Securitization Notes of ~~$930,000~~$0 and $0.9 million for the thirteen weeks ended September 26, 2021 and September 27, 2020, ~~which includes $109,000 for amortization of debt offering costs and $21,000 for amortization of the original issue discount.~~respectively. The Company recognized interest expense onrelated to the 2020 Securitization Notes of ~~$2,103,000~~$2.6 million and $2.1 million for the thirty-nine weeks ended September ~~27, 2020, which includes $246,000 for amortization of debt offering costs~~26, 2021 and ~~$33,000 for amortization of the original issue discount. The average effective interest rate of the Securitization Notes was 9.7% for the thirty-nine weeks ended September 27, 2020.~~

~~Loan and Security Agreement~~

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

The term loan under the Loan and Security Agreement was due to mature on June 30, 2020. Interest on the term loan accrued at an annual fixed rate of 20.0% and was payable quarterly. In connection with the Loan and Security Agreement, the Company issued to Lion a warrant to purchase up to 1,167,404 shares of the Company’s common stock at $0.01 per share (the “Lion Warrant”), exercisable only if the amounts outstanding under the Loan and Security Agreement were not repaid in full by June 30, 2020, as extended. If the Loan and Security Agreement was repaid in full prior to June 30, 2020, the Lion Warrant would be terminated in its entirety.

As security for its obligations under the Loan Agreement, the Company granted a lien on substantially all of its assets to Lion. In addition, certain of the Company’s subsidiaries and affiliates entered into a Guaranty (the “Guaranty”) in favor of Lion, pursuant to which they guaranteed the obligations of the Company under the Loan and Security Agreement and granted as security for their guaranty obligations a lien on substantially all of their assets.

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

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

~~The Company recognized interest expense on the Loan and Security Agreement of $1,783,000 for the thirty-nine weeks ended~~ September 27, 2020, which includes $212,000 for amortization of all unaccreted debt offering costs at the time of the repayment and $650,000 in penalties and fees. The Company recognized interest expense on the Loan and Security Agreement of $1,812,000 and $3,608,000 for the thirteen and thirty-nine weeks ended September 29, 2019, respectively.

Elevation Note

On June 19, 2019, the Company completed the acquisition of Elevation Burger. A portion of the purchase price included the issuance to the Seller of a convertible subordinated promissory note (the “Elevation Note”) with a principal amount of ~~$7,510,000,~~$7.5 million, bearing interest at 6.0% per year and maturing in July 2026. The Elevation Note is convertible under certain circumstances into shares of the Company’s common stock at $12.00 per share. In connection with the valuation of the acquisition of Elevation Burger, the Elevation Note was recorded on the condensed consolidated financial statements of the Company at ~~$6,185,000, which is net~~$6.2 million (net of a loan discount of ~~$1,295,000~~$1.3 million and debt offering costs of ~~$30,000.~~

$30,000).

As of September 26, 2021, the carrying value of the Elevation Note was $5.8 million (net of the loan discount of $0.7 million and debt offering costs of $48,000). As of December 27, 2020, the carrying value of the Elevation Note was ~~$5,849,000 which is net~~$5.9 million (net of the loan discount of ~~$940,000~~$0.9 million and debt offering costs of ~~$58,000.~~$56,000). The Company recognized interest expense relating to the Elevation Note during the thirteen and thirty-nine weeks ended September ~~27, 2020~~26, 2021 in the amount of ~~$153,000,~~$165,000 and $504,000, respectively, which included amortization of the loan discount of ~~$69,000~~$62,000 and $192,000, and amortization of $3,000 and $8,000 in debt offering ~~costs.~~costs, respectively. The Company recognized interest expense relating to the Elevation Note during the thirteen and thirty-nine weeks ended September 27, 2020 in the amount of $153,000 and $517,000, respectively, which included amortization of the loan discount of $69,000 and $210,000, and amortization of $3,000 and $8,000 in debt offering ~~costs.~~ costs, respectively.

The ~~Company recognized interest expense of $139,000 and $162,000 on the Elevation Note for the thirteen and thirty-nine weeks ended September 29, 2019, respectively. The~~annualized effective interest rate for the Elevation Note during the thirty-nine weeks ended September ~~27, 2020~~26, 2021 was ~~11.9%~~11.4%.

Table of Con tents

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

Assumed Debt from Merger

In connection with the Merger, certain debts of FCCG totaling $12.5 million (the “FCCG Debt”) were assumed by Fog Cutter Acquisition LLC.

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

~~Paycheck Protection Program Loans~~

~~During~~$241,000 during the thirty-nine weeks ended September ~~27,~~26, 2021.

Paycheck Protection Program Loans

During 2020, the Company received loan proceeds in the amount of approximately ~~$1,532,000~~$1.5 million under the ~~Paycheck Protection Program (the “PPP Loans”)~~PPP Loans and Economic Injury Disaster Loan Program (the “EIDL Loans”). The Paycheck Protection Program, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

At inception, the PPP Loans and EIDL Loans related to FAT Brands Inc. ~~as well as~~and five restaurant locations that were part of the Company’s refranchising program. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loans, there can be no assurance that the Company will be eligible for forgiveness of the loan, in whole or in part. Any unforgiven portion of the PPP Loans is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. As of ~~September~~December 27, 2020, the balance remaining on the PPP Loans and EIDL Loans ~~was $1,180,000 related~~had been reduced to ~~FAT Brands Inc. as~~$1.2 million due to the closure or refranchising of the five restaurant locations ~~were closed or refranchised~~ during the second and third quarters of ~~2020 (Note 4).~~

2020. During the thirty-nine weeks ended September 26, 2021, the Company received confirmation that the entire balance remaining on the PPP Loans, plus accrued interest, had been forgiven under the terms of the program. The Company recognized interest expense of $4,000 and a gain on extinguishment of debt in the amount of $1.2 million relating to the PPP Loans and EIDL Loans during the thirty-nine weeks ended September 26, 2021.

~~Note 11.~~

NOTE 12. PREFERRED STOCK

Series B Cumulative Preferred Stock

On July 13, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) to issue and sell in a public offering (the “Offering”) 360,000 shares of 8.25% Series B Cumulative Preferred Stock (“Series B Preferred Stock”) and 1,800,000 warrants to purchase common stock at $5.00 per share, plus 99,000 additional warrants pursuant to the underwriter’s overallotment option (the “2020 Series B Offering Warrants”), to purchase common stock at $5.00 per share. In the Underwriting Agreement, the Company agreed to pay the underwriters an underwriting discount of 8.0% of the gross proceeds received by the Company in the Offering and issue five-year warrants exercisable for 1% of the number of Series B Preferred Stock shares and the number of 2020 Series B Offering Warrants sold in the Offering.

In connection with the Offering, on July 15, 2020 the Company filed an Amended and Restated Certificate of Designation of Rights and Preferences of Series B Cumulative Preferred Stock with the Secretary of State of Delaware, designating a total of 850,000 shares of Series B Preferred Stock (the “Certificate of Designation”), and on July 16, 2020 entered into a Warrant Agency Agreement with VStock Transfer, LLC, to act as the Warrant Agent for the Series B Offering Warrants (the “Warrant Agency Agreement”).

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

The Offering closed on July 16, 2020 with net proceeds to the Company of ~~$8,021,000, which was net~~$8.1 million (net of ~~$979,000~~$0.9 million in underwriting and offering ~~costs.~~

~~Holders of Series B Cumulative Preferred Stock shall be entitled~~costs).

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

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

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

	~~(i)~~	~~After July 16, 2020 and on or prior to July 16, 2021: $27.50 per share.~~
	~~(ii)~~	~~After July 16, 2021 and on or prior to July 16, 2022: $27.00 per share.~~
	~~(iii)~~	~~After July 16, 2022 and on or prior to July 16, 2023: $26.50 per share.~~
	~~(iv)~~	~~After July 16, 2023 and on or prior to July 16, 2024: $26.00 per share.~~
	~~(v)~~	~~After July 16, 2024 and on or prior to July 16, 2025: $25.50 per share.~~
	~~(vi)~~	~~After July 16, 2025: $25.00 per share.~~

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

transactions:

~~Concurrent with the Offering, the~~•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~~Designation and received an additional 3,537 shares 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 $1,112,000, 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 $1,136,000 with $292,000 allocated to the 2020 Series B Offering Warrants, resulting in an aggregate loss on the exchange of $296,000. The original holders were also issued 3,537 shares of new Series B Preferred Sharesstock in payment of ~~$88,000~~previously accrued ~~and outstanding dividends relating to the Original Series B Preferred at a price of $25 per share.~~

dividends.

•The Company entered into an agreement to exchange 15,000 shares of Series A Fixed Rate Cumulative Preferred Stock owned by FCCG, including accrued dividends thereon, for ~~60,000~~74,449 shares of Series B Preferred Stock valued at $1,500,000, 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 $1,489,000, net of unamortized debt discounts and debt offering costs, and the Company recognized a loss on the exchange in the amount of $11,000. Stock.

•The Company ~~also agreed to issue 14,449 shares of Series B Preferred Stock valued at $361,224 as consideration for accrued dividends due to FCCG.~~

~~The Company entered into an agreement to exchange~~exchanged all of the outstanding shares of Series A-1 Fixed Rate Cumulative Preferred Stock for ~~168,000~~168,001 shares of Series B Preferred Stock.

In December 2020, in connection with the acquisition of FCCG by the Company, the Company declared a special stock dividend (the “Special Dividend”) payable only to holders of the Company’s Common Stock, other than FCCG, on the record date, consisting of 0.2319998077 shares of Series B Cumulative Preferred Stock for each outstanding share of Common Stock held by such stockholders. The Special Dividend was paid on December 23, 2020 and resulted in the issuance of 520,145 additional shares of Series B Preferred Stock with a market value on the payment date of approximately $8.9 million.

Table of Con tents

On June 22, 2021, the Company closed a second underwritten public offering of 460,000 shares of 8.25% Series B Cumulative Preferred Stock at a price to the public of $20.00 per share. The net proceeds to the Company totaled $8.3 million (net of $0.9 million in underwriting discounts and other offering expenses).

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

On August 25, 2021, the Company redeemed 80,000 outstanding Series A Preferred Stock, with a redemption value of $8.0 million, plus accrued dividends thereon in the amount of $1.6 million, held by Trojan Investments, LLC in exchange for 478,199 shares of Series B Preferred Stock valued at ~~$4,200,000, pursuant to~~$20 per share. The Company recognized a ~~Settlement, Redemption and Release Agreement with~~loss on extinguishment of debt in the ~~holders~~amount of ~~such shares. At~~$13,000 resulting from the ~~time of the exchange, the adjusted basis~~redemption of the Series A Preferred ~~on the Company’s books was $4,421,000, net of unamortized debt discounts and debt offering costs, and the Company recognized a gain on the exchange in the amount of $221,000.~~

Stock.

As of September ~~27, 2020,~~26, 2021, the Series B Preferred Stock consisted of ~~663,127~~1,643,272 shares outstanding with a ~~balance~~book value of ~~$13,041,000.~~$37.9 million and 3,089,245 redeemable shares outstanding with a book value of $66.8 million. The Company ~~declared~~paid preferred dividends to the holders of the Series B Preferred Stock totaling ~~$277,000~~$0.9 million and $2.1 million during the thirteen and thirty-nine weeks ended September ~~27, 2020.~~

26, 2021.

Series A Fixed Rate Cumulative Preferred Stock

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

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


			(i)			On June 7, 2018, the Company entered into a Subscription Agreement for the issuance and sale (the “Series A Offering”) of 800 units (the “Units”), with each Unit consisting of (i) 100 shares of the Company’s newly designated Series A Fixed Rate Cumulative Preferred Stock (the “Series A Preferred Stock”) and (ii) warrants (the “Series A Warrants”) to purchase 127 shares of the Company’s common stock at $7.83 per share. The sales price of each Unit was $10,000, resulting in gross proceeds to the Company from the initial closing of ~~$8,000,000~~$8.0 million and the issuance of 80,000 shares of Series A Preferred Stock and Series A Warrants to purchase 102,125 shares of common stock (the “Subscription Warrants”).


			(ii)			On June 27, 2018, the Company entered into a Note Exchange Agreement, as amended, under which it agreed with FCCG to exchange ~~all but $950,000~~$2.0 million of the remaining balance of the Company’s outstanding Promissory Note issued to the FCCG on October 20, 2017 in the original principal amount of $30,000,000 (the “Note”). At the time, the Note had an estimated outstanding balance of principal plus accrued interest of $10,222,000 (the “Note Balance”). On June 27, 2018, $9,272,053 of the Note Balance was exchanged for shares of capital stock of the Company and warrants in the following amounts (the “Exchange Shares”):

	●	~~$2,000,000 of the Note Balance was exchanged~~ for 200 Units consisting of 20,000 shares of Series A Fixed Rate Cumulative Preferred Stock of the Company at $100 per share and Series A Warrants to purchase 25,530 of the Company’s common stock at an exercise price of $7.83 per share (the “Exchange Warrants”)~~; and~~

	●	$7,272,053 of the Note Balance was exchanged for 1,010,420 shares of common stock of the Company, representing an exchange price of $7.20 per share, which was the closing trading price of the common stock on June 26, 2018.

26.

Table of Con tents

The Company classified the Series A Preferred Stock as debt in the condensed consolidated balance sheets.

On July 13, 2020, the Company entered into the following transactions pertaining to the outstanding Series A Preferred Stock:

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

Stock.

As of September ~~27, 2020,~~26, 2021, there were ~~80,000~~no remaining shares of Series A Preferred Stock ~~outstanding, with a balance of $7,945,000 which is net of debt offering costs of $7,000.~~

outstanding. The Company recognized interest expense on the Series A Preferred Stock of ~~$1,056,000~~$0.2 million and $0.4 million for ~~the thirty-nine weeks ended September 27, 2020, which includes accretion expense of $14,000 as well as $2,000 for the amortization of debt offering costs. For~~ the thirteen weeks ended September 26, 2021 and September 27, 2020, ~~the Company recognized interest expense of $350,000, which includes accretion expense of $4,000.~~respectively. The Company recognized interest expense on the Series A Preferred Stock of ~~$1,062,000~~$0.7 million and $1.1 million for the thirty-nine weeks ended September ~~29, 2019, which includes accretion expense of $17,000 as well as $2,000 for the amortization of debt offering costs. For the thirteen weeks ended~~26, 2021 and September 29, 2019, the Company recognized interest expense of $354,000, which includes accretion expense of $6,000 as well as $1,000 for the amortization of the debt offering costs. The year-to-date effective interest rate for the Series A Preferred Stock for 2020 was 14.9%.

27, 2020.

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

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

On June 8, 2020, the Conversion Option became exercisable. As of that date, the Company calculated the estimated fair value of the Conversion Option to be ~~$2,403,000~~$2.4 million and recorded a derivative liability in that amount, together with an offsetting reduction in Additional Paid-In Capital.

As described above, on July 13, 2020, the Company entered into agreements with each of the holders of the Series A Preferred Stock regarding the redemption of their shares. Holders of 85,000 of the outstanding shares agreed to a full redemption in periodic cash payments. FCCG, the holder of the remaining 15,000 outstanding shares, agreed to redeem its Series A Preferred Stock in exchange for newly issued Series B Preferred Stock of the Company. As a result of these agreements, the Conversion Option was terminated for all holders as of July 13, 2020. Immediately prior to the termination, the fair value of the Conversion Option was determined to be ~~$1,516,000~~$1.5 million and resulted in the recognition of ~~$887,000~~$0.9 million in income from the decrease in the value of the derivative liability. With the termination of the Conversion Option, the ~~$1,516,000~~$1.5 million remaining balance in derivative liability was written off with an offsetting credit to Additional Paid-in Capital.

~~Series A-1 Fixed Rate Cumulative Preferred Stock~~

NOTE 13. ACQUISITION PURCHASE PRICE PAYABLE

On ~~July 3, 2018,~~June 21, 2021, the Company ~~filed a Certificate~~settled in full, the acquisition purchase price payable relating to the acquisition of ~~Designation of Rights and Preferences of Series A-1 Fixed Rate Cumulative Preferred Stock (the “Series A-1 Certificate of Designation”) with~~Yalla Mediterranean. At the ~~Secretary of State~~time of the ~~State~~settlement, the payable had a book value of ~~Delaware, designating a total~~$2.1 million.The Company paid cash of ~~200,000~~$1.1 million and agreed to issue 62,500 shares of ~~Series A-1 Fixed Rate Cumulative Preferred Stock (the “Series A-1 Preferred Stock”). The Company issued 45,000 shares~~its common stock, with a market value of Series A-1 Preferred Stock. The Company classified the Series A-1 Preferred Stock as long-term debt because it contained an obligation to issue a variable number of common shares for a fixed monetary amount.

~~On July 13, 2020, the Company entered into a Settlement, Redemption and Release Agreement (the “Series A-1 Agreement”) with the holders~~$0.8 million ($13.05 per share) in satisfaction of the Series A-1 Preferred Stock, to exchange all outstanding shares of Series A-1 Preferred Stock for shares of newly issued Series B Preferred. The Series A-1 Agreement also included a negotiated $300,000 reduction in the redemption value of the Series A-1 Preferred Stock.obligation. The Company recognized a ~~$221,000~~ gain ~~as a result~~on the extinguishment of the ~~reduction~~debt in the amount of $0.2 million during ~~the thirteen weeks ended September 27, 2020.~~

~~Prior to the exchange, the Company recognized interest expense on the Series A-1 Preferred Stock of $87,000 for~~ the thirty-nine weeks ended September 27, 2020, which included a net reduction in the debt discount of $15,000, as well as $3,000 in amortization of debt offering costs. The Company recognized a recovery of previously accrued interest expense on the Series A-1 Preferred Stock of $36,000 for the thirteen weeks ended September 27, 2020. The Company recognized interest expense on the Series A-1 Preferred Stock of $232,000 for the thirty-nine weeks ended September 29, 2019, which included recognized accretion expense of $24,000, as well as $5,000 for the amortization of debt offering costs, with no comparable activity in 2018. The Company recognized interest expense on the Series A-1 Preferred Stock of $78,000 for the thirteen weeks ended September 29, 2019, which included recognized accretion expense of $8,000, as well as $2,000 for the amortization of debt offering costs.

26, 2021.

~~Note 12. Related Party Transactions~~

NOTE 14. RELATED PARTY TRANSACTIONS

During the thirty-nine weeks ended September 26, 2021, there were no reportable related party transactions. For the thirty-nine weeks ended September 27, 2020, the Company reported the following:

Table of Con tents

Due from Affiliates

On April 24, 2020, the Company entered into an Intercompany Revolving Credit Agreement with FCCG (“Intercompany Agreement”). The Company had previously extended credit to FCCG pursuant to a certain Intercompany Promissory Note (the “Original Note”), dated October 20, 2017, with an initial principal balance of $11,906,000. Subsequent to the issuance of the Original Note, the Company and certain of its direct or indirect subsidiaries made additional intercompany advances. Pursuant to the Intercompany Agreement, the revolving credit facility bears interest at a rate of 10% per annum, has a five-year term with no prepayment penalties, and has a maximum capacity of $35,000,000. All additional borrowings under the Intercompany Agreement are subject to the approval of the Board of Directors, in advance, on a quarterly basis and may be subject to other conditions as set forth by the Company. The initial balance under the Intercompany Agreement totaled $21,067,000 including the balance of the Original Note, borrowings subsequent to the Original Note, accrued and unpaid interest income, and other adjustments through December 29, 2019. As of September 27, 2020, the balance receivable under the Intercompany Agreement was $33,382,000.

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

During the thirty-nine weeks ended September 27, 2020, ~~and September 29, 2019,~~ the Company recorded receivables from FCCG in the amount of $158,000 ~~and $30,000, respectively,~~ under the Tax Sharing Agreement, which was added to the intercompany receivable. ~~(See Note 8)~~

NOTE 15. REDEEMABLE PREFERRED STOCK

In satisfaction of a portion of the purchase price in connection with the acquisition of GFG, the Company issued 3,089,245 shares of its Series B Preferred Stock (the "GFG Preferred Stock Consideration").

~~Note 13. SHAREHOLDERS’ Equity~~

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 in cash, the GFG Preferred Stock Consideration for $67.5 million, plus any accrued but unpaid dividends, on or before April 22, 2022. The parties valued the GFG Preferred Stock Consideration and the put/call agreement at $67.5 million and the Company has classified them as redeemable preferred stock in its condensed consolidated balance sheets.

As of September ~~27, 2020,~~26, 2021, the carrying value of the redeemable preferred stock was $66.8 million. The Company declared dividends in the amount of $0.7 million relating to the GFG Preferred Stock Consideration for the thirteen and thirty-nine weeks ended September 26, 2021.

NOTE 16. STOCKHOLDERS’ EQUITY

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 25,000,000 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 2000 votes for each share of Class B Common Stock held as of the applicable date on any matter that is submitted to a vote or for the consent of the stockholders of the Corporation. The foregoing is qualified in its entirety by reference to the 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.

Table of Con tents

On October 15, 2021, the Board of Directors of the Company approved an amendment and restatement (the “Amendment”) of the Company’s Bylaws, effective as of the same date. The Amendment revised the stockholder voting provisions of the Bylaws to reflect the dual class common stock structure adopted by the Company in August 2021. In addition, the Amendment revised the provisions in the Bylaws for stockholder voting by written consent and the procedure for fixing the size of the Board of Directors and made certain other conforming changes.

As of September 26, 2021 and December ~~29, 2019,~~27, 2020, the total number of authorized shares of common stock was 51,600,000 and 25,000,000, ~~and there~~respectively. There were ~~11,926,264 and 11,860,299~~15,013,001 shares of Class A common stock and 1,270,683 shares of Class B common stock outstanding ~~respectively.~~

at September 26, 2021 and 11,926,264 shares of Class A common stock issued and outstanding at December 27, 2020.

Below are the changes to the Company’s common stock during the thirty-nine weeks ended September ~~27, 2020:~~

26, 2021:



●			Upon the effective date of the Recapitalization, each share of Common Stock outstanding as of June 29, 2021 was reclassified as Class A Common Stock, and on August 23, 2021, the Company distributed a dividend of 0.10 shares of Class B Common Stock for each outstanding share to holders of Class A Common Stock. This resulted in the issuance of 1,270,683 shares of Class B Common Stock.

●			Warrants to purchase 464,643 shares of common stock were exercised during the thirty-nine weeks ended September 26, 2021. The proceeds to the Company from the exercise of the warrants totaled $2.2 million.

●			Between April 6, 2021 and May 18, 2021, the Company granted 300,000 restricted shares of common stock to certain senior executives of the Company. The shares vest over three years in equal installments at the anniversary date of grant. The value of the restricted stock grant was $2.8 million and will be amortized as compensation expense over the vesting period.

●			On ~~February 11, 2020,~~June 21, 2021, the ~~non-employee members~~Company entered into an agreement to issue 62,500 shares of common stock with a market value of 0.8 million in partial payment of the ~~board~~acquisition purchase price payable relating to the acquisition of ~~directors elected~~Yalla Mediterranean (See Note 13).

●			On April 20, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, payable on May 7, 2021 to ~~receive their compensation in~~stockholders of record as of May 3, 2021, for a total of $1.6 million.

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

●			On July 22, 2021, the Company completed the acquisition of GFG and issued 1,964,865 shares of the Company’s Common Stock with a value of $21.8 million.

●			On August 24, 2021, the Board of Directors declared a cash dividend of $0.13 per share of common stock, ~~in lieu~~payable on September 15, 2021 to stockholders of ~~cash. As such, the Company issued~~record as of September 6, 2021, for a total of ~~16,360 shares of common stock at a value of $4.585 per share to the non-employee members of the board of directors as consideration for accrued directors’ fees.~~

	●	On May 12, 2020, the non-employee members of the board of directors elected to receive their compensation in shares of the Company’s common stock in lieu of cash. As such, the Company issued a total of 13,677 shares of common stock at a value of $3.29 per share to the non-employee members of the board of directors as consideration for accrued directors’ fees.

	●	On August 4, 2020, certain non-employee members of the board of directors elected to receive their compensation in shares of the Company’s common stock in lieu of cash. As such, the Company issued a total of 35,928 shares of common stock at a value of $3.34 per share to these non-employee members of the board of directors as consideration for accrued directors’ fees.$2.1 million.

~~Note 14.~~

NOTE 17. SHARE-BASED COMPENSATION

Effective September 30, 2017, the Company adopted the 2017 Omnibus Equity Incentive Plan (the “Plan”). The Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, FAT Brands Inc. and its subsidiaries. The Plan provides a maximum of 1,021,250 shares available for grant.

The Company has periodically issued stock options under the Plan. All of the stock options issued by the Company to date have included a vesting period of three years, with one-third of each grant vesting annually. ~~The Company’s~~As of September 26, 2021, there were 658,605 stock ~~option activity~~options outstanding with a weighted average exercise price of $7.47 per share (adjusted for ~~fiscal year~~the effect of the Class B common stock dividend (See Note 16)).

During the thirty-nine weeks ended September ~~27, 2020 can~~26, 2021 the Company granted a total of 300,000 shares of its common stock to three employees (the “Grant Shares”). The Grant Shares vest one-third each year on the anniversary date of the grant. The grantees are entitled to any common dividends relating to the Grant Shares during the vesting period. The Grant Shares were valued at $2.8 million as of the date of grant. The related compensation expense will be ~~summarized as follows:~~

Number of Shares Weighted
Average
Exercise
Price Weighted Average Remaining Contractual
Life (Years)
Stock options outstanding at December 29, 2019 722,481 $ 8.45 7.7
Grants - $ - -
Forfeited (158,284 ) $ 7.98 8.0
Expired - $ - -
Stock options outstanding at September 27, 2020 564,197 $ 8.58 7.7
Stock options exercisable at September 27, 2020 289,337 $ 9.58 7.5

recognized over the vesting period.

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

	~~Including Non-Employee Options~~
~~Expected dividend yield~~	~~4.00% - 10.43~~	%
~~Expected volatility~~	~~30.23% - 31.73~~	%
~~Risk-free interest rate~~	~~1.52% - 2.85~~	%
~~Expected term (in years)~~	~~5.50 – 5.75~~

Table of Con tents

The Company recognized share-based compensation expense in the amount of ~~$45,000~~$0.3 million and ~~$61,000~~$45,000, during the thirteen ~~and thirty-nine~~ weeks ended September 26, 2021 and September 27, 2020, respectively. The Company recognized share-based compensation expense in the amount of ~~$59,000~~$0.5 million and ~~$218,000~~$0.1 million, during the ~~thirteen and~~ thirty-nine weeks ended September ~~29, 2019,~~26, 2021 and September 27, 2020, respectively. As of September ~~27, 2020,~~26, 2021, there remains ~~$32,000~~$2.4 million of related share-based compensation expense relating to non-vested grants, which will be recognized over the remaining vesting period, subject to future forfeitures.

~~Note 15.~~

NOTE 18. WARRANTS

~~Warrant Repurchases~~

On July 30, 2020, the Company entered into an agreement (the “Lender Warrant Purchase Agreement”) to reacquire for $249,500, warrants that had been issued on July 3, 2018 and which granted the right to purchase 509,604 shares of the Company’s common stock at an exercise price of $7.20 per share (the “Lender Warrant”). The Lender Warrant was issued as part of the former $16 million credit facility with FB Lending, LLC, which was repaid on January 29, 2019. The Lender Warrant was valued at $592,000 at the date of grant and may have been exercised at any time beginning on the issue date and ending on July 3, 2023.

On August 11, 2020, the Company purchased a portion of the outstanding Placement Agent Warrants for $12,626. The reacquired Placement Agent Warrants were issued on July 3, 2018 and granted the right to purchase 25,787 shares of the Company’s common stock at an exercise price of $7.20 per share. As of September 27, 2020, there were remaining outstanding Placement Agent Warrants granting rights to purchase 40,904 shares of the Company’s common stock at an exercise price of $7.20 per share.

Between August 19, 2020 and September 17, 2020, the Company engaged in several open market purchases of the 2020 Series B Offering Warrants. For payment of total consideration of $67,894, the Company acquired warrants which had been issued on July 16, 2020 and which granted the right to purchase a total of 51,627 shares of the Company’s common stock at an exercise price of $5.00 per share. As a result of these transactions, the remaining outstanding 2020 Series B Offering Warrants grant rights to purchase 2,132,573 shares of the Company’s common stock, beginning on the earlier of one year from the date of issuance or the consummation of a consolidation, merger or other similar business combination transaction involving the Company and its parent company, FCCG.

~~Warrant Exchange~~

In connection with the July 13, 2020 Offering of 8.25% Series B Cumulative Preferred Stock, the Company entered into agreements with certain holders of the Original Series B Preferred to exchange the 34,224 outstanding Series B Warrants for 285,200 new Series B Offering Warrants valued at $292,000, pursuant to Warrant Exchange Agreements, in consideration of their consent to amend and restate the terms of the Series B Cumulative Preferred Stock. As a result of the warrant exchange the Company recognized a loss of $271,000. (See Note 11)

The original Series B Warrants had been issued between October 3, 2019 and December 29, 2019, in connection with the sale of Original Series B Preferred and granted the right to purchase 34,284 shares of the Company’s common stock at an exercise price of $8.50 per share, exercisable for a period of five years from October 3, 2019.

~~Outstanding Warrants~~

~~As of September 27, 2020, the Company had issued the following outstanding warrants to purchase shares of its common stock:~~

	●	Warrants issued on October 20, 2017 to purchase 81,700 shares of the Company’s common stock granted to the selling agent in the Company’s Initial Public Offering (the “Common Stock Warrants”). The Common Stock Warrants are exercisable commencing April 20, 2018 through October 20, 2022. The exercise price for the Common Stock Warrants is $14.69 per share, and the Common Stock Warrants were valued at $124,000 at the date of grant. The Common Stock Warrants provide that upon exercise, the Company may elect to redeem the Common Stock Warrants in cash by paying the difference between the applicable exercise price and the then-current fair market value of the common stock.

	●	Warrants issued on June 7, 2018 to purchase 102,125 shares of the Company’s common stock at an exercise price of $7.83 per share (the “Subscription Warrants”). The Subscription Warrants were issued as part of the Subscription Agreement (see Note 11). The Subscription Warrants were valued at $87,000 at the date of grant. The Subscription Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.

	●	Warrants issued on June 27, 2018 to purchase 25,530 shares of the Company’s common stock at an exercise price of $7.83 per share (the “Exchange Warrants”). The Exchange Warrants were issued as part of the Exchange (See Note 11). The Exchange Warrants were valued at $25,000 at the date of grant. The Exchange Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.

	●	Warrants issued on July 3, 2018 to purchase 57,439 shares of the Company’s common stock at an exercise price of $7.83 per share (the “Hurricane Warrants”). The Hurricane Warrants were issued as part of the acquisition of Hurricane. The Hurricane Warrants were valued at $58,000 at the date of grant. The Hurricane Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.

	●	Warrants issued on July 3, 2018 to purchase 40,904 shares of the Company’s common stock at an exercise price of $7.20 per share (the “Placement Agent Warrants”). The Placement Agent Warrants were issued to the placement agents of the $16 million credit facility with FB Lending, LLC (See Note 10). The remaining Placement Agent Warrants had been valued at $48,000 at the date of grant. The Placement Agent Warrants may be exercised at any time or times beginning on the issue date and ending on the five-year anniversary of the issue date.

	●	Warrants issued on June 19, 2019, in connection with the acquisition of Elevation Burger (See Note 3), to purchase 46,875 shares of the Company’s common stock at an exercise price of $8.00 per share (the “Elevation Warrant”), exercisable for a period of five years, but only in the event of a merger of the Company and FCCG, commencing on the second business day following the potential merger and ending on the five year anniversary thereafter. The Elevation Warrants were not valued at the date of grant due to the contingency relating to their exercise.

	●	Warrants issued between October 3, 2019 and December 29, 2019, in connection with the sale of Series B Units, to purchase 60 shares of the Company’s common stock at an exercise price of $8.50 per share (the “Series B Warrants”), exercisable for a period of five years from October 3, 2019. These warrants have not yet been presented by the holders for exchange with 2020 Series B Offering Warrants (See Note 11).

	●	Warrants issued on July 16, 2020, in connection with Series B Preferred Stock Offering (See Note 11), to purchase 2,132,573 shares of the Company’s common stock at an exercise price of $5.00 per share (the “2020 Series B Offering Warrants”), exercisable beginning on the earlier of one year from the date of issuance or the consummation of a consolidation, merger or other similar business combination transaction involving the Company (or any of its subsidiaries) and its parent company, FCCG, and will expire on July 16, 2025. The Series B Offering Warrants were valued at $2,162,000 at the date of grant.

	●	Warrants issued on July 16, 2020, to purchase 2020 Series B Offering Warrants, which would grant the holder the right to purchase 18,990 shares of the Company’s common stock at an exercise price of $5.00 per share (the “2020 Series B Offering Warrants”), exercisable beginning on the earlier of one year from the date of issuance or the consummation of a consolidation, merger or other similar business combination transaction involving the Company (or any of its subsidiaries) and its parent company, FCCG, and will expire on July 16, 2025. The exercise price to purchase the 2020 Series B Offering Warrant is $0.01 per underlying share of common stock. These warrants were valued at $64,000 at the date of grant.

The Company’s warrant activity for the ~~thirteen~~thirty-nine weeks ended September ~~27, 2020 is~~26, 2021 was as follows:

Number of
Shares Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual
Life (Years)
Warrants outstanding at December 29, 2019 2,091,652 $ 3.57 3.6
Grants 2,203,190 $ 4.96 4.8
Forfeited (1,788,646 ) $ 2.51 3.8
Warrants outstanding at September 27, 2020 2,506,196 $ 5.58 4.5
Warrants exercisable at September 27, 2020 307,758 $ 9.57 2.6

~~The range of assumptions used to establish the value of the warrants using the Black-Scholes valuation model are as follows:~~


	Number of Shares	Weighted Average Exercise Price (1)		Weighted Average Remaining Contractual Life (Years)
Warrants outstanding at December 27, 2020	2,273,533	$	4.60	3.5
Grants	8,184	$	3.88	3.8
Exercised	(475,853)	$	3.88	3.7
Cancelled	(2,849)	$	3.88	3.8
Warrants outstanding at September 26, 2021	1,803,015	$	4.76	3.5
Warrants exercisable at September 26, 2021	1,803,015	$	4.76	3.5

	~~Warrants~~
~~Expected dividend yield~~	(1)		~~4.00% - 6.63~~	%
~~Expected volatility~~	~~30.23% - 31.73~~	%
~~Risk-free interest rate~~	~~0.99% - 1.91~~	%
~~Expected term (in years)~~	~~3.80 - 5.00~~	Pricing adjusted for dividends and Class B stock dividend.

~~In addition~~

During the thirty-nine weeks ended September 26, 2021, 475,853 warrants were exercised in exchange for 464,643 shares of common stock with net proceeds to the ~~warrants to purchase common stock described above, the~~ Company ~~has also granted the following warrants on other securities to the underwriters in connection with the Series B Preferred Stock Offering (See Note 11):~~

●

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 consolidation, merger or other similar business combination transaction involving the Company (or any of its subsidiaries) and its parent company, FCCG, and will expire on July 16, 2025. The Series B Offering Warrants were valued at $2,000 at the date of grant.

of $2.2 million.

~~Note 16.~~

NOTE 19. DIVIDENDS ON COMMON STOCK

~~Our~~

On April 20, 2021, the Board of Directors ~~did not declare a dividend on common stock during the thirty-nine weeks ended September 27, 2020.~~

~~The Company~~ declared a ~~stock~~cash dividend ~~on February 7, 2019 equal to 2.13% on its common stock, representing the number~~ of ~~shares equal to $0.12~~$0.13 per share of common stock, ~~based~~payable on ~~the closing price as of February 6, 2019. The stock dividend was paid on February 28, 2019~~May 7, 2021 to stockholders of record as of May 3, 2021, for a total of $1.6 million.

On June 1, 2021, the ~~close~~Board of ~~business on February 19, 2019. The Company issued 245,376 shares~~Directors declared a cash dividend of $0.13 per share of common stock, atpayable on June 21, 2021 to stockholders of record as of June 14, 2021, for a total of $1.6 million.

On August 24, 2021, the Board of Directors declared a cash dividend of 0.13 per share ~~price~~ of ~~$5.64 in satisfaction~~common stock, payable on September 15, 2021 to stockholders of ~~the stock dividend. No fractional shares were issued, instead the Company paid stockholders cash-in-lieu~~record as of ~~shares.~~

September 6, 2021, for a total of $2.1 million.

~~Note 17. Commitments~~

NOTE 20. COMMITMENTS AND CONTINGENCIES

Litigation

James Harris and ~~Contingencies~~

~~Litigation~~

~~Eric Rojany, et al.~~Adam Vignola v. ~~FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC708539, and~~ ~~Daniel Alden, et al. v. FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC716017.~~

~~On June 7, 2018, FAT Brands, Inc., Andrew Wiederhorn, Ron Roe,~~Squire Junger, James Neuhauser, Edward H. Rensi, ~~Marc L. Holtzman, Squire Junger, Silvia Kessel, Jeff Lotman,~~Andrew Wiederhorn, Fog Cutter Holdings, LLC, and Fog Cutter Capital Group, Inc., and ~~Tripoint Global Equities, LLC (collectively, the “Original Defendants”) were named as defendants in a putative securities class action lawsuit entitled~~ ~~Rojany v.~~ FAT Brands Inc., nominal defendant (Delaware Chancery Court, Case No. ~~BC708539 (the “~~~~Rojany~~ ~~Case”), in the Superior Court~~2021-0511)

On June 10, 2021, plaintiffs James Harris and Adam Vignola, putative stockholders of the ~~State~~Company, filed a derivative action in Delaware nominally on the Company’s behalf against the Company’s current directors and our current and former majority stockholders alleging claims of ~~California, County~~breach of ~~Los Angeles. On July 31, 2018, the~~ ~~Rojany~~ ~~Case was designated as complex, pursuant to Rule 3.400~~fiduciary duty, unjust enrichment and waste arising out of the ~~California Rules of Court and assigned~~Company’s December 2020 merger with Fog Cutter Capital Group, Inc. Mr. Vignola was previously involved in litigation against the ~~matter to the Complex Litigation Program. On August 2, 2018, the Original Defendants were named defendants in~~Company, having filed a ~~second~~ putative class action lawsuit ~~Alden~~relating to the Company’s 2017 initial public offering, which lawsuit was voluntarily dismissed by stipulation in 2020. The defendants dispute the allegations of the new lawsuit and intend to vigorously defend against the claims. However, this matter is in the early stages and we cannot predict the outcome of this lawsuit. Subject to certain limitations, we are obligated to indemnify our directors in connection with the lawsuit and any related litigation or settlements amounts, which may be time-consuming, result in significant expense and divert the attention and resources of our management. An unfavorable outcome may exceed coverage provided under our insurance policies, could have an adverse effect on our financial condition and results of operations and could harm our reputation.

Table of Con tents

Stratford Holding LLC v. ~~FAT Brands~~,Foot Locker Retail Inc. (U.S. District Court for the Western District of Oklahoma, Case No. ~~BC716017 (the “~~~~Alden~~ ~~Case”), filed~~5:12-cv-00772-HE)

In 2012 and 2013, two property owners in ~~the same court. On September 17, 2018, the~~ ~~Rojany~~ Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and ~~Alden~~ ~~Cases were consolidated under the~~ ~~Rojany~~ Case number. On October 10, 2018, plaintiffs Eric Rojany, Daniel Alden, Christopher Hazelton-Harrington and Byron Marin (“Plaintiffs”) filed a First Amended Consolidated Complaint against FAT Brands, Inc., Andrew Wiederhorn, Ron Roe, James Neuhauser, Edward H. Rensi,our subsidiary Fog Cutter Capital Group Inc. (now known as Fog Cutter Acquisition, LLC), and Tripoint Global Equities, LLC (collectively, “Defendants”), thereby removing Marc L. Holtzman, Squire Junger, Silvia Kessel and Jeff Lotman as defendants. On November 13, 2018, Defendants filed a Demurrer to First Amended Consolidated Complaint. On January 25, 2019, the Court sustained Defendants’ Demurrer to First Amended Consolidated Complaint with Leave to Amend in Part. Plaintiffs filed a Second Amended Consolidated Complaintfor alleged environmental contamination on February 25, 2019. On March 27, 2019, Defendants filed a Demurrer to the Second Amended Consolidated Complaint. On July 31, 2019, the Court sustained Defendants’ Demurrer to the Second Amended Complaint in Part, narrowing the scopetheir properties, stemming from dry cleaning operations on one of the case. Defendants filed their Answer to the Second Amended Consolidated Complaint on November 12, 2019. Thereafter, plaintiffs Alden, Hazelton-Harrington and Marin, voluntarily dismissed their claims without prejudice, leaving only plaintiff Rojany as the putative class representative plaintiff (“Plaintiff”). On January 29, 2020, Plaintiff filed a Motion for Class Certification. On October 8, 2020, the Court denied Plaintiff’s Motion for Class Certification. Defendants dispute Plaintiff’s allegations and will continue to vigorously defend themselves in this litigation. Defendants estimate that Plaintiff’s individual compensatory rescissoryproperties. The property owners seek damages ~~do not exceed $5,000 (inclusive of interest, but exclusive of any recoverable costs and fees).~~

~~Adam Vignola, et al. v. FAT Brands Inc., et al.~~~~, United States District Court for the Central District of California, Case No. 2:18-cv-07469.~~

~~On August 24, 2018, the Original Defendants were named as defendants in a putative securities class action lawsuit entitled~~ ~~Vignola v. FAT Brands, Inc.~~~~, Case No. 2:18-cv-07469-PSG-PLA,~~ in the ~~United States District Court for~~range of $12 million to $22 million. From 2002 to 2008, a former Fog Cutter subsidiary managed a lease portfolio, which included the ~~Central District~~subject property. Fog Cutter denies any liability, although it did not timely respond to one of ~~California. On October 23, 2018, Charles Jordan~~the property owners’ complaints and ~~David Kovacs (collectively, “Lead Plaintiffs”) moved to be appointed lead plaintiffs,~~several of the defendants’ cross-complaints and thus is in default. The parties are currently conducting discovery, and the ~~Court granted Lead Plaintiffs’ motion on~~matter is scheduled for trial for November ~~16, 2018. On January 15, 2019, Lead Plaintiffs filed a First Amended Class Action Complaint against the Original Defendants.~~2021. The ~~allegations and claims for relief asserted in~~ ~~Vignola~~ ~~are substantively identical to those asserted in the~~ ~~Rojany~~ Case. Defendants filed a Motion to Dismiss First Amended Class Action Complaint, or, in the Alternative, to Stay the Action In Favor of a Prior Pending Action. On June 14, 2019, the Court denied Defendants’ motion to stay but granted Defendants’ motion to dismiss the First Amended Class Action Complaint, with Leave to Amend. Lead Plaintiffs filed a Second Amended Class Action Complaint on August 5, 2019. On September 9, 2019, Defendants’ filed a Motion to Dismiss the Second Amended Class Action Complaint. On December 17, 2019, the Court granted Defendants’ Motion to Dismiss the Second Amended Class Action Complaint in Part, Without Leave to Amend. The allegations remaining in ~~Vignola~~ ~~are substantively identical to those remaining in the~~ ~~Rojany~~ Case. Defendants filed their Answer to the Second Amended Class Action Complaint on January 14, 2020. On December 27, 2019, Lead Plaintiffs filed a Motion for Class Certification. By order entered March 16, 2020, the Court denied Lead Plaintiffs’ Motion for Class Certification. By order entered April 1, 2020, the Court set various deadlines for the case, including a fact discovery cut-off of December 29, 2020, expert discovery cut-off of February 23, 2021 and trial date of March 30, 2021. On July 16, 2020, the parties reached an agreement in principle to settle this case, pursuant to which lead plaintiffs will dismiss their claims against defendants with prejudice in exchange for a payment by or on behalf of defendants of $75,000. On September 25, 2020, the parties executed a Settlement Agreement and Mutual Release memorializing the aforementioned agreement in principle to settle this case. On October 13, 2020, the Court ordered the stipulated dismissal of this action, with prejudice, in its entirety.

The Company is obligated to indemnify its officers and directors to the extent permitted by applicable law in connection with the above actions, and has insurance for such individuals, to the extent of the limits of the applicable insurance policies and subject to potential reservations of rights. The Company is also obligated to indemnify Tripoint Global Equities, LLC under certain conditions relating to the ~~Rojany~~ ~~and~~ ~~Vignola~~ ~~matters. These proceedings are ongoing and the~~ Company is unable to predict the ultimate outcome of ~~these matters.~~this matter, however, reserves have been recorded on the balance sheet relating to this litigation. There can be no assurance that the defendants will be successful in defending against these actions.

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

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

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

~~Operating Leases~~

The Company leases corporate headquarters located in Beverly Hills, California comprising 6,137 square feet of space, pursuant to a lease that expires on September 29, 2025, as well as an additional 2,915 square feet of space pursuant to a lease amendment that expires on February 29, 2024. The Company leases 1,775 square feet of space in Plano, Texas for pursuant to a lease that expires on March 31, 2021. As part of the acquisition of Elevation Burger, the Company assumed a lease of 5,057 square feet of space in Falls Church, Virginia that expires on December 31, 2020. The Company subleases approximately 2,500 square feet of this lease to an unrelated third party.

~~The Company believes that all existing facilities are in good operating condition and adequate to meet current and foreseeable needs.~~

~~Note 18. geographic information~~

NOTE 21. GEOGRAPHIC INFORMATION AND MAJOR FRANCHISEES

R~~evenues~~

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

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
United States $ 3,500 $ 5,364 $ 9,773 $ 14,435
Other countries 589 1,120 1,846 2,818
Total revenues $ 4,089 $ 6,484 $ 11,619 $ 17,253

~~Revenues are~~


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
United States	$	26,264	$	3,500	$	37,411	$	9,773
Other countries	3,497		589		7,282		1,846
Total revenue	$	29,761	$	4,089	$	44,693	$	11,619

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

During the thirty-nine weeks ended September ~~27, 2020~~26, 2021 and September ~~29, 2019,~~27, 2020, no individual franchisee accounted for more than 10% of the Company’s ~~revenues.~~

~~NOTE 19. OPERATING SEGMENTS~~

With minor exceptions, the Company’s operations are comprised exclusively of franchising a growing portfolio of restaurant brands. This growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and accounting services. While there are variations in the brands, the nature of the Company’s business is fairly consistent across its portfolio. Consequently, management assesses the progress of the Company’s operations as a whole, rather than by brand or location, which become more significant as the number of brands has increased.

As part of its ongoing franchising efforts, the Company will, from time to time, make opportunistic acquisitions of operating restaurants in order to convert them to franchise locations. During the refranchising period, the Company may operate the restaurants.

The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM reviews financial performance and allocates resources at an overall level on a recurring basis. Therefore, management has determined that the Company has one operating and reportable segment.

revenue.

NOTE ~~20.~~22. SUBSEQUENT EVENTS

~~Pursuant to FASB ASC 855,~~

Management has evaluated all events and transactions that occurred ~~from~~subsequent to September ~~27, 2020~~26, 2021 through the date of issuance of these condensed consolidated financial statements. During this period, the Company did not have any significant subsequent ~~events.~~

events, except as follows:

Acquisition of Twin Peaks

On October 1, 2021, the Company completed the acquisition of Twin Peaks Buyer, LLC (“Twin Peaks”) from TwinPeaksHoldings,LLC(the“Seller”). Twin Peaks is the franchisor and operator of a chain of sports lodge themed restaurants. The

Table of Con tents

purchase price totaled $300.0 million, comprised of $222.1 million in cash, a note payable in the amount of $10.4 million and 2,847,393 shares of the Company’s Series B Cumulative Preferred Stock (the "Preferred Stock Consideration") valued at $67.5 million. The final purchase price is subject to certain customary adjustments, including with respect to working capital, to be finalized no later than 90 days after closing.

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

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

2021 Twin Peaks Securitization

In connection with the acquisition of Twin Peaks on October 1, 2021, FAT Brands Twin Peaks I, LLC (“FB Twin Peaks”), a special purpose, wholly-owned subsidiary of the Company, completed the issuance and sale in a private offering (the “Twin Peaks Offering”) of three tranches of fixed rate senior secured notes (the Twin Peaks Securitization Notes") and have the following terms:


Closing Date	Class	Seniority	Principal Balance		Coupon		Weighted Average Life (Years)	Non-Call Period (Months)	Anticipated Call Date	Final Legal Maturity Date
10/1/2021	A-2	Senior	$	150,000,000	7.00	%	1.82	6	7/25/2023	7/25/2051
10/1/2021	B-2	Senior Subordinated	$	50,000,000	9.00	%	1.82	6	7/25/2023	7/25/2051
10/1/2021	M-2	Subordinated	$	50,000,000	10.00	%	1.82	6	7/25/2023	7/25/2051

The Twin Peaks Securitization Notes were issued in a securitization transaction in which substantially all of the franchising and operating assets of Twin Peaks are pledged as collateral to secure the Twin Peak Notes.

Acquisition of Fazoli's

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

Issuance of Series B Preferred Stock

On November 1, 2021, the Company closed an underwritten offering of 1.0 million shares of 8.25% Series B Cumulative Preferred Stock in an underwritten offering. The net proceeds to the Company totaled $16.5 million (net of $1.5 million in underwriting discounts and other offering expenses).

Table of Con tents

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

The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the ~~thirteen and~~ thirty-nine weeks ended September ~~27, 2020~~26, 2021 and September ~~29, 2019,~~27, 2020, as applicable. Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, including but not limited to, COVID-19. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed on ~~April 28, 2020~~March 29, 2021 “Item 1A. Risk Factors” and elsewhere in this report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus ~~(COVID-19)~~(“COVID-19”) as a pandemic, which continues to spread throughout the United States and other countries. As a result, Company franchisees ~~have~~ temporarily closed some retail locations, reduced or modified store operating hours, adopted a “to-go” only operating model, or a combination of these actions. These actions ~~have~~ reduced consumer traffic, all resulting in a negative impact to Company ~~revenues.~~revenue. While the disruption to our business from the COVID-19 pandemic is currently expected to be temporary, there is a great deal of uncertainty around the severity and duration of the disruption, and also the longer-term effects on our business and economic growth and consumer demand in the U.S. and worldwide. ~~In the future, the~~The effects of COVID-19 may ~~continue to~~ materially adversely affect our business, results of operations, liquidity and ability to service our existing debt, particularly if these effects continue in place for a significant amount of time.

During the thirty-nine weeks ended September 27, 2020, the Company recorded goodwill impairment charges of $1,462,000 and tradename impairment charges of $2,465,000 relating to the Ponderosa, Yalla and Bonanza brands. As If additional information becomes available regarding the potential impact and the duration of the negative financial effects of the current pandemic, the Company may determine that additional impairment ~~adjustments~~adjustment to the recorded value of trademarks, goodwill and other intangible assets may be necessary.

Executive Overview

Business overview

FAT Brands Inc.~~, formed~~ is a leading multi-brand restaurant franchising company that develops, markets and acquires primarily quick-service, fast casual and casual dining concepts restaurant concepts around the world. Organized in March 2017 as a wholly owned subsidiary of Fog Cutter Capital Group, Inc. (“FCCG”), ~~is a leading multi-brand restaurant franchising company that develops, markets, and acquires predominantly fast casual restaurant concepts around the world. On~~we completed our initial public offering on October 20, 2017 ~~we completed an initial public offering~~ and issued additional shares of common stock representing 20 percent of our ownership ~~(the “Initial Public Offering”). As of September 27, 2020, FCCG continues to control a significant voting majority~~upon completion of the ~~Company.~~

offering. During the fourth quarter of 2020, we completed a transaction in which FCCG merged into a wholly owned subsidiary of ours, and we became the parent company of FCCG.

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

Table of Con tents

As of September ~~27, 2020,~~26, 2021, the Company owns ~~nine~~14 restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe ~~Buffalo’s~~& Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Yalla Mediterranean, Ponderosa and Bonanza ~~Steakhouses, Elevation Burger and Yalla Mediterranean, that~~Steakhouses. Combined, these brands franchise ~~over 700~~approximately 2,000 restaurant locations, ~~worldwide.~~

~~Operating segments~~

With minor exceptions, our operations are comprised exclusively of franchising a growing portfolio of restaurant brands. Our growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership, marketing, training and accounting services. While there are variations in the brands, the nature of our business is fairly consistent across our portfolio. Consequently, our management assesses the progress of our operations as a whole, rather than by brand or location, which has become more significant as the number of brands has increased.

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 and reportable segment.

including units under construction.

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 2020 and 2019 fiscal years are each 52-week years.~~

Table of Con tents

Results of Operations of FAT Brands Inc.

The following table ~~summarizes~~summarize key components of our ~~combined~~condensed consolidated results of operations for the thirteen ~~weeks~~ and thirty-nine weeks ended September ~~27, 2020~~26, 2021 and September 29, 2019. The results of Elevation Burger were not included in the consolidated operations of the Company prior to its acquisition, which occurred on June 19, 2019. The results of Johnny Rockets are included in the consolidation financial statements of the Company beginning September 21,27, 2020.

(In thousands)

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Statement of operations data:

Revenues
Royalties $ 3,156 $ 3,937 $ 8,678 $ 11,064
Franchise fees 122 1,272 571 2,578
Store opening fees - 109 - 398
Advertising fees 803 1,151 2,347 3,159
Management fees and other income 8 15 23 54
Total revenues 4,089 6,484 11,619 17,253

Costs and expenses
General and administrative expenses 2,990 3,422 10,626 9,242
Advertising expenses 814 1,151 2,358 3,159
Impairment of assets 753 - 3,927 -
Refranchising restaurant losses (gains) 325 (902 ) 1,869 (851 )
Costs and expenses 4,882 3,671 18,780 11,550

(Loss) income from operations (793 ) 2,813 (7,161 ) 5,703

Other income (expense), net 206 (2,031 ) (1,433 ) (5,514 )

(Loss) income before income tax (benefit) expense (587 ) 782 (8,594 ) 189

Income tax (benefit) expense (19 ) (372 ) (1,405 ) 253

Net (loss) income $ (568 ) $ 1,154 $ (7,189 ) $ (64 )

Thirteen Weeks Ended Thirty Nine Weeks Ended
September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020
Statements of operations data:
Revenue
Royalties $ 13,742 $ 3,156 $ 24,800 $ 8,678
Franchise fees 1,087 122 2,109 571
Advertising fees 5,483 803 8,043 2,347
Restaurant sales 3,879 — 4,113 —
Factory revenue 5,480 — 5,480 —
Management fees and other income 90 8 148 23
Total revenue 29,761 4,089 44,693 11,619
Costs and expenses
General and administrative expense 12,966 2,990 23,375 10,626
Restaurant operating expenses 3,660 — 3,904 —
Factory operating expenses 3,473 — 3,473 —
Impairment of assets — 753 — 3,927
Refranchising (gain) loss (250) 325 (679) 1,869
Acquisition costs 2,053 503 2,985 633
Advertising expense 5,483 814 8,043 2,358
Total costs and expenses 27,385 5,385 41,101 19,413
Income (loss) from operations 2,376 (1,296) 3,592 (7,794)
Total other (expense) income, net (7,194) 709 (18,893) (800)
Loss before income tax expense (4,818) (587) (15,301) (8,594)
Income tax benefit (1,183) (19) (3,303) (1,405)
Net loss (3,635) (568) (11,998) (7,189)
Less: Net loss attributable to noncontrolling interest (14) — (19) —
Net loss attributable to FAT Brands Inc. $ (3,621) $ (568) $ (11,979) $ (7,189)

For the thirty-nine weeks ended September ~~27, 2020~~26, 2021 and September ~~29, 2019:~~

~~Net Loss~~- ~~Net loss for the thirty-nine weeks ended September~~ 27, 2020 totaled $7,189,000 consisting of revenues of $11,619,000 less costs and expenses of $18,780,000, other expense of $1,433,000 and income tax benefit of $1,405,000. Net loss for the thirty-nine weeks ended September 29, 2019 totaled $64,000 consisting of revenues of $17,253,000 less costs and expenses of $11,550,000, other expense of $5,514,000 and income tax expense of $253,000.

~~Revenues~~ 2020:

Revenue- ~~Revenues consist~~ Revenue consists of royalties, franchise fees, ~~store opening fees,~~ advertising fees, restaurant sales, factory revenue and other ~~revenues. We had revenues~~revenue. Total revenue increased $33.1 million, or 285%, in the first three quarters of ~~$11,619,000 for the thirty-nine weeks ended September 27, 2020~~2021, to $44.7 million compared to ~~$17,253,000 for~~$11.6 million in the ~~thirty-nine weeks ended September 29, 2019.~~same period of 2020. The ~~decrease~~increase reflects revenue from Johnny Rockets, which was acquired during the third quarter of ~~$5,634,000 reflects~~

Table of Con tents

2020; revenue from the acquisition of GFG, which occurred in July 2021; and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant ~~sales and the adoption of a preferred application of ASC 606 related to the recognition of franchise and store opening fees (See Note 2 in the accompanying consolidated financial statements).~~

sales.

Costs and Expenses- – Costs and expenses consist ~~primarily~~ of general and administrative costs, ~~advertising expense,~~restaurant operating expenses, factory operating expenses, impairment charges, ~~and~~ refranchising restaurant ~~losses(gains). Our costs~~net gains or losses, and advertising expense. Costs and expenses increased ~~from $11,550,000~~$21.7 million, or 112%, in the first ~~thirty-nine weeks~~three quarters of ~~2019~~2021 to ~~$18,780,000~~$41.1 million compared to the same period in the ~~comparable period of 2020.~~

~~For the thirty-nine weeks ended September 27, 2020, our general~~prior year.

General and administrative expenses ~~totaled $10,626,000,~~increased $12.7 million, or 120%, in the first three quarters of 2021 compared to ~~$9,242,000 for~~ the ~~thirty-nine weeks ended September 29, 2019. The increase~~same period in the ~~amount~~prior year, primarily due to the acquisition of ~~$1,384,000 was primarily~~GFG during the ~~result of an increase in provisions for bad debts~~third quarter and increased professional fees.

Advertising expenses increased $5.7 million, or 241%, in the ~~amount~~first three quarters of ~~$1,150,000 related~~2021 compared to the ~~effects of the COVID-19 pandemic; an increase in depreciation and amortization of $228,000; and an increase in public company related expenses of $382,000.~~

~~Advertising expenses totaled $2,358,000 during the first thirty-nine weeks of 2020 with $3,159,000 during the comparable 2019 period, representing a decrease in advertising expense of $801,000.~~prior year. These expenses vary in relation to the advertising revenue and ~~have been affected by~~reflect the ~~decrease~~addition of advertising expenses from GFG and Johnny Rockets and the increase in customer activity ~~due to~~as the ~~COVID-19 pandemic.~~

~~In response to~~recovery from COVID continues.

Acquisition costs during the ~~adverse effects~~first three quarters of ~~COVID-19, we considered whether~~2021 totaled $3.0 million, primarily representing costs incurred for the acquisition of GFG, which closed during the third quarter, and Twin Peaks, which closed during the fourth quarter.

We recorded non-cash goodwill ~~and other intangible assets needed to be evaluated for impairment as of September 27, 2020. We have previously recorded goodwill impairment charges of $1,462,000~~ and tradename impairment charges of ~~$1,712,000 relating to~~$3.9 million during the ~~Ponderosa and Bonanza brands on June 28,~~first three quarters of 2020. ~~As of September 27, 2020, we determined that an additional $753,000 of impairment loss was necessary relating to the Yalla brand.~~ There were no impairment charges inrecorded during the comparable period of ~~2019.~~

2021.

~~During~~Refranchising gains in the ~~thirty-nine~~first three quarters of 2021 were comprised of $1.6 million in net gains related to the sale of refranchised restaurants, partially offset by restaurant operating costs, net of food sales, of $0.9 million. Refranchising losses in the first three quarters of 2020 were comprised of restaurant operating costs, net of food sales, of $1.1 million, plus $0.8 million in net losses related to the sale or closure of refranchised restaurants.

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

Income Tax Benefit – The effective rate was 21.6% for the first three quarters of 2021 compared to 16.3% for the comparable period in 2020.

For the thirteen weeks ended September 26, 2021 and September 27, ~~2020, our refranchising efforts resulted in a net loss~~2020:

Revenue – Total revenue increased $25.7 million, or 628%, in the ~~amount~~third quarter of ~~$1,869,000~~2021, to $29.8 million compared to ~~gains~~$4.1 million in the same period of ~~$851,000~~2020. The increase reflects revenue from Johnny Rockets, which was acquired during the third quarter of 2020; revenue from the acquisition of GFG, which occurred in July 2021; and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales.

Costs and Expenses – Costs and expenses increased $22.0 million, or 409%, to $27.4 million in the third quarter of 2021 compared to the prior year period.

General and administrative expenses increased $10.0 million, or 334%, in the third quarter of 2021 compared to the prior year period, primarily due to the acquisition of GFG during the third quarter and increased professional fees.

Advertising expenses increased $4.7 million, or 574%, in the third quarter of 2021 compared to the prior year. These expenses vary in relation to the advertising revenue and reflect the addition of advertising expenses from GFG and Johnny Rockets and the increase in customer activity as the recovery from COVID continues.

Acquisition costs during the third quarter of 2021 totaled $2.1 million, primarily representing costs incurred for the ~~thirty-nine weeks ended September 29, 2019. The~~acquisition of GFG, which closed during the third quarter, and Twin Peaks, which closed during the fourth quarter.

We recorded non-cash tradename impairment charges of $0.8 million during the third quarter of 2020. There were no impairment charges recorded during the third quarter of 2021.

Table of Con tents

Refranchising gains in the third quarter of 2021 were comprised of $0.5 million in net gains related to the sale of refranchised restaurants, partially offset by restaurant operating costs, net of food sales, of $0.2 million. Refranchising losses in the third quarter of 2020 ~~period included~~were comprised of restaurant operating ~~expenses,~~costs, net of food sales in the amount of $1,114,000, a gain of $560,000 relating to the sale and refranchising of four restaurant locations, a loss of $615,000 on the closure and disposition of three restaurant locations and the establishment of a reserve of $700,000 relating to a prior sale. The 2019 period included gains on the sale and refranchising of two locations in the amount of $2,249,000 which were partially offset by restaurant operating expenses, net of food sales, in the amount of $1,398,000.

$0.3 million.

Other ~~Expense (net)~~ -(Expense) Income – Other ~~net~~ expense for the ~~thirty-nine weeks ended September 27, 2020 totaled $1,433,000~~third quarter of 2021 was $7.2 million and consisted primarily of interest expense of $7.2 million. Other income for the third quarter of 2020 was $0.7 million and consisted primarily of a $1.7 million gain on the adjustment of contingent acquisition consideration payable; partially offset by net interest expense of ~~$3,285,000~~$0.4 million and ~~costs related to the acquisition of Johnny Rockets in the amount of $574,000, which were partially offset by income in the amount of $887,000 from the~~a $0.4 million change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock; and a revaluation of a contingent purchase price payable, resulting in a gain of $1,680,000. Other net expense for the thirty-nine weeks ended September 29, 2019 totaled $6,050,000 and consisted primarily of net interest expense of $5,357,000.

Stock.

Income Tax ~~(Benefit) Expense~~ - ~~We recorded an income~~Benefit – The effective tax ~~benefit of $1,405,000~~rate was 24.6% for the thirty-nine weeks ended September 27, 2020 compared to income tax expense of $253,000 for the thirty-nine weeks ended September 29, 2019. These tax results were based on a net loss before taxes of $8,594,000 for 2020 compared to net income before taxes of $189,000 for 2019.

~~For the thirteen weeks ended September 27, 2020 and September 29, 2019:~~

~~Net (Loss) Income~~- Net loss for the thirteen weeks ended September 27, 2020 totaled $568,000 consisting of revenues of $4,089,000 less costs and expenses of $4,882,000, other income of $206,000 and income tax benefit of $19,000. Net income for the thirteen weeks ended September 29, 2019 totaled $1,154,000 consisting of revenues of $6,484,000 less costs and expenses of $3,671,000, other expense of $2,031,000 and an income tax benefit of $372,000.

~~Revenues~~ - Revenues consist of royalties, franchise fees, advertising fees and other revenue. We had revenues of $4,089,000 for the thirteen weeks ended September 27, 2020 compared to $6,484,000 for the thirteen weeks ended September 29, 2019. The decrease of $2,268,000 reflects the negative effects of the COVID-19 pandemic on royalties from restaurant sales and the adoption of a preferred application of ASC 606 related to the recognition of store opening fees (See Note 2 in the accompanying consolidated financial statements). The majority of the decrease in recognized franchise fees from 2019 to 2020 was the result of the recognition of revenue from franchisee forfeitures of non-refundable deposits during the 2019 period without comparable activity in 2020.

~~Costs and Expenses~~ - ~~Costs and expenses consist primarily of general and administrative costs, advertising expense and restaurant refranchising gains or losses. Our costs and expenses increased from $3,671,000 in~~ the third quarter of ~~2019 to $4,882,000 in the third quarter of 2020.~~

~~For the thirteen weeks ended September 27, 2020, our general and administrative expenses totaled $2,990,000,~~2021 compared to ~~$3,422,000~~3.2% for the thirteen weeks ended September 29, 2019. The decrease in the amount of $432,000 was primarily the result of decreases in compensation, travel and professional fees, partially offset by increases in occupancy costs and public company related expenses.

Advertising expenses totaled $814,000 during the third quarter of 2020, compared with $1,151,000 during the prior year period, representing a decrease in advertising expense of $337,000. These expenses vary in relation to the advertising revenue recognized.

In response to the adverse effects of COVID-19, we considered whether goodwill and other intangible assets needed to be evaluated for impairment as of September 27, 2020. As a result of this analysis, during the thirteen weeks ended September 27, 2020, the Company recorded an impairment loss of $753,000 relating to the Yalla trademarks. There were no impairment charges in the comparable period ~~of 2019.~~

~~During the third quarter of 2020, our refranchising efforts resulted~~ in a net loss in the amount of $325,000 compared to a gain of $902,000 for the thirteen weeks ended September 29, 2019. The 2020 period included operating expenses, net of food sales, in the amount of $330,000, a gain of $1,320,000 relating to the sale and refranchising of two restaurant locations, a loss of $615,000 on the closure and disposition of three restaurant locations and the establishment of a reserve of $700,000 relating to a prior sale. The 2019 period included a gain on the sale and refranchising in the amount of $1,279,000, offset by offset by restaurant operating expenses, net of food sales, in the amount of $377,000.

2020.

~~Other Income (Expense)~~ - Other income for the thirteen weeks ended September 27, 2020 totaled $206,000 and consisted primarily of a gain in the amount of $1,680,000 from the revaluation of a contingent purchase price payable, which was partially offset by acquisition costs in the Johnny Rockets transaction of $574,000; net interest expense of $446,000; and a loss of $374,000, from the change in fair value of the derivative liability relating to the conversion feature of the Series A Preferred Stock. Net other expense for the thirteen weeks ended September 29, 2019 totaled $2,031,000 and consisted primarily of net interest expense of $1,975,000.

~~Income Tax (Benefit) Expense~~ - We recorded an income tax benefit for the thirteen weeks ended July 28, 2020 of $19,000 and an income tax benefit of $372,000 for the thirteen weeks ended September 29, 2019. These tax results were based on a net loss before taxes of $587,000 for 2020 compared to net income before taxes of $782,000 for 2019. The tax benefit recorded during the third quarter of 2019 reflected updated income tax related estimates and partially reversed tax provisions recorded in prior quarters.

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~~Our primary sources of funds for liquidity during the thirty-nine weeks ended September ~~27, 2020~~26, 2021 consisted of ~~cash provided by borrowings.~~

net proceeds from financing activities.

We are involved in a world-wide expansion of franchise locations, which will require significant liquidity, primarily from our franchisees. If real estate locations of sufficient quality cannot be located and either leased or purchased, the timing of restaurant openings may be delayed. Additionally, if we or our franchisees cannot obtain capital sufficient to fund this expansion, the extent of or timing of restaurant openings may be reduced or delayed.

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

~~As of September 27, 2020, we had cash and restricted cash of $14,268,000.~~

On ~~March 6, 2020,~~April 26, 2021, we completed a whole-business securitization (the “Securitization”) through the creation of a bankruptcy-remote issuing entity, FAT Brands Royalty I, LLC (“FAT Royalty”) in which FAT Royalty issued new notes (the “Securitization Notes”) pursuant to an indenture and the supplement thereto (collectively, the “Indenture”). Net proceeds from the issuance ~~of the Securitization Notes were $37,314,000, which consisted of the combined face amount of $40,000,000, net of discounts~~ and debt offering costs. A portion of the proceeds from the Securitization was used to repay the remaining $26,771,000 in outstanding balance under the Lion Loan and Security Agreement and to pay the Securitization debt offering costs.

~~On September 21, 2020, the FAT Royalty completed the~~ sale ~~of an additional $40 million of Series 2020-2 Fixed Rate Asset-Backed Notes (the “Series~~ ~~M-2 Notes”), increasing the Company’s Securitization Notes to $80 million.~~ ~~Net proceeds from the issuance of the Series M-2 Notes were $35,241,000, which consist of the face amount of $40,000,000, net of discounts of $3,200,000 and debt offering costs of $1,559,000.~~ ~~Approximately $24,838,000~~ ~~of the proceeds from the~~ ~~Series~~ ~~M-2 Notes were used to acquire Johnny Rockets.~~ ~~The remaining proceeds from the Securitizations are being used for working capital.~~

During the second quarter of 2020, the Company received loan proceeds in the amount of $1,532,000 from the Paycheck Protection Program administered by the Small Business Administration (“PPP”) in response to economic difficulties resulting from the outbreak of COVID-19. These loan proceeds relate to FAT Brands Inc. as well as five restaurant locations that were part of the Company’s refranchising program.

~~On July 13, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) to issue and sell~~ in a ~~public~~private offering (the “Offering”) ~~360,000~~of three tranches of fixed rate secured notes. Proceeds of the Offering were used to repay in full its 2020 Securitization Notes as well as fees and expenses related to the Offering, resulting in net proceeds to the Company of approximately $57 million. We have completed similar financings relating to the acquisition of Global Franchise Group and Twin Peaks.

On June 22, 2021, we closed a second underwritten public offering of 460,000 shares of 8.25% Series B Cumulative Preferred Stock ~~(“Series B Preferred Stock”) and 1,800,000 warrants (the “2020 Series B Warrants”)~~at a price to ~~purchase common stock at $5.00~~the public of $20.00 per share. The ~~Offering closed on July 16, 2020 with~~ net proceeds to the Company ~~of $8,021,000, which was net of $979,000~~totaled $8.3 million, after deducting $0.9 million in underwriting discounts and other offering ~~costs.~~

~~While~~expenses.

In addition to the ~~Company expects~~liquidity provided by these capital market transactions, we have seen improvement in our operating performance subsequent to December 27, 2020, as COVID-19 vaccinations have become more prevalent in the ~~COVID-19 pandemic to continue to negatively impact its business, results of operations,~~United States and financial position, the related financial impact cannot be reasonably estimated at this time. However, the Company believes that the working capital from the Securitization, Series B Preferred Stock Offering,federal, state and ~~PPP proceeds, combined with royalties and franchise fees collected from the operations of its franchisees, and disciplined management~~local restrictions have eased in many, but not all, of the ~~Company’ operating expenses,~~markets where our franchisees operate. 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 of operations following the issuance of this Form 10-Q.~~

months.

Comparison of Cash Flows

Our cash and restricted cash balance was ~~$14,268,000~~$43.5 million as of September ~~27, 2020,~~26, 2021, compared to ~~$25,000~~$7.2 million as of December ~~29, 2019.~~

27, 2020.

Table of Con tents

The following table summarize key components of our condensed consolidated cash flows for the thirty-nine weeks ended September ~~27, 2020~~26, 2021 and September ~~29, 2019~~:

27, 2020:

For the Thirty-nine Weeks Ended

(In thousands)

~~For the Fiscal Years Ended~~

September 27, 2020 September 29, 2019

Net cash (used in) provided by operating activities $ (8,506 ) $ 211
Net cash used in investing activities (33,124 ) (6,680 )
Net cash provided by financing activities 55,873 6,127
Increase (decrease) in cash flows $ 14,243 $ (342 )


	September 26, 2021		September 27, 2020

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

Operating Activities

Net cash used in operating activities ~~was $8,506,000 during~~decreased $4.5 million in the ~~thirty-nine weeks ended September 27, 2020~~first three quarters of 2021 compared to 2020. There were variations in the components of the cash ~~provided by operating activities of $211,000 for~~from operations between the ~~same period of 2019.~~two periods. Our net loss in ~~2020~~2021 was ~~$7,189,000~~$12.0 million compared to a$7.2 million in 2020. The net ~~loss in 2019 of $64,000. The~~positive adjustments to reconcile these net losses to net cash used in ~~or provided by operating activities~~operations were $8.0 million in 2021 compared to a negative adjustment of ~~$1,317,000~~$1.3 million in ~~2020 compared to a positive adjustment of $275,000 in 2019.~~2020. The primary components of the adjustments ~~included:~~

	●	~~A $312,000 positive adjustment to cash due to an increase in accounts payable, compared to an increase of $2,863,000 in 2019;~~
	●	~~A positive adjustment to cash due to reserves for bad debts totaling $900,000 in 2020 compared to a negative cash adjustment in 2019 of $91,000 for recoveries of bad debt reserves;~~
	●	~~A positive adjustment to cash of $3,927,000 due to impairment charges recorded during the thirty-nine weeks ended September 27, 2020. There were no impairments recorded during the 2019 period;~~
	●	A positive adjustment to cash due to accretion expense related to each of the following: (i) the term loan, (ii) the preferred shares, and (iii) the acquisition purchase price payables totaling $1,017,000 compared to $2,192,000 in 2019;
	●	~~A negative adjustment to cash due to a decrease in dividends payable on preferred stock of $809,000 compared to a positive adjustment of $992,000 in 2019;~~
	●	~~A negative adjustment to cash due to a decrease in deferred income of $446,000 compared to a decrease of $2,129,000 in 2019;~~
	●	~~A negative adjustment to cash due to a gain on the adjustment of contingent consideration payable of $1,680,000, without comparable activity in 2019;~~
	●	A negative adjustment to cash due to a change in the fair value of the derivative liability resulting from the conversion feature of preferred stock in the amount of $887,000. There was no comparable value in 2019; and
	●	~~A negative adjustment to cash due to a change in accrued interest receivable from and affiliate in the amount of $2,613,000 for 2020, compared to a decrease of $1,332,000 in 2019~~

to reconcile the net loss to net cash used in operations for each year were as follows:

For the first three quarters of 2021:

•A positive adjustment to reconcile cash used in operations due to a net loss on extinguishment of debt in the amount of $4.9 million,

•A negative adjustment to reconcile cash used in operations due to an increase in deferred income taxes of $3.4 million,

•A negative adjustment to reconcile cash used in operations due to a decrease in accrued expense of $3.7 million,

•A positive adjustment to reconcile cash used in operations due to an increase in interest payable in the amount of $3.8 million and

•A negative adjustment to reconcile cash used in operations due to an increase in accounts receivable of $3.0 million.

For the first three quarters of 2020:

•A positive adjustment to reconcile cash used in operations due to non-cash impairment charges in the amount of $3.9 million,

•A negative adjustment to reconcile cash used in operations due to an increase in accrued interest receivable from affiliates in the amount of $2.6 million,

•A positive adjustment to reconcile cash used in operations due to a provision for bad debt in the amount of $0.9 million,

•A negative adjustment to reconcile cash used in operations due to a gain on the recalculation of contingent consideration payable on an acquisition in the amount of $1.7 million and

•A negative adjustment to reconcile cash used in operations due to an increase in deferred tax assets of $1.6 million.

Investing Activities

Net cash used in investing activities ~~totaled $33,124,000 during the thirty-nine weeks ended September 27, 2020~~was $346.2 million year to date in 2021, compared to anet cash used in investing activities of ~~$6,680,000 during~~$33.1 million in the ~~same~~comparable period of ~~2019. We invested cash of $23,944,000 (net of cash acquired) in the Johnny Rockets transaction during the thirty-nine weeks ended September 27, 2020, compared~~2020. This was primarily due to ~~a cash investment of $2,332,000 in 2019 for~~ the acquisition of ~~Elevation Burger. During 2020, we made advances to affiliates in the amount~~GFG.

Table of ~~$10,103,000 compared to advances of $6,009,000 during 2019.~~

Contents

Financing Activities

Net cash from financing activities ~~totaled $55,873,000 during~~was $386.5 million year to date in 2021, primarily as a result of the thirty-nine weeks ended September 27, 2020 compared to $6,127,000 during the same period of 2019. Proceeds from borrowings were $51,023,000 higher in 2020 than in 2019 due to our $80,000,000 whole business securitization. We also issuedtwo securitization transactions and a preferred stock offering we completed in ~~2020, resulting in net cash proceeds~~the first three quarters of ~~$8,021,000. Our repayments of borrowings were $7,724,000 higher in 2020 than in 2019.~~

2021.

Dividends

~~Our Board of Directors did not declare any dividends on our common stock during the thirty-nine weeks ended September 27, 2020.~~

On ~~February 7, 2019, our~~April 20, 2021, the Board of Directors declared a ~~stock~~cash dividend ~~equal to 2.13% on its common stock, representing the number~~ of ~~shares equal to $0.12~~$0.13 per share of common stock, ~~based~~payable on ~~the closing price as of February 6, 2019. The stock dividend was paid on February 28, 2019~~May 7, 2021 to stockholders of record as of May 3, 2021, for a total of $1.6 million.

On August 24, 2021, the Board of Directors declared a cash dividend of 0.13 per share ~~price~~ of ~~$5.64 in satisfaction of the stock dividend. No fractional shares were issued, instead the Company paid stockholders cash totaling $1,670 for fractional interests based on the market value of the~~ common stock, payable on ~~the~~September 15, 2021 to stockholders of record ~~date.~~

as of September 6, 2021, for a total of $2.1 million.

The declaration and payment of future dividends, as well as the amount thereof, are subject to the discretion of our Board of Directors. The amount and size of any future dividends will depend upon our future results of operations, financial condition, capital levels, cash requirements and other factors. There can be no assurance that we will declare and pay dividends in future periods.

2021 GFG Royalty Securitization

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

In connection with the ~~creation~~acquisition of ~~a bankruptcy-remote issuing entity,~~GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC (“~~FAT~~GFG Royalty”), a special purpose, wholly-owned subsidiary of the Company, completed the issuance and sale in ~~which FAT Royalty issued~~a private offering (the “GFG Offering”) of three tranches of fixed rate senior secured notes (the ~~“Securitization Notes”) pursuant to an indenture and the supplement thereto (collectively, the “Indenture”~~"GFG Securitization Notes").

The GFG Securitization Notes were issued in ~~March 2020 consist of~~a securitization transaction and had the following ~~(the “Series AB Notes”):~~

terms:


Closing Date	Class	Seniority	Principal Balance		Coupon		Weighted Average Life (Years)	Non-Call Period (Months)	Anticipated Call Date	Final Legal Maturity Date
7/22/2021	A-2	Senior	$	209,000,000	6.00	%	2.01	6	7/25/2023	7/25/2051
7/22/2021	B-2	Senior Subordinated	$	84,000,000	7.00	%	2.01	6	7/25/2023	7/25/2051
7/22/2021	M-2	Subordinated	$	57,000,000	9.50	%	2.01	6	7/25/2023	7/25/2051

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

~~On September 21, 2020, FAT Royalty completed the sale of an additional $40 million of Series 2020-2 Fixed Rate Asset-Backed Notes (the “Series~~ ~~M-2 Notes”), increasing our Securitization Notes to $80~~$5.1 million.

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

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

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

Net proceeds from the issuance of the Series M-2 Notes were $35,241,000, which consists of the face amount of $40,000,000, net of discounts of $3,200,000 and debt offering costs of $1,559,000. The discount and offering costs will be accreted as additional interest expense over the expected term of the Series AB Notes. We used approximately $24,838,000 to acquire Johnny Rockets and the balance Substantially all of the proceeds were ~~available as working capital.~~

used to acquire GFG.

The ~~Series M-2 Notes are subordinate to the Series A-2 Notes and Series B-2 Notes. All~~GFG Securitization Notes issued under the Base Indenture are secured by an interest in substantially all of the assets of FAT Royalty, including the Johnny Rockets companies, contributed to FAT Royalty and are obligations only of FAT Royalty under the Base Indenture and not obligations of the Company.

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

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

~~The Notes are secured by substantially all of the assets of FAT Royalty, including the equity interests in the Franchise Entities. The restrictions placed on the FAT Royalty subsidiaries~~ require that the ~~Securitization~~ principal and interest obligations have first priority ~~after the payment of the Management Fee and certain other FAT Royalty expenses (as defined in the Indenture),~~ and amounts are segregated ~~monthly~~weekly to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of ~~monthly~~weekly cash flow that exceeds the required ~~monthly debt service~~weekly interest reserve is generally remitted to the Company. ~~Once the~~Interest payments are required ~~obligations are satisfied, there are no further restrictions, including payment of dividends,~~to be made on ~~the cash flows~~a quarterly basis and, unless repaid on or before July 25, 2023 additional interest equal to 1.0% per annum will accrue on each tranche. The material terms of the ~~subsidiaries.~~GFG Securitization Notes also include, among other things, the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and (iii) senior leverage ratio. As of September ~~27, 2020,~~26, 2021, we were in compliance with these covenants.

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

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

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2021 FB Royalty Securitization


Closing Date	Class	Seniority	Principal Balance		Coupon		Weighted Average Life (Years)	Non-Call Period (Months)	Anticipated Call Date	Final Legal Maturity Date
4/26/2021	A-2	Senior	$	97,104,000	4.75	%	2.25	6	7/25/2023	4/25/2051
4/26/2021	B-2	Senior Subordinated	$	32,368,000	8.00	%	2.25	6	7/25/2023	4/25/2051
4/26/2021	M-2	Subordinated	$	15,000,000	9.00	%	2.25	6	7/25/2023	4/25/2051

The 2021 Securitization Notes require that the principal and interest obligations have first priority and amounts are segregated weekly to ~~certain~~ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of weekly cash flow that exceeds the required weekly interest reserve is generally remitted to the Company. Interest payments are required to be made on a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on each tranche. The material terms of the 2021 Securitization Notes also include, among other things, the following financial ~~and non-financial covenants, including a~~covenants: (i) debt service coverage ratio, ~~calculation, as defined in the Indenture. In the event that certain covenants are not met, the Notes may become partially or fully due~~(ii) leverage ratio and ~~payable on an accelerated schedule. In addition, we may voluntarily prepay, in part or in full, the Notes in accordance with the provisions in the Indenture.~~

~~Capital Expenditures~~

(iii) senior leverage ratio. As of September ~~27,~~26, 2021, we were in compliance with these covenants.

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

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

Note

Public
Rating

Seniority

Issue Amount

Coupon

First Call Date

Final Legal Maturity
Date

Series A-2

Senior

20,000,000

6.50

4/27/2021

4/27/2026

Series B-2

Senior Subordinated

20,000,000

9.00

4/27/2021

4/27/2026

Series M-2

N/A

Subordinated

40,000,000

9.75

4/27/2021

4/27/2026

The payoff amount totaled $83.7 million, which included principle of $80.0 million, accrued interest of $2.2 million and prepayment premiums of $1.5 million. FB Royalty recognized a loss on extinguishment of debt of $7.8 million in connection with the refinance.

Capital Expenditures

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

Critical Accounting Policies and Estimates

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

~~Store opening fees~~ – Prior to September 29, 2019, we recognized store opening fees in the amount of $35,000 to $60,000 per store from the up-front fees collected from franchisees upon store opening. The amount of the fee was dependent on brand and location (generally domestic versus international stores). The remaining balance of the up-front fees were then amortized as franchise fees over the life of the franchise agreement. If the fees collected were less than the respective store opening fee amounts, the full up-front fees were recognized at store opening. The store opening fees were based on our out-of-pocket costs for each store opening and are primarily comprised of labor expenses associated with training, store design, and supply chain setup. International fees recognized were higher due to the additional cost of travel.

During the fourth quarter of 2019, we performed a study of other public company restaurant franchisors’ application of ASC 606 and determined that a preferred, alternative industry application exists in which the store opening fee portion of the franchise fees is amortized over the life of the franchise agreement rather than at milestones of standalone performance obligations in the franchise agreements. In order to provide financial reporting consistent with other franchise industry peers, we applied this preferred, alternative application of ASC 606 during the fourth quarter of 2019 on a prospective basis. As a result of the adoption of this preferred accounting treatment under ASC 606, we discontinued the recognition of store opening fees upon store opening and began accounting for the entire up-front deposit received from franchisees as described above in ~~Franchise Fees.~~ ~~A cumulative adjustment to store opening fees and franchise fees was recorded in the fourth quarter of 2019 for store opening fees recognized during the first three quarters of 2019. (See “~~~~Immaterial Adjustments Related to Prior Periods”,~~ ~~in Note 2 of the accompanying financial statements.)~~

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

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

~~Fair Value Measurements -~~ The Company determines the fair market values of its financial assets and liabilities, as well as non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis, based on the fair value hierarchy established in U.S. GAAP. As necessary, the Company measures its financial assets and liabilities using inputs from the following three levels of the fair value hierarchy:

●	~~Level 1 inputs are quoted prices in active markets for identical assets or liabilities.~~
●	~~Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities.~~
●	~~Level 3 inputs are unobservable and reflect the Company’s own assumptions.~~

Other than the derivative liability, the Company does not have a material amount of financial assets or liabilities that are required to be measured at fair value on a recurring basis under U.S. GAAP (See Note 11). None of the Company’s non-financial assets or non-financial liabilities are required to be measured at fair value on a recurring basis. Assets recognized or disclosed at fair value in theOur condensed consolidated financial statements ~~on a nonrecurring basis include items such as property~~ and ~~equipment, operating lease assets, goodwill and other intangible assets, which~~accompanying notes are ~~measured at fair value if determined to be impaired.~~

The Company has not elected to use fair value measurement for any assets or liabilities for which fair value measurement is not presently required. However, the Company believes the fair values of cash equivalents, restricted cash, accounts receivable, assets held for sale and accounts payable approximate their carrying amounts due to their short duration.

~~Goodwill and other intangible assets:~~ ~~Goodwill and other intangible assets~~prepared in accordance with indefinite lives, such as trademarks, are not amortized but are reviewed for impairment annually, or more frequently if indicators arise. The Company recorded impairment charges in the amount of $3,927,000 relating to goodwill and other intangible assets as of September 27, 2020.

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

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

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

~~Share-based compensation:~~ We have a stock option plan which provides for options to purchase shares of our common stock. For grants to employees and directors, we recognize an expense for the value of options granted at their fair value at the date of grant over the vesting period in which the options are earned. Cancellations or forfeitures are accounted for as they occur. Fair values are estimated using the Black-Scholes option-pricing model. For grants to non-employees for services, we revalue the options each reporting period while the services are being performed. The adjusted value of the options is recognized as an expense over the service period. See Note 14 in ourGAAP. Preparing 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~~us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and ~~liabilities~~expenses. These estimates and ~~disclosures~~assumptions are affected by the application of ~~contingent assets~~our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 27, 2020. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and ~~liabilities at~~may change in subsequent periods. While we apply our

Table of Con tents

judgment based on assumptions believed to be reasonable under the ~~date of the~~circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and described in our annual consolidated financial statements ~~as well as~~and the ~~reported amounts~~related notes included in our Annual Report on Form 10-K for our fiscal year ended December 27, 2020

Table of ~~revenues and expenses during the reported periods. Actual results could differ from those estimates.~~

~~Recently Adopted Accounting Standards~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.~~” This ASU adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

~~The FASB issued ASU 2019-12,~~ ~~Simplifying the Accounting for Income Taxes:~~ This standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance in certain areas, including the recognition of franchise taxes, recognition of deferred taxes for tax goodwill, allocation of taxes to members of a consolidated group, computation of annual effective tax rates related to enacted changes in tax laws, and minor improvements related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The Company adopted this ASU on December 30, 2019. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of September ~~27, 2020,~~26, 2021, have concluded that, in regard to the segregation of duties and the financial close process, our disclosure controls and procedures were ~~effective~~not effective.

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

Changes in internal control over financial reporting

There were no significant changes in our internal control over financial reporting in connection with an evaluation that ~~material information relating~~occurred during the thirty-nine weeks ended September 26, 2021 that have materially affected or are reasonably likely to ~~us and~~materially affect our ~~combined subsidiaries is accumulated and communicated to our management to allow timely decisions regarding required disclosure.~~

internal control over financial reporting.

Inherent Limitations Over Internal Controls

We do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. ~~We considered these limitations during~~Also, projections of any evaluation of effectiveness to future periods are subject to the ~~development~~risk that controls may become inadequate because of ~~its disclosure controls and procedures and will continually re-evaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.~~

~~Changes in internal control over financial reporting~~

~~There were no significant~~ changes in ~~our internal control over financial reporting in connection~~conditions or that the degree of compliance with ~~an evaluation that occurred during~~ the ~~thirteen weeks ended September 27, 2020 that have materially affected~~policies or ~~are reasonably likely to materially affect our internal control over financial reporting.~~

procedures may deteriorate.

Table of Con tents

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~Eric Rojany, et al.~~

James Harris and Adam Vignola v. ~~FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC708539, and~~ ~~Daniel Alden, et al. v. FAT Brands Inc., et al.~~~~, Superior Court of California for the County of Los Angeles, Case No. BC716017.~~

~~Adam Vignola, et al. v. FAT Brands Inc., et al.~~~~, United States District Court for the Central District of California, Case No. 2:18-cv-07469.~~

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

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

ITEM 1A. RISK FACTORS

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” and elsewhere in our Annual Report on Form 10-K filed on ~~April 28, 2020,~~March 29, 2021, which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in such factors discussed in our Annual Report. The risks described in our Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Table of Con tents

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

On July 22, 2021, the Company completed the acquisition of GFG and, as part of the purchase consideration, issued to the sellers 1,964,865 shares of Common Stock,

which shares were reclassified as Class A Common Stock effective August 16, 2021, and 3,089,245 shares of Series B Cumulative Preferred Stock. On August ~~4, 2020,~~23, 2021, the Company issued ~~a total of 35,928~~another 294,729 shares of ~~common stock at a value of $3.34 per share~~Class A Common Stock to ~~certain~~the sellers in satisfaction of the ~~non-employee members~~Company’s obligations under the purchase agreement for GFG. All issuances of ~~the board of directors upon the election of each director to receive his cash director fees in the form of common stock of the Company at market value at the time the election is made.~~

~~The issuance of these shares to the directors was~~such securities were exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) ~~of the Securities Act~~thereunder and Rule 506 promulgated under Regulation D under the Securities Act as transactions by an issuer not involving a public offering. The directors acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof.

thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~

None.

ITEM 6. EXHIBITS

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

2.1 Stock Purchase Agreement, dated August 12, 2020, by and between FAT Brands Inc. and Sundae Group Holdings I, LLC 8-K 2.1 08/17/2020
3.1 Amended and Restated Certificate of Designation of Rights and Preferences of Series B Cumulative Preferred Stock, filed on July 15, 2020 8-K 3.1 07/16/2020
4.1 Series 2020-2 Supplement to Base Indenture, dated September 21, 2020, by and among FAT Brands Royalty I, LLC, and UMB Bank, N.A., as trustee.
8-K

4.2 09/25/2020
4.2 Supplement Number One to Base Indenture, dated September 21, 2020, by and among FAT Brands Royalty I, LLC, and UMB Bank, N.A., as trustee. 8-K 4.3 09/25/2020
10.1 Warrant Agency Agreement, dated July 16, 2020, between the Company and VStock Transfer, LLC, to act as the Warrant Agent (including the form of Warrant Certificate) 8-K 10.1 07/16/2020
10.2 Stock Redemption Agreement, dated July 13, 2020, by and between FAT Brands Inc. and Trojan Investments LLC
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

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

Exhibit

Number

Incorporated By Reference to

Filed

Herewith

Description

Form

Exhibit

Filing Date

2.1

Stock Purchase Agreement, dated June 26, 2021, by and among FAT Brands Inc., LS GFG Holdings Inc., and LS Global Franchise L.P.

8-K

2.1

06/28/2021

2.2

Unit Purchase Agreement, dated August 31, 2021, by and among FAT Brands Inc., Twin Peaks Holdings, LLC, and Twin Peaks Buyer, LLC

8-K

2.1

09/02/2021

3.1

Second Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on August 16, 2021

8-K

3.1

08/19/2021

3.2

Certificate of Amendment to Second Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on August 24, 2021

8-K

3.1

08/30/2021

3.3

Certificate of Increase of Series B Cumulative Preferred Stock, filed with the Delaware Secretary of State on September 15, 2021

8-K

3.1

09/16/2021

3.4

Certificate of Elimination of Series A Fixed Rate Cumulative Preferred Stock, filed with the Delaware Secretary of State on September 16, 2021

8-K

3.2

09/16/2021

3.5

Certificate of Increase of Series B Cumulative Preferred Stock, filed with the Delaware Secretary of State on October 28, 2021

8-K

3.1

10/28/2021

3.6

Amended and Restated Bylaws, effective October 15, 2021

8-K

3.1

10/18/2021

4.1

Base Indenture, dated July 22, 2021, by and between FAT Brands GFG Royalty I, LLC, and UMB Bank, N.A., as trustee and securities intermediary

8-K

4.1

07/26/2021

4.2

Series 2021-1 Supplement to the Base Indenture, dated July 22, 2021, by and between FAT Brands GFG Royalty I, LLC, and UMB Bank, N.A., as trustee and securities intermediary

8-K

4.2

07/26/2021

Table of Con tents
4.3
Base Indenture, dated October 1, 2021, by and between FAT Brands Twin Peaks I, LLC, and UMB Bank, N.A., as trustee and securities intermediary
8-K 4.1 10/06/2021
4.4
Series 2021-1 Supplement to the Base Indenture, dated October 1, 2021, by and between FAT Brands Twin Peaks I, LLC, and UMB Bank, N.A., as trustee and securities intermediary
8-K 4.2 10/06/2021
10.1
Guarantee and Collateral Agreement, dated July 22, 2021, by and among the Guarantors named therein in favor of UMB Bank, N.A., as trustee
8-K 10.1 07/26/2021
10.2
Management Agreement, dated July 22, 2021, by and among FAT Brands Inc., FAT Brands GFG Royalty I, LLC, each of the Franchise Entities named therein, and UMB Bank, N.A., as trustee
8-K 10.2 07/26/2021
10.3
Put/Call Agreement, dated July 22, 2021, by and between FAT Brands Inc. and LS Global Franchise L.P.
8-K 10.3 07/26/2021
10.4
Guarantee and Collateral Agreement, dated October 1, 2021, by and among the Guarantors named therein in favor of UMB Bank, N.A., as trustee
8-K 10.1 10/06/2021
10.5
Management Agreement, dated October 1, 2021, by and among FAT Brands Inc., FAT Brands Twin Peaks I, LLC, each of the Securitization Entities named therein, and UMB Bank, N.A., as trustee
8-K 10.2 10/06/2021
10.6
Put/Call Agreement, dated October 1, 2021, by and between FAT Brands Inc. and Twin Peaks Holdings, LLC
8-K 10.3 10/06/2021
10.7
Preferred Stock Exchange Agreement, dated August 25, 2021, by and between FAT Brands Inc. and Trojan Investments, LLC
8-K 10.1 08/30/2021
10.8
Put Option Agreement, dated August 25, 2021, by and between FAT Brands Inc. and Trojan Investments, LLC and Fog Cutter Holdings, LLC
8-K 10.2 08/30/2021
10.9
Amended and Restated 2017 Omnibus Equity Incentive Plan
Schedule 14A (proxy statement) Appendix A 09/09/2021
31.1
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document X (Furnished)
101.SCH Inline XBRL Taxonomy Extension Schema Document X (Furnished)
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X (Furnished)
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X (Furnished)
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X (Furnished)
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X (Furnished)
45
Table of Con tents

SIGNATURES

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


			FAT BRANDS INC.

November ~~12, 2020~~8, 2021			By	/s/ ~~Andrew A. Wiederhorn~~Kenneth J. Kuick
				~~Andrew A. Wiederhorn~~Kenneth J. Kuick
				~~President and Chief Executive Officer~~
		~~(Principal Executive Officer)~~

~~November 12, 2020~~	By	~~/s/ Rebecca D. Hershinger~~
		~~Rebecca D. Hershinger~~
		Chief Financial Officer
				(Principal Financial and Accounting Officer)


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

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

Emerging growth company	~~[X]~~x

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

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

	September 27, 2020			December 29, 2019
	(Unaudited)			(Audited)
Assets
Current assets
Cash	$	12,110		$	25
Restricted cash		1,758			-
Accounts receivable, net of allowance for doubtful accounts of $670 and $595, as of September 27, 2020 and December 29, 2019, respectively		4,453			4,144
Trade and other notes receivable, net of allowance for doubtful accounts of $0 and $37 as of September 27, 2020 and December 29, 2019, respectively		206			262
Assets classified as held for sale		11,048			5,128
Other current assets		1,611			929
Total current assets		31,186			10,488

Noncurrent restricted cash		400			-
Notes receivable – noncurrent, net of allowance for doubtful accounts of $0 and $112, as of September 27, 2020 and December 29, 2019, respectively		1,604			1,802
Due from affiliates		38,732			25,967
Deferred income tax asset, net		-			2,032
Operating lease right of use assets		4,708			860
Goodwill		19,141			10,912
Other intangible assets, net		52,959			29,734
Other assets		863			755
Total assets	$	149,593		$	82,550

Liabilities and Stockholders’ Equity
Liabilities
Current liabilities
Accounts payable	$	8,159		$	7,183
Accrued expenses		8,373			6,013
Deferred income, current portion		1,812			895
Accrued advertising		271			762
Accrued interest payable		864			1,268
Dividend payable on preferred shares (includes amounts due to related parties of $8 and $149 as of September 27, 2020 and December 29, 2019, respectively)		272			1,422
Liabilities related to assets classified as held for sale		9,959			3,325
Current portion of operating lease liability		585			241
Current portion of long-term debt		1,571			24,502
Total current liabilities		31,866			45,611

Deferred income – noncurrent		8,872			5,247
Acquisition purchase price payable		2,704			4,504
Preferred shares, net		7,945			15,327
Deferred dividend payable on preferred shares (includes amounts due to related parties of $0 and $99 as of September 27, 2020 and December 29, 2019, respectively)		418			628
Deferred income tax liability, net		2,367			-
Operating lease liability, net of current portion		4,298			639
Long-term debt, net of current portion		78,440			5,216
Other liabilities		201			-
Total liabilities		137,111			77,172

Commitments and contingencies (Note 17)

Stockholders’ equity
Preferred stock, $.0001 par value; 5,000,000 shares authorized; 663,127 and 0 shares issued and outstanding at September 27, 2020 and December 29, 2019, respectively		13,041			-
Common stock, $.0001 par value; 25,000,000 shares authorized; 11,926,264 and 11,860,299 shares issued and outstanding at September 27, 2020 and December 29, 2019, respectively		12,666			11,414
Accumulated deficit		(13,225	)		(6,036	)
Total stockholders’ equity		12,482			5,378
Total liabilities and stockholders’ equity	$	149,593		$	82,550

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

Balance at December 29, 2019		11,860,299	$	1	$	11,413		$	11,414			-	$	-	$	-		$	-		$	(6,036	)	$	5,378
Net loss		-		-		-			-			-		-		-			-			(7,189	)		(7,189	)
Issuance of common stock in lieu of cash director fees payable		65,965		-		240			240			-		-		-			-			-			240
Issuance of Series B preferred stock				-		-			-			360,000		-		6,033			6,033			-			6,033
Exchange of original Series B preferred stock for newly issued Series B preferred stock		-		-		-			-			60,677		-		1,224			1,224			-			1,224
Exchange of Series A preferred stock for newly issued Series B preferred stock		-		-		-			-			74,449		-		1,861			1,861			-			1,861
Exchange of Series A-1 preferred stock for newly issued Series B preferred stock		-		-		-			-			168,001		-		4,200			4,200			-			4,200
Share-based compensation		-		-		61			61			-		-		-			-			-			61
Extinguishment of derivative liability		-		-		(887	)		(887	)		-		-		-			-			-			(887	)
Grant of warrants to purchase stock		-		-		2,258			2,258			-		-		-			-			-			2,258
Repurchase of warrants		-		-		(330	)		(330	)		-		-		-			-			-			(330	)
Dividends declared on Series B preferred stock		-		-		-			-			-		-		(277	)		(277	)		-			(277	)
Correction of recorded conversion rights associated with Series A-1 preferred shares		-		-		(90	)		(90	)		-		-		-			-			-			(90	)

Balance at September 27, 2020		11,926,264	$	1	$	12,665		$	12,666			663,127	$	-	$	13,041		$	13,041		$	(13,225	)	$	12,482

	Thirty-nine Weeks Ended
	September 27, 2020			September 29, 2019
Cash flows from operating activities
Net loss	$	(7,189	)	$	(64	)
Adjustments to reconcile net loss to net cash (used in) provided by operations:
Deferred income taxes		(1,633	)		77
Depreciation and amortization		763			535
Share-based compensation		61			218
Accretion of loan fees and interest		589			1,718
Change in operating lease right of use assets		750			510
Loss on extinguishment of debt		88			-
Gain on contingent consideration payable adjustment		(1,680	)		-
Net loss (gain) on disposition of refranchising restaurants		55			(2,249	)
Accretion of preferred shares		47			48
Accretion of purchase price liability		381			426
Impairment of assets		3,927			-
Change in fair value of derivative liability		(887	)		-
Provision for (recovery of) bad debts		900			(91	)
Change in operating assets and liabilities:
Accounts receivable		130			(731	)
Trade and other notes receivable		-			21
Prepaid expenses and other current assets		(295	)		59
Accounts payable		312			2,863
Accrued expenses		(87	)		512
Accrued advertising		(382	)		80
Accrued interest receivable from affiliate		(2,613	)		(1,332	)
Tax Sharing Agreement liability		(158	)		(30	)
Accrued interest payable		(404	)		(941	)
Deferred income		(446	)		(2,129	)
Dividend payable on preferred shares		(809	)		992
Other		74			(281	)
Total adjustments		(1,317	)		275
Net cash (used in) provided by operating activities		(8,506	)		211

Cash flows from investing activities
Additions to property and equipment		(239	)		(49	)
Payments received on loans receivable		69			-
Proceeds from disposition of refranchised restaurants		1,093			1,710
Change in due from affiliates		(10,103	)		(6,009	)
Acquisition of subsidiary, net of cash acquired		(23,944	)		(2,332	)
Net cash used in investing activities		(33,124	)		(6,680	)

Cash flows from financing activities
Proceeds from borrowings and associated warrants, net of issuance costs		74,045			23,022
Repayments of borrowings		(24,224	)		(16,500	)
Proceeds from preferred stock offering and associated warrants, net of issuance costs		8,021			-
Payments made on acquisition purchase price liability		(500	)		-
Redemption of preferred stock		(500	)		-
Dividends paid in cash		(175	)		(2	)
Repurchase of warrants		(330	)		-
Change in operating lease liabilities		(464	)		(287	)
Other		-			(106	)
Net cash provided by financing activities		55,873			6,127

Net increase (decrease) in cash and restricted cash		14,243			(342	)
Cash and restricted cash at beginning of period		25			653
Cash and restricted cash at end of period	$	14,268		$	311

Supplemental disclosures of cash flow information:
Cash paid for interest	$	5,420		$	4,576
Cash paid for income taxes	$	84		$	190

Supplemental disclosure of non-cash financing and investing activities:
Issuance of preferred stock in lieu of cash preferred dividends payable	$	450		$	-
Issuance of common stock in lieu of cash director fees payable	$	240		$	270
Income taxes receivable to adjust amounts due from affiliates	$	(158	)	$	30

Cash	$	894
Accounts receivable		1,193
Assets held for sale		11,126
Goodwill		9,691
Other intangible assets		26,400
Other assets		412
Accounts payable		(1,169	)
Accrued expenses		(2,486	)
Deferred franchise fees		(4,988	)
Deferred tax liability		(6,032	)
Operating lease liability		(10,028	)
Other liabilities		(175	)
Total net identifiable assets	$	24,838

	September 27, 2020		December 29, 2019

Property and equipment	$	1,106	$	1,912
Operating lease right of use assets		9,942		3,216
Total	$	11,048	$	5,128

	September 27, 2020			December 29, 2019
Deferred tax (liabilities) assets
Deferred income	$	1,372		$	1,353
Reserves and accruals		218			208
Intangibles		(6,420	)		(614	)
Deferred state income tax		(19	)		(91	)
Tax credits		313			244
Share-based compensation		193			192
Property and equipment		(125	)		(137	)
Net operating loss carryforwards		2,069			894
Other		32			(17	)
Total	$	(2,367	)	$	2,032

	Thirty-nine Weeks Ended September 27, 2020			Thirty-nine Weeks Ended September 29, 2019
Current
Federal	$	(118	)	$	116
State		33			30
Foreign		313			30
		228			176
Deferred
Federal		(1,359	)		139
State		(274	)		(62	)
		(1,633	)		77
Total income tax (benefit) expense	$	(1,405	)	$	253

	Thirty-nine Weeks Ended			Thirty-nine Weeks Ended
	September 27, 2020			September 29, 2019

Tax benefit at statutory rate	$	(1,805	)	$	40
State and local income taxes		(190	)		-
Foreign taxes		313			30
Tax credits		(92	)		112
Dividends on preferred stock		123			51
Impairment of goodwill		266			-
Other		(20	)		20
Total income tax (benefit) expense	$	(1,405	)	$	253

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Stock options outstanding at December 29, 2019		722,481		$	8.45		7.7
Grants		-		$	-		-
Forfeited		(158,284	)	$	7.98		8.0
Expired		-		$	-		-
Stock options outstanding at September 27, 2020		564,197		$	8.58		7.7
Stock options exercisable at September 27, 2020		289,337		$	9.58		7.5

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Warrants outstanding at December 29, 2019		2,091,652		$	3.57		3.6
Grants		2,203,190		$	4.96		4.8
Forfeited		(1,788,646	)	$	2.51		3.8
Warrants outstanding at September 27, 2020		2,506,196		$	5.58		4.5
Warrants exercisable at September 27, 2020		307,758		$	9.57		2.6


	Thirteen Weeks Ended				Thirty Nine Weeks Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Statements of operations data:

Revenue
Royalties	$	13,742	$	3,156	$	24,800	$	8,678
Franchise fees	1,087		122		2,109		571
Advertising fees	5,483		803		8,043		2,347
Restaurant sales	3,879		—		4,113		—
Factory revenue	5,480		—		5,480		—
Management fees and other income	90		8		148		23
Total revenue	29,761		4,089		44,693		11,619

Costs and expenses
General and administrative expense	12,966		2,990		23,375		10,626
Restaurant operating expenses	3,660		—		3,904		—
Factory operating expenses	3,473		—		3,473		—
Impairment of assets	—		753		—		3,927
Refranchising (gain) loss	(250)		325		(679)		1,869
Acquisition costs	2,053		503		2,985		633
Advertising expense	5,483		814		8,043		2,358
Total costs and expenses	27,385		5,385		41,101		19,413

Income (loss) from operations	2,376		(1,296)		3,592		(7,794)

Total other (expense) income, net	(7,194)		709		(18,893)		(800)

Loss before income tax expense	(4,818)		(587)		(15,301)		(8,594)

Income tax benefit	(1,183)		(19)		(3,303)		(1,405)

Net loss	(3,635)		(568)		(11,998)		(7,189)
Less: Net loss attributable to noncontrolling interest	(14)		—		(19)		—
Net loss attributable to FAT Brands Inc.	$	(3,621)	$	(568)	$	(11,979)	$	(7,189)

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

The Company redeemed 5,000 outstanding shares of Series A Preferred Stock ~~plus accrued dividends thereon,~~ held by Ridgewood Select Value Fund LP and its affiliate, plus accrued dividends thereon, at face value for cash from the proceeds of the Offering.

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