UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~June 26,~~September 25, 2022


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

Commission file number 001-38250

FAT Brands Inc.

(Exact name of registrant as specified in its charter)


Delaware						82-1302696
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

9720 Wilshire Blvd., Suite 500

Beverly Hills, CA 90212

(Address of principal executive offices, including zip code)

(310) 319-1850

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

FAT

The Nasdaq Stock Market LLC

Class B Common Stock, par value $0.0001 per share

FATBB

The Nasdaq Stock Market LLC

Series B Cumulative Preferred Stock, par value $0.0001 per share

FATBP

The Nasdaq Stock Market LLC

Warrants to purchase Class A Common Stock

FATBW

The Nasdaq Stock Market LLC

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

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

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


Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

Emerging growth company	o

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

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

As of ~~July 22,~~October 14, 2022, there were ~~15,136,416~~15,305,908 shares of Class A common stock and 1,270,805 shares of Class B common stock outstanding.

Table of Contents

FAT BRANDS INC.

QUARTERLY REPORT ON FORM 10-Q

~~June 26,~~September 25, 2022

TABLE OF CONTENTS


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

	FAT Brands Inc. and Subsidiaries:
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	10
	Notes to Condensed Consolidated Financial Statements (Unaudited)	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3234
Item 4.	Controls and Procedures	3234

PART II.	OTHER INFORMATION	3335
Item 1.	Legal Proceedings	3335
Item 1A.	Risk Factors	3335
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3335
Item 3.	Defaults Upon Senior Securities	3335
Item 4.	Mine Safety Disclosures	3335
Item 5.	Other Information	3335
Item 6.	Exhibits	3335

SIGNATURE		3436

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

FAT BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)


		June 26, 2022		December 26, 2021			September 25, 2022		December 26, 2021
				Audited					Audited
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash	Cash	$	15,502	$	56,656	Cash	$	23,912	$	56,656
Restricted cash	Restricted cash	23,396		24,740		Restricted cash	24,853		24,740
Accounts receivable, net of allowance for doubtful accounts of $3,311 and $4,016 as of June 26, 2022 and December 26, 2021, respectively		35,659		19,555
Trade and other notes receivable, net of allowance for doubtful accounts of $129 as of both June 26, 2022 and December 26, 2021		245		231
Accounts receivable, net of allowance for doubtful accounts of $7,783 and $3,487 as of September 25, 2022 and December 26, 2021, respectively						Accounts receivable, net of allowance for doubtful accounts of $7,783 and $3,487 as of September 25, 2022 and December 26, 2021, respectively	41,882		20,084
Trade and other notes receivable, net of allowance for doubtful accounts of $129 as of both September 25, 2022 and December 26, 2021						Trade and other notes receivable, net of allowance for doubtful accounts of $129 as of both September 25, 2022 and December 26, 2021	253		231
Assets classified as held-for-sale	Assets classified as held-for-sale	5,288		5,476		Assets classified as held-for-sale	4,994		5,476
Other current assets	Other current assets	12,678		11,853		Other current assets	13,357		11,853
Total current assets	Total current assets	92,768		118,511		Total current assets	109,251		119,040

Noncurrent restricted cash	Noncurrent restricted cash	12,526		18,525		Noncurrent restricted cash	13,334		18,525
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271 as of both June 26, 2022 and December 26, 2021		1,867		3,493
Notes receivable – noncurrent, net of allowance for doubtful accounts of $800 as of both September 25, 2022 and December 26, 2021						Notes receivable – noncurrent, net of allowance for doubtful accounts of $800 as of both September 25, 2022 and December 26, 2021	1,272		2,964
Operating lease right-of-use assets	Operating lease right-of-use assets	95,497		98,552		Operating lease right-of-use assets	95,168		98,552
Goodwill	Goodwill	296,485		295,128		Goodwill	293,811		295,128
Other intangible assets, net	Other intangible assets, net	646,908		652,788		Other intangible assets, net	643,025		652,788
Property and equipment, net	Property and equipment, net	83,455		80,501		Property and equipment, net	84,927		80,501
Other assets	Other assets	2,986		2,534		Other assets	3,406		2,534
Total assets	Total assets	$	1,232,492	$	1,270,032	Total assets	$	1,244,194	$	1,270,032

Liabilities and Stockholders’ Deficit	Liabilities and Stockholders’ Deficit					Liabilities and Stockholders’ Deficit
Liabilities	Liabilities					Liabilities
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	23,584	$	27,527	Accounts payable	$	20,952	$	27,527
Accrued expenses and other liabilities	Accrued expenses and other liabilities	45,601		46,295		Accrued expenses and other liabilities	53,403		46,295
Deferred income, current portion	Deferred income, current portion	2,248		2,636		Deferred income, current portion	2,172		2,636
Accrued advertising	Accrued advertising	13,835		10,853		Accrued advertising	16,125		10,853
Accrued interest payable	Accrued interest payable	11,723		10,678		Accrued interest payable	12,594		10,678
Dividend payable on preferred shares	Dividend payable on preferred shares	1,565		1,574		Dividend payable on preferred shares	1,565		1,574
Liabilities related to assets classified as held-for-sale	Liabilities related to assets classified as held-for-sale	4,601		4,780		Liabilities related to assets classified as held-for-sale	4,362		4,780
Current portion of operating lease liability	Current portion of operating lease liability	13,890		14,341		Current portion of operating lease liability	14,415		14,341
Redeemable preferred stock	Redeemable preferred stock	135,000		67,500		Redeemable preferred stock	135,000		67,500
Current portion of long-term debt	Current portion of long-term debt	903		631		Current portion of long-term debt	2,432		631
Current portion of acquisition purchase price payable	Current portion of acquisition purchase price payable	350		1,173		Current portion of acquisition purchase price payable	350		1,173
Other	Other	2,887		10,500		Other	2,886		10,500
Total current liabilities	Total current liabilities	256,187		198,488		Total current liabilities	266,256		198,488

Table of Contents


Deferred income, net of current portion	Deferred income, net of current portion	20,008		17,662		Deferred income, net of current portion	20,677		17,662
Deferred income tax liabilities, net	Deferred income tax liabilities, net	16,177		12,921		Deferred income tax liabilities, net	13,685		12,921
Operating lease liability, net of current portion	Operating lease liability, net of current portion	90,652		92,920		Operating lease liability, net of current portion	89,961		92,920
Long-term debt, net of current portion	Long-term debt, net of current portion	908,629		904,265		Long-term debt, net of current portion	938,142		904,265
Other liabilities	Other liabilities	1,962		976		Other liabilities	1,942		976
Total liabilities	Total liabilities	1,293,615		1,227,232		Total liabilities	1,330,663		1,227,232

Commitments and contingencies (Note 16)	Commitments and contingencies (Note 16)	0		0		Commitments and contingencies (Note 16)

Redeemable preferred stock	Redeemable preferred stock	—		64,455		Redeemable preferred stock	—		64,455

Stockholders’ deficit	Stockholders’ deficit					Stockholders’ deficit
Preferred stock, $0.0001 par value; 15,000,000 shares authorized; 3,221,471 shares issued and outstanding at June 26, 2022 and December 26, 2021; liquidation preference $25 per share		48,259		55,661
Class A common stock and Class B common stock and additional paid-in capital as of June 26, 2022: $0.0001 par value per share; 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,402,402 shares issued and outstanding (Class A 15,131,597, Class B 1,270,805). Common stock and additional paid-in capital as of December 26, 2021: $0.0001 par value; 51,600,000 shares authorized; 16,380,552 shares issued and outstanding (Class A 15,109,747, Class B 1,270,805)		(24,960)		(24,837)
Preferred stock, $0.0001 par value; 15,000,000 shares authorized; 3,221,471 shares issued and outstanding at September 25, 2022 and December 26, 2021; liquidation preference $25 per share						Preferred stock, $0.0001 par value; 15,000,000 shares authorized; 3,221,471 shares issued and outstanding at September 25, 2022 and December 26, 2021; liquidation preference $25 per share	46,606		55,661
Class A common stock and Class B common stock and additional paid-in capital as of September 25, 2022: $0.0001 par value per share; 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,576,712 shares issued and outstanding (Class A 15,305,907, Class B 1,270,805). Common stock and additional paid-in capital as of December 26, 2021: $0.0001 par value; 51,600,000 shares authorized; 16,380,552 shares issued and outstanding (Class A 15,109,747, Class B 1,270,805)						Class A common stock and Class B common stock and additional paid-in capital as of September 25, 2022: $0.0001 par value per share; 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,576,712 shares issued and outstanding (Class A 15,305,907, Class B 1,270,805). Common stock and additional paid-in capital as of December 26, 2021: $0.0001 par value; 51,600,000 shares authorized; 16,380,552 shares issued and outstanding (Class A 15,109,747, Class B 1,270,805)	(25,216)		(24,837)
Accumulated deficit	Accumulated deficit	(84,422)		(52,479)		Accumulated deficit	(107,859)		(52,479)
Total stockholders’ deficit	Total stockholders’ deficit	(61,123)		(21,655)		Total stockholders’ deficit	(86,469)		(21,655)
Total liabilities and stockholders’ deficit	Total liabilities and stockholders’ deficit	$	1,232,492	$	1,270,032	Total liabilities and stockholders’ deficit	$	1,244,194	$	1,270,032

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 share data)

For the Thirteen and ~~Twenty-Six~~Thirty-Nine Weeks Ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021 ~~(Unaudited)~~


		Thirteen Weeks Ended				Twenty-Six Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021			September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021

Revenue	Revenue									Revenue
Royalties	Royalties	$	21,665	$	6,161	$	42,563	$	11,057	Royalties	$	22,833	$	13,742	$	65,396	$	24,800
Restaurant sales	Restaurant sales	60,044		234		118,121		234		Restaurant sales	61,352		3,879		179,473		4,113
Advertising fees	Advertising fees	9,568		1,370		18,929		2,560		Advertising fees	9,479		5,483		28,408		8,043
Factory revenues	Factory revenues	8,570		—		16,749		—		Factory revenues	7,839		5,480		24,588		5,480
Franchise fees	Franchise fees	1,295		482		2,009		1,022		Franchise fees	754		1,087		2,763		2,109
Management fees and other income	Management fees and other income	1,643		35		1,817		58		Management fees and other income	965		90		2,782		148
Total revenue	Total revenue	102,785		8,282		200,188		14,931		Total revenue	103,222		29,761		303,410		44,693

Costs and expenses	Costs and expenses									Costs and expenses
General and administrative expense	General and administrative expense	20,841		5,097		45,437		9,624		General and administrative expense	28,751		10,589		74,188		20,214
Cost of restaurant and factory revenues	Cost of restaurant and factory revenues	49,846		244		104,644		244		Cost of restaurant and factory revenues	55,257		7,133		159,901		7,377
Depreciation and amortization	Depreciation and amortization	6,711		386		13,181		784		Depreciation and amortization	6,895		2,377		20,076		3,161
Refranchising loss (gain)	Refranchising loss (gain)	453		(856)		1,001		(429)		Refranchising loss (gain)	122		(250)		1,123		(679)
Acquisition costs	Acquisition costs	135		917		383		932		Acquisition costs	—		2,053		383		2,985
Advertising fees	Advertising fees	11,596		1,367		21,853		2,560		Advertising fees	11,185		5,483		33,038		8,043
Total costs and expenses	Total costs and expenses	89,582		7,155		186,499		13,715		Total costs and expenses	102,210		27,385		288,709		41,101

Income from operations	Income from operations	13,203		1,127		13,689		1,216		Income from operations	1,012		2,376		14,701		3,592

Other (expense) income, net	Other (expense) income, net									Other (expense) income, net
Interest expense	Interest expense	(18,998)		(2,406)		(38,026)		(4,866)		Interest expense	(19,504)		(7,072)		(57,530)		(11,939)
Interest expense related to preferred shares	Interest expense related to preferred shares	(4,715)		(264)		(6,714)		(552)		Interest expense related to preferred shares	(4,967)		(173)		(11,681)		(725)
Net loss on extinguishment of debt	Net loss on extinguishment of debt	—		(6,405)		—		(6,405)		Net loss on extinguishment of debt	—		(13)		—		(6,418)
Other income, net	Other income, net	2,071		25		3,381		123		Other income, net	538		64		3,919		189
Total other expense, net	Total other expense, net	(21,642)		(9,050)		(41,359)		(11,700)		Total other expense, net	(23,933)		(7,194)		(65,292)		(18,893)

Loss before income tax expense	Loss before income tax expense	(8,439)		(7,923)		(27,670)		(10,484)		Loss before income tax expense	(22,921)		(4,818)		(50,591)		(15,301)

Income tax (benefit) provision		(251)		(1,992)		4,273		(2,121)
Income tax provision (benefit)										Income tax provision (benefit)	516		(1,183)		4,789		(3,303)

Net loss	Net loss	(8,188)		(5,931)		$	(31,943)	(8,363)		Net loss	(23,437)		(3,635)		(55,380)		(11,998)
Less: Net loss attributable to noncontrolling interest	Less: Net loss attributable to noncontrolling interest	—		(5)		—		(5)		Less: Net loss attributable to noncontrolling interest	—		(14)		—		(19)
Net loss attributable to FAT Brands Inc.	Net loss attributable to FAT Brands Inc.	$	(8,188)	$	(5,926)	$	(31,943)	$	(8,358)	Net loss attributable to FAT Brands Inc.	$	(23,437)	$	(3,621)	$	(55,380)	$	(11,979)

Basic and diluted loss per common share	Basic and diluted loss per common share	$	(0.50)	$	(0.48)	$	(1.95)	$	(0.69)	Basic and diluted loss per common share	$	(1.42)	$	(0.26)	$	(3.37)	$	(0.85)
Basic and diluted weighted average shares outstanding	Basic and diluted weighted average shares outstanding	16,405,108		12,275,370		16,396,896		12,122,938		Basic and diluted weighted average shares outstanding	16,528,327		14,144,857		16,441,555		14,094,772
Cash dividends declared per common share	Cash dividends declared per common share	$	0.13	$	0.13	$	0.26	$	0.26	Cash dividends declared per common share	$	0.14	$	0.13	$	0.40	$	0.39

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

Table of Contents

FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(dollars in thousands)

For the ~~Twenty-Six~~Thirty-Nine Weeks Ended ~~June 26,~~September 25, 2022

Common Stock Preferred Stock
Class A Shares Class B Shares Class A Par
Value Class B Par
Value Additional
Paid-In
Capital Total
Common
Stock Shares Par
Value Additional
Paid-In
Capital Total
Preferred
Stock Accumulated
Deficit Total
Balance at December 26, 2021 15,109,747 1,270,805 $ 2 $ — $ (24,839) $ (24,837) 3,221,471 $ — $ 55,661 $ 55,661 $ (52,479) $ (21,655)
Net loss — — — — — — — — — — (31,943) (31,943)
Issuance of common stock through exercise of warrants 21,850 — — — 64 64 — — 19 19 — 83
Share-based compensation — — — — 4,076 4,076 — — — — — 4,076
Dividends declared on common stock — — — — (4,263) (4,263) — — — — — (4,263)
Dividends declared on Series B preferred stock — — — — — — — — (3,314) (3,314) — (3,314)
Exercise of Series B preferred stock put option — — — — — — — — (4,107) (4,107) — (4,107)
Balance at June 26, 2022 15,131,597 1,270,805 $ 2 $ — $ (24,962) $ (24,960) 3,221,471 $ — $ 48,259 $ 48,259 $ (84,422) $ (61,123)


	Common Stock										Preferred Stock
	Class A Shares	Class B Shares	Class A Par Value		Class B Par Value		Additional Paid-In Capital		Total Common Stock		Shares	Par Value		Additional Paid-In Capital		Total Preferred Stock		Accumulated Deficit		Total

Balance at December 26, 2021	15,109,747	1,270,805	$	2	$	—	$	(24,839)	$	(24,837)	3,221,471	$	—	$	55,661	$	55,661	$	(52,479)	$	(21,655)
Net loss	—	—	—		—		—		—		—	—		—		—		(55,380)		(55,380)
Issuance of common stock through exercise of warrants	31,399	—	—		—		90		90		—	—		27		27		—		117
Share-based compensation	160,000	—	—		—		6,116		6,116		—	—		—		—		—		6,116
Dividends paid on common stock	—	—	—		—		(6,585)		(6,585)		—	—		—		—		—		(6,585)
Issuance of common stock in lieu of cash - director fees	4,761	—	—		—		—		—		—	—		—		—		—		—
Dividends paid on Series B preferred stock	—	—	—		—		—		—		—	—		(4,975)		(4,975)		—		(4,975)
Exercise of Series B preferred stock put option	—	—	—		—		—		—		—	—		(4,107)		(4,107)		—		(4,107)
Balance at September 25, 2022	15,305,907	1,270,805	$	2	$	—	$	(25,218)	$	(25,216)	3,221,471	$	—	$	46,606	$	46,606	$	(107,859)	$	(86,469)

Table of Contents

~~For the Twenty-Six Weeks Ended June 27, 2021~~

Common Stock Preferred Stock
Class A Shares Class A Par
Value Additional
Paid-In Capital Total
Common
Stock Shares Par
Value Additional
Paid-In
Capital Total
Preferred
Stock Non-
Controlling
Interest Accumulated Deficit Total
Balance at December 27, 2020 11,926,264 $ 1 $ (42,776) $ (42,775) 1,183,272 $ — $ 21,788 $ 21,788 $ — $ (20,896) $ (41,883)
Net loss — — — — — — — — (5) (8,358) (8,363)
Issuance of common stock through exercise of warrants (1) 265,264 — 1,140 1,140 — — 243 243 — — 1,383
Issuance of preferred stock — — — — 460,000 — 8,281 8,281 — — 8,281
Share-based compensation 300,000 — 230 230 — — — — — — 230
Measurement period adjustment in accordance with ASU 2015-16 — — (1,451) (1,451) — — — — — — (1,451)
Stock contracted for issue in payment of debt (2) — — 816 816 — — — — — — 816
Sale of Interest in operating restaurant — — 151 151 — — — — 98 — 249
Dividends declared on common stock — — (3,197) (3,197) — — — — — — (3,197)
Dividends declared on Series B preferred stock — — — — — — (1,220) (1,220) — — (1,220)
Balance at June 27, 2021 12,491,528 $ 1 $ (45,087) $ (45,086) 1,643,272 $ — $ 29,092 $ 29,092 $ 93 $ (29,254) $ (45,155)
(1) Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.
(2) Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.

For the 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		Accumulated Deficit		Total

Balance at December 27, 2020	11,926,264	—	$	1	$	—	$	(42,776)	$	(42,775)	1,183,272	$	—	$	21,788	$	21,788	$	—	$	(20,896)	$	(41,883)
Net loss	—	—	—		—		—		—		—	—		—		—		(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		8,246		—		—		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 paid on common stock	—	—	—		—		(5,313)		(5,313)		—	—		—		—		—		—		(5,313)
Dividends paid on Series B preferred stock	—	—	—		—		—		—		—	—		(2,084)		(2,084)		—		—		(2,084)
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)

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

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~~For the Thirteen Weeks Ended June 26, 2022~~

Common Stock Preferred Stock
Class A Shares Class B Shares Class A Par
Value Class B Par
Value Additional
Paid-In
Capital Total
Common
Stock Shares Par
Value Additional
Paid-In
Capital Total
Preferred
Stock Accumulated
Deficit Total
Balance at March 27, 2022 15,131,597 1,270,805 $ 2 $ — $ (24,794) $ (24,792) 3,221,471 $ — $ 49,920 $ 49,920 $ (76,234) $ (51,106)
Net loss — — — — — — — — — — (8,188) (8,188)
Share-based compensation — — — — 1,964 1,964 — — — — — 1,964
Dividends declared on common stock — — — — (2,132) (2,132) — — — — — (2,132)
Dividends declared on Series B preferred stock — — — — — — — — (1,661) (1,661) — (1,661)
Balance at June 26, 2022 15,131,597 1,270,805 $ 2 $ — $ (24,962) $ (24,960) 3,221,471 $ — $ 48,259 $ 48,259 $ (84,422) $ (61,123)

For the Thirteen Weeks Ended September 25, 2022


	Common Stock										Preferred Stock
	Class A Shares	Class B Shares	Class A Par Value		Class B Par Value		Additional Paid-In Capital		Total Common Stock		Shares	Par Value		Additional Paid-In Capital		Total Preferred Stock		Accumulated Deficit		Total

Balance at June 26, 2022	15,131,597	1,270,805	$	2	$	—	$	(24,962)	$	(24,960)	3,221,471	$	—	$	48,259	$	48,259	$	(84,422)	$	(61,123)
Net loss	—	—	—		—		—		—		—	—		—		—		(23,437)		(23,437)
Issuance of common stock through exercise of warrants	9,549	—	—		—		26		26		—	—		8		8		—		34
Share-based compensation	160,000	—	—		—		2,040		2,040		—	—		—		—		—		2,040
Dividends paid on common stock	—	—	—		—		(2,322)		(2,322)		—	—		—		—		—		(2,322)
Issuance of common stock in lieu of cash - director fees	4,761	—	—		—		—		—		—	—		—		—		—		—
Dividends paid on Series B preferred stock	—	—	—		—		—		—		—	—		(1,661)		(1,661)		—		(1,661)
Balance at September 25, 2022	15,305,907	1,270,805	$	2	$	—	$	(25,218)	$	(25,216)	3,221,471	$	—	$	46,606	$	46,606	$	(107,859)	$	(86,469)

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For the Thirteen Weeks Ended ~~June 27,~~September 26, 2021


		Common Stock										Preferred Stock																		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				Accumulated Deficit			Total				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	Accumulated Deficit	Total

Balance at March 28, 2021		12,029,264	—	$	1	$	—	$	(43,516)	$	(43,515)	1,183,272	$	—	$	21,267	$	21,267	$	—			$	(23,328)		$	(45,576)
Balance at June 27, 2021																					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	Net loss	—	—	—		—		—		—		—	—		—		—		(5)				(5,926)			(5,931)		Net loss		—		—		—		—		—		—		—		—		—		—		(14)	(3,621)	(3,635)
Issuance of common stock through exercise of warrants ~~(1)~~	Issuance of common stock through exercise of warrants ~~(1)~~	162,264	—	—		—		714		714		—	—		154		154		—				—			868		Issuance of common stock through exercise of warrants ~~(1)~~		199,379		—		—		—		659		659		—		—		151		151		—	—	810
Issuance of Preferred B Stock		—	—	—		—		—		—		460,000	—		8,281		8,281		—				—			8,281
Issuance of preferred stock																					Issuance of preferred stock	—			—				—		—		—		—		—		—		(35)		(35)		—		—		(35)
Share-based compensation	Share-based compensation	300,000	—	—		—		193		193		—	—		—		—		—				—			193		Share-based compensation		—		—		—		—		258		258		—		—		—		—		—	—	258
Measurement period adjustment in accordance with ASU 2015-16	Measurement period adjustment in accordance with ASU 2015-16	—	—	—		—		(248)		(248)		—	—		—		—		—				—			(248)		Measurement period adjustment in accordance with ASU 2015-16		—		—		—		—		70		70		—		—		—		—		—	—	70
Stock contracted for issue in payment of debt ~~(2)~~	Stock contracted for issue in payment of debt ~~(2)~~	—	—	—		—		816		816		—	—		—		—		—				—			816		Stock contracted for issue in payment of debt ~~(2)~~		62,500		—		—		—		—		—		—		—		—		—		—	—	—
Sale of interest in operating restaurant	Sale of interest in operating restaurant	—	—	—		—		151		151		—	—		—		—		98				—			249		Sale of interest in operating restaurant		—		—		—		—		500		500		—		—		—		—		—	—	500
Dividends declared on common stock		—	—	—		—		(3,197)		(3,197)		—	—		—		—		—				—			(3,197)
Dividends declared on Series B preferred stock		—	—	—		—		—		—		—	—		(610)		(610)		—				—			(610)
Balance at June 27, 2021		12,491,528	—	$	1	$	—	$	(45,087)	$	(45,086)	1,643,272	$	—	$	29,092	$	29,092	$	93			$	(29,254)		$	(45,155)
Dividends paid on common stock																					Dividends paid on common stock	—			—				—		—		(2,116)		(2,116)		—		—		—		—		—		—		(2,116)
Dividends paid on Series B preferred stock																					Dividends paid on Series B preferred stock	—			—				—		—		—		—		—		—		(864)		(864)		—		—		(864)
Issuance of common stock in connection with acquisition of LS GFG Holdings Inc. (1)																					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																					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																					Series A preferred shares retired through issuance of Series B preferred shares	—			—				—		—		—		—		—		—		9,564		9,564		—		—		9,564
Balance at September 26, 2021																					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) Share count excludes 23,963 common shares committed, but unissued as of June 27, 2021.
(2) Share count excludes 62,500 common shares committed, but unissued as of June 27, 2021.
(1) Excludes 3,089,245 shares of preferred stock classified as redeemable preferred stock as of September 26, 2021.																					(1) Excludes 3,089,245 shares of preferred stock classified as redeemable preferred stock as of September 26, 2021.

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

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FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

For the ~~Twenty-Six~~Thirty-Nine Weeks Ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021


		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(31,943)	$	(8,363)	Net loss	$	(55,380)	$	(11,998)
Adjustments to reconcile net loss to net cash used in operations:	Adjustments to reconcile net loss to net cash used in operations:					Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes	Deferred income taxes	3,256		(3,003)		Deferred income taxes	3,438		(3,384)
Net loss on extinguishment of debt	Net loss on extinguishment of debt	—		4,859		Net loss on extinguishment of debt	—		4,872
Depreciation and amortization	Depreciation and amortization	10,645		784		Depreciation and amortization	20,076		3,161
Share-based compensation	Share-based compensation	4,076		230		Share-based compensation	6,116		488
Change in operating right-of-use assets	Change in operating right-of-use assets	3,241		1,065		Change in operating right-of-use assets	3,866		1,662
Accretion of loan fees and interest	Accretion of loan fees and interest	5,787		696		Accretion of loan fees and interest	8,014		1,249
Accretion of preferred shares	Accretion of preferred shares	—		47		Accretion of preferred shares	—		26
Accretion of purchase price liability		48		20
Adjustments of purchase price liability						Adjustments of purchase price liability	(1,790)		72
Gain on sale of refranchised assets	Gain on sale of refranchised assets	—		(1,119)		Gain on sale of refranchised assets	—		(869)
Provision for bad debts	Provision for bad debts	423		23		Provision for bad debts	4,296		225
Change in:	Change in:					Change in:
Accounts receivable	Accounts receivable	(16,530)		(1,395)		Accounts receivable	(26,097)		(3,023)
Other current assets		(825)		(783)
Other current and noncurrent assets						Other current and noncurrent assets	(2,374)		(768)
Deferred income	Deferred income	1,959		388		Deferred income	2,551		1,244
Accounts payable	Accounts payable	(3,924)		(395)		Accounts payable	(6,575)		1,646
Accrued expense		(1,231)		2,014
Accrued expenses and other liabilities						Accrued expenses and other liabilities	7,108		(3,672)
Accrued advertising	Accrued advertising	2,985		(180)		Accrued advertising	5,272		646
Accrued interest payable	Accrued interest payable	483		(374)		Accrued interest payable	1,916		3,797
Dividend payable on preferred shares	Dividend payable on preferred shares	(9)		533		Dividend payable on preferred shares	(9)		699
Other		(6,404)		21
Other current and noncurrent liabilities						Other current and noncurrent liabilities	(7,032)		(79)
Total adjustments	Total adjustments	3,980		3,431		Total adjustments	18,776		7,992
Net cash used in operating activities	Net cash used in operating activities	(27,963)		(4,932)		Net cash used in operating activities	(36,604)		(4,006)

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(2,772)		—		Acquisitions, net of cash acquired	(2,772)		(346,484)
Payments received on loans receivable		1,647		—
Payments received on notes receivable						Payments received on notes receivable	1,693		140
Net proceeds from sale of refranchised restaurants	Net proceeds from sale of refranchised restaurants	—		1,442		Net proceeds from sale of refranchised restaurants	—		1,942
Purchases of property and equipment	Purchases of property and equipment	(7,987)		(1,258)		Purchases of property and equipment	(13,356)		(1,661)
Other	Other	(192)		37		Other	—		(87)
Net cash (used in) provided by investing activities		(9,304)		221
Net cash used in investing activities						Net cash used in investing activities	(14,435)		(346,150)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from borrowings, net of issuance costs	Proceeds from borrowings, net of issuance costs	704		140,789		Proceeds from borrowings, net of issuance costs	29,327		479,721
Repayments of borrowings	Repayments of borrowings	(510)		(92,613)		Repayments of borrowings	(720)		(93,046)
Issuance of preferred shares, net	Issuance of preferred shares, net	—		8,281		Issuance of preferred shares, net	—		8,246
Change in operating lease liabilities	Change in operating lease liabilities	(2,864)		(798)		Change in operating lease liabilities	(2,885)		(1,441)
Payments made on acquisition purchase price liability	Payments made on acquisition purchase price liability	—		(1,075)		Payments made on acquisition purchase price liability	—		(1,075)

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Exercise of warrants	Exercise of warrants	79		1,382		Exercise of warrants	117		2,192
Dividends paid on redeemable preferred stock	Dividends paid on redeemable preferred stock	(1,062)		—		Dividends paid on redeemable preferred stock	(1,062)		(690)
Dividends paid on common shares	Dividends paid on common shares	(4,263)		(3,197)		Dividends paid on common shares	(6,585)		(5,337)
Dividends paid on preferred shares	Dividends paid on preferred shares	(3,314)		(1,249)		Dividends paid on preferred shares	(4,975)		(2,097)
Net cash (used in) provided by financing activities		(11,230)		51,520
Net cash provided by financing activities						Net cash provided by financing activities	13,217		386,473

Net (decrease) increase in cash and restricted cash	Net (decrease) increase in cash and restricted cash	(48,497)		46,809		Net (decrease) increase in cash and restricted cash	(37,822)		36,317
Cash and restricted cash at beginning of the period	Cash and restricted cash at beginning of the period	99,921		7,211		Cash and restricted cash at beginning of the period	99,921		7,211
Cash and restricted cash at end of the period	Cash and restricted cash at end of the period	$	51,424	$	54,020	Cash and restricted cash at end of the period	$	62,099	$	43,528

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest	Cash paid for interest	$	32,430	$	4,619	Cash paid for interest	$	46,488	$	5,874
Cash paid for income taxes	Cash paid for income taxes	$	447	$	400	Cash paid for income taxes	$	713	$	639

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND RELATIONSHIPS

Organization and Nature of Business

FAT Brands Inc. (the "Company" or "FAT") is a leading multi-brand restaurant company that develops, markets, acquires and manages quick-service, fast casual, casual dining and polished casual dining restaurant concepts around the world. As of ~~June 26,~~September 25, 2022, the Company owned 17seventeen restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli's, Twin Peaks, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses. As of ~~June 26,~~September 25, 2022, the Company had 2,354 locations. Of this amount, 2,261 stores were franchised, representing approximately 96% of total restaurants.

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

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

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to impact the United States and other countries. As a result, at certain times the Company franchisees temporarily closed some retail locations, modified store operating hours, adopted a “to-go” only operating model or a combination of these actions. These actions have reduced consumer traffic, all resulting in a negative impact to franchisee and Company 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 ~~$13.7~~$14.7 million and ~~$1.2~~$3.6 million during the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021, respectively. The Company has a history of net losses and an accumulated deficit of ~~$84.4~~$107.9 million as of ~~June 26,~~September 25, 2022. Additionally, the Company had negative working capital of ~~$163.4~~$157.0 million. Of this amount, $135.0 million represents the current portion of redeemable preferred stock as discussed in Note 12. IfSince the Company ~~does~~did not deliver the applicable cash proceeds at the related due dates, the amount ~~then due will accrue~~accrues interest until the ~~payment is~~payments are completed. The Company had ~~$15.5~~$23.9 million of unrestricted cash at ~~June 26,~~September 25, 2022 and plans on the combination of cash generated from operations and cash on hand to be sufficient to cover any working capital requirements for the next twelve months from the date of this report. If the Company does not achieve its operating plan, additional forms of financing may be required through the issuance of debt or equity. Although management believes it will have access to financing, no assurances can be given that such financing will be available on acceptable terms, in a timely manner or at all.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation – The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Our revenues are derived from 2two sales channels, franchised restaurants and company-owned locations, which we operate as 1one reportable segment.

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

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

Use of estimates in the preparation of the condensed consolidated financial statements – The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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

Employee Retention Credits - On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Security Act (the "CARES Act") to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit ("ERC"). As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the Company accounts for the ERC by analogy to International Accounting Standard, Accounting for Government Grants and Disclosure of Government Assistance ("IAS 20"). In accordance with IAS 20, the Company determined it has reasonable assurance for receipt of the ERC and during the thirteen and thirty-nine weeks ended ~~June 26,~~September 25, 2022 recorded an ERC benefit of ~~$12.6~~$2.2 million and $14.8 million within cost of restaurant and factory revenues and general and administrative expense as a reduction to labor expense in the condensed consolidated statements of operations. The Company recorded a corresponding accrual for the benefit expected to be received within accounts receivable in the condensed consolidated balance sheets as of ~~June 26,~~September 25, 2022.

Recently Issued Accounting Standards

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

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

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

NOTE 3. MERGERS AND ACQUISITIONS

Nestle Toll House Cafe by Chip

On May 24, 2022, the Company agreed to acquire the franchised chain of stores known as Nestlé® Toll House® Café by Chip® from Crest Foods, Inc., consisting of all royalties generated under the Nestlé® Toll House® Café by Chip® brand, and the franchisor has agreed to cause the network to rebrand the stores as Great American Cookies, subject to the cooperation of the individual franchisees. Nestlé® Toll House® Café by Chip® is a franchised chain of stores with approximately 85 cafés across the United States. The Company paid an initial installment of the purchase price of $1.8 million. The final purchase price will be calculated on or before January 31, 2024.

Acquisition of Fazoli's

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

Acquisition of Native Grill & Wings

On December 15, 2021, the Company completed the acquisition of Native Grill & Wings (“Native”) for a total cash purchase price of $20.1 million. Based in Chandler, Arizona, Native Grill & Wings is a family-friendly, polished sports grill with franchised locations throughout Arizona, Illinois and Texas. Native serves over 20 award-winning wing flavors that guests can order by the individual wing, as well as an extensive menu of pizza, burgers, sandwiches, salads and more.

Acquisition of Twin Peaks

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

Acquisition of Global Franchise Group

On July 22, 2021, the Company completed the acquisition of LS GFG Holdings Inc. (“GFG”), for a total purchase price of $444.9 million. GFG is a franchisor of 5five quick service restaurant brands (Round Table Pizza, Great American Cookies, Marble Slab Creamery, Pretzelmaker and Hot Dog on a Stick).

Proforma Information

The table below presents the combined proforma revenue and net loss of the Company and Fazoli's, Twin Peaks and GFG (the "Material Acquired Entities") for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 27,~~September 26, 2021, assuming the acquisitions had occurred on December 28, 2020 (the beginning of the Company’s 2021 fiscal year), pursuant to ASC 805-10-50-Business Combinations (Topic 805) (in millions). This proforma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition of the Material Acquired Entities occurred on this date nor does it purport to predict the results of operations for future periods.

~~Thirteen Weeks Ended~~

~~Twenty-Six Weeks Ended~~

~~June 27, 2021~~

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Revenue 93.5 $ 171.9
Net loss (4.4) $ (14.3)


	Thirteen Weeks Ended	Thirty-Nine Weeks Ended
	September 26, 2021	September 26, 2021
Revenue	87.4	$	259.3
Net loss	(5.5)	$	(19.8)

NOTE 4. REFRANCHISING

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

The Company meets all of the criteria requiring that acquired assets used in the operation of certain restaurants be classified as held-for-sale. As a result, the following assets have been classified as held-for-sale on the accompanying condensed consolidated balance sheets as of ~~June 26,~~September 25, 2022 and December 26, 2021 (in millions):


		June 26, 2022		December 26, 2021			September 25, 2022		December 26, 2021

Property and equipment	Property and equipment	$	0.8	$	0.8	Property and equipment	$	0.7	$	0.8
Operating lease right-of-use assets	Operating lease right-of-use assets	$	4.5	$	4.7	Operating lease right-of-use assets	4.3		4.7
Total	Total	$	5.3	$	5.5	Total	$	5.0	$	5.5

Operating lease liabilities related to the assets classified as held-for-sale in the amount of ~~$4.6~~$4.4 million and $4.8 million have been classified as current liabilities on the accompanying condensed consolidated balance sheets as of ~~June 26,~~September 25, 2022 and December 26, 2021, respectively.

The following table highlights the operating results of the Company's refranchising program (in millions):


		Thirteen Weeks Ended				Twenty-Six Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021			September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021
Restaurant costs and expenses, net of revenue	Restaurant costs and expenses, net of revenue	$	(0.5)	$	(0.2)	$	(1.0)	$	(0.7)	Restaurant costs and expenses, net of revenue	$	(0.1)	$	(0.2)	$	(1.1)	$	(0.9)
Gain on store sales or closures	Gain on store sales or closures	—		1.1		—		1.1		Gain on store sales or closures	—		0.5		—		1.6
Refranchising (loss) gain	Refranchising (loss) gain	$	(0.5)	$	0.9	$	(1.0)	$	0.4	Refranchising (loss) gain	$	(0.1)	$	0.3	$	(1.1)	$	0.7

NOTE 5. TRADE AND OTHER NOTES RECEIVABLE

Notes receivable consist of trade notes receivable, the Elevation Buyer Note and the Twin Peaks - Hollywood Note. Trade notes receivable are created when a settlement is reached relating to a delinquent franchisee account and the entire balance is not immediately paid. Trade notes receivable generally include personal guarantees from the franchisee. The notes are made for the shortest time frame negotiable and will generally carry an interest rate of 6.0% to 7.5%. Reserve amounts, on the notes, are established based on the likelihood of collection. As of ~~June 26,~~September 25, 2022 and December 26, 2021 trade notes receivable ~~totaled $0.5 million, which~~ was ~~net~~fully reserved.

Table of ~~reserves of $0.4 million.~~Contents

The Elevation Buyer Note was funded in connection with the purchase of Elevation Burger. The Company loaned $2.3 million in cash to the Seller under a subordinated promissory note bearing interest at 6.0% per ~~year~~annum 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

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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 $1.9 million, which was net of a discount of $0.4 million. As of ~~June 26,~~September 25, 2022 and December 26, 2021, the balance of the Elevation Note was ~~$1.6~~$1.5 million and $1.7 million, respectively, which were net of discounts of ~~$0.2~~$0.1 million and $0.2 million, respectively. During the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022, the Company recognized ~~$44,000~~$42,283 and ~~$90,000~~$132,160 in interest income on the Elevation Buyer Note, respectively. During the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 27,~~September 26, 2021, the Company recognized ~~$50,000~~$49,000 and ~~$102,000~~$151,000 in interest income on the Elevation Buyer Note, respectively.

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

NOTE 6. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following (in millions):


		June 26, 2022		December 26, 2021			September 25, 2022		December 26, 2021
Real estate	Real estate	$	60.6	$	60.5	Real estate	$	60.6	$	60.5
Equipment	Equipment	31.5		22.9		Equipment	36.0		22.9
		92.1		83.4			$	96.6	$	83.4
Accumulated depreciation		(8.6)		(2.9)
Accumulated Depreciation						Accumulated Depreciation	(11.7)		(2.9)
Property and equipment, net	Property and equipment, net	$	83.5	$	80.5	Property and equipment, net	$	84.9	$	80.5

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NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Changes in Carrying Value of Goodwill and Other Intangible Assets (in millions)


		Amortizing Intangible Assets				Non-Amortizing Intangible Assets								Amortizing Intangible Assets				Non-Amortizing Intangible Assets
				Goodwill				Trademarks								Goodwill				Trademarks
December 26, 2021	December 26, 2021			$	175.6			$	295.1			$	477.2		December 26, 2021	$	175.6			$	295.1			$	477.2
Amortization	Amortization	(7.4)				—				—		Amortization		(11.3)				—				—
Additions	Additions	1.8				—				—		Additions		1.8				—				—
Adjustment to preliminary purchase price	Adjustment to preliminary purchase price	(0.3)				1.4				—		Adjustment to preliminary purchase price		(0.3)				(1.3)				—
June 26, 2022		$	169.7			$	296.5			$	477.2
September 25, 2022												September 25, 2022		$	165.8			$	293.8			$	477.2

Gross Carrying Value and Accumulated Amortization of Other Intangible Assets (in millions)


		June 26, 2022							December 26, 2021							September 25, 2022							December 26, 2021
			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount				Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets	Amortizing intangible assets														Amortizing intangible assets
Franchise agreements	Franchise agreements		$	109.2	(10.3)		$	98.9	$	109.4	$	(5.7)	$	103.7	Franchise agreements		$	109.2	(12.5)		$	96.7	$	109.4	$	(5.7)	$	103.7
Customer relationships	Customer relationships		73.9		(5.2)		68.7		73.9		(2.4)		71.5		Customer relationships		73.9		(6.6)		67.3		73.9		(2.4)		71.5
Other	Other		2.1		—		2.1		0.4		—		0.4		Other		2.1		(0.3)		1.8		0.4		—		0.4
			$	185.2	$	(15.5)	$	169.7	183.7		$	(8.1)	$	175.6			$	185.2	$	(19.4)	$	165.8	$	183.7	$	(8.1)	$	175.6

Non-amortizing intangible assets	Non-amortizing intangible assets														Non-amortizing intangible assets
Trademarks	Trademarks						477.2						477.2		Trademarks						477.2						477.2
Total amortizing and non-amortizing intangible assets, net	Total amortizing and non-amortizing intangible assets, net						$	646.9					$	652.8	Total amortizing and non-amortizing intangible assets, net						$	643.0					$	652.8

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


Fiscal year:	Fiscal year:			Fiscal year:
Remaining 2022	Remaining 2022	$	7.6	Remaining 2022	$	3.8
2023	2023	15.0		2023	15.0
2024	2024	14.7		2024	14.7
2025	2025	14.5		2025	14.5
2026	2026	14.5		2026	14.5
Thereafter	Thereafter	103.4		Thereafter	103.3
Total	Total	$	169.7	Total	$	165.8

A review of the carrying value of goodwill as of ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021 did not result in any impairment charges for the ~~twenty-six~~thirty-nine weeks ended as of that date.

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NOTE 8. DEFERRED INCOME

Deferred income was as follows (in millions):


		June 26, 2022		December 26, 2021			September 25, 2022		December 26, 2021

Deferred franchise fees	Deferred franchise fees	$	22.0	$	19.8	Deferred franchise fees	$	22.5	$	19.8
Deferred royalties	Deferred royalties	0.1		0.2		Deferred royalties	0.1		0.2
Deferred vendor incentives	Deferred vendor incentives	0.2		0.3		Deferred vendor incentives	0.2		0.3
Total	Total	$	22.3	$	20.3	Total	$	22.8	$	20.3

NOTE 9. INCOME TAXES

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


		Thirteen Weeks Ended						Twenty-Six Weeks Ended							Thirteen Weeks Ended						Thirty-Nine Weeks Ended
		June 26, 2022			June 27, 2021			June 26, 2022			June 27, 2021				September 25, 2022			September 26, 2021			September 25, 2022			September 26, 2021
(Benefit) provision for income taxes		$	(0.3)		$	(2.0)		$	4.3		$	(2.1)
Provision (benefit) for income taxes														Provision (benefit) for income taxes	$	0.5		$	(1.2)		$	4.8		$	(3.3)
Effective tax rate	Effective tax rate	3.0		%	25.1		%	(15.4)		%	20.2		%	Effective tax rate	(2.3)		%	24.6		%	(9.5)		%	21.6		%

The difference between the statutory tax rate of 21% and the effective tax rate of ~~3.0%~~(2.3)% and ~~(15.4)~~(9.5)% in the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022, respectively, was primarily due to increases in the valuation allowance, nondeductible expenses and the impact of state income taxes.

The difference between the statutory tax rate of 21% and the effective tax rate in the thirteen and thirty-nine weeks ended ~~June 27,~~September 26, 2021 was primarily due to the impact of state income taxes and the forgiveness of loans under the Paycheck Protection Program (the “PPP Loans”).

NOTE 10. LEASES

The Company recognized lease expense of ~~$4.8~~$4.6 million and ~~$0.7~~$1.4 million for the thirteen weeks ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021, respectively. The Company recognized lease expense of ~~$9.3~~$13.9 million and ~~$1.5~~$2.8 million for the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021, respectively.

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


		June 26, 2022		December 26, 2021			September 25, 2022		December 26, 2021

Operating lease right-of-use assets	Operating lease right-of-use assets	$	95.5	$	98.6	Operating lease right-of-use assets	$	95.2	$	98.6
Right-of-use assets classified as held-for-sale	Right-of-use assets classified as held-for-sale	4.5		4.7		Right-of-use assets classified as held-for-sale	4.3		4.7
Total right-of-use assets	Total right-of-use assets	$	100.0	$	103.2	Total right-of-use assets	$	99.5	$	103.3

Operating lease liabilities	Operating lease liabilities	$	104.5	$	107.3	Operating lease liabilities	$	104.4	$	107.3
Lease liabilities related to assets held for sale		4.6		4.8
Lease liabilities related to assets held-for-sale						Lease liabilities related to assets held-for-sale	4.4		4.8
Total operating lease liabilities	Total operating lease liabilities	$	109.1	$	112.0	Total operating lease liabilities	$	108.8	$	112.1

The contractual future maturities of the Company’s operating lease liabilities as of ~~June 26,~~September 25, 2022, including anticipated lease extensions, are as follows (in millions):

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Fiscal year:	Fiscal year:			Fiscal year:
Remainder of 2022	Remainder of 2022	$	8.3	Remainder of 2022	$	4.2
2023	2023	15.9		2023	16.2
2024	2024	14.8		2024	15.1
2025	2025	14.3		2025	14.5
2026	2026	13.1		2026	13.3
Thereafter	Thereafter	161.7		Thereafter	163.6
Total lease payments	Total lease payments	228.1		Total lease payments	$	226.9
Less imputed interest	Less imputed interest	(119.0)		Less imputed interest	(118.1)
Total	Total	$	109.1	Total	$	108.8

The current portion of the operating lease liability as of ~~June 26,~~September 25, 2022 was ~~$13.9~~$14.4 million.

Supplemental cash flow information for the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022 related to leases was as follows (in millions):


		Twenty-Six Weeks Ended					Thirty-Nine Weeks Ended
		June 26, 2022		June 27, 2021			September 25, 2022		September 26, 2021
Cash paid for amounts included in the measurement of operating lease liabilities:	Cash paid for amounts included in the measurement of operating lease liabilities:					Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	8.1	$	1.3	Operating cash flows from operating leases	$	12.2	$	2.3

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NOTE 11. DEBT

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


		June 26, 2022								December 26, 2021			September 25, 2022								December 26, 2021
		Final Maturity	Anticipated Call Date	Rate		Face Value		Book Value		Book Value			Final Maturity	Anticipated Call Date	Rate		Face Value		Book Value		Book Value
Senior Debt	Senior Debt											Senior Debt
2021 FB Royalty Securitization	2021 FB Royalty Securitization	4/25/2051	7/25/2023	4.75	%	$	97.1	$	95.6	$	95.4	2021 FB Royalty Securitization	4/25/2051	7/25/2023	4.75	%	$	97.1	$	95.3	$	95.4
2021 GFG Royalty Securitization	2021 GFG Royalty Securitization	7/25/2051	7/25/2023	6.00	%	209.0		205.9		205.6		2021 GFG Royalty Securitization	7/25/2051	7/25/2023	6.00	%	209.0		206.3		205.6
2021 Twin Peaks Securitization	2021 Twin Peaks Securitization	7/25/2051	7/25/2023	7.00	%	150.0		147.2		146.8		2021 Twin Peaks Securitization	7/25/2051	7/25/2023	7.00	%	150.0		147.3		146.8
2021 Fazoli's/Native Securitization	2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	6.00	%	128.8		123.8		122.8		2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	6.00	%	128.8		124.3		122.8
2022 FB Royalty Securitization												2022 FB Royalty Securitization	4/25/2051	7/25/2023	4.75	%	30.0		27.7		—
Senior Subordinated Debt	Senior Subordinated Debt											Senior Subordinated Debt
2021 FB Royalty Securitization	2021 FB Royalty Securitization	4/25/2051	7/25/2023	8.00	%	32.4		31.9		31.8		2021 FB Royalty Securitization	4/25/2051	7/25/2023	8.00	%	32.4		31.8		31.8
2021 GFG Royalty Securitization	2021 GFG Royalty Securitization	7/25/2051	7/25/2023	7.00	%	84.0		81.8		81.5		2021 GFG Royalty Securitization	7/25/2051	7/25/2023	7.00	%	84.0		82.0		81.5
2021 Twin Peaks Securitization	2021 Twin Peaks Securitization	7/25/2051	7/25/2023	9.00	%	50.0		47.0		46.6		2021 Twin Peaks Securitization	7/25/2051	7/25/2023	9.00	%	50.0		47.2		46.6
2021 Fazoli's/Native Securitization	2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	7.00	%	25.0		23.1		22.7		2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	7.00	%	25.0		23.3		22.7
Subordinated Debt	Subordinated Debt											Subordinated Debt
2021 FB Royalty Securitization	2021 FB Royalty Securitization	4/25/2051	7/25/2023	9.00	%	15.0		14.2		14.1		2021 FB Royalty Securitization	4/25/2051	7/25/2023	9.00	%	15.0		14.2		14.1
2021 GFG Royalty Securitization	2021 GFG Royalty Securitization	7/25/2051	7/25/2023	9.50	%	57.0		53.1		52.6		2021 GFG Royalty Securitization	7/25/2051	7/25/2023	9.50	%	57.0		53.4		52.6
2021 Twin Peaks Securitization	2021 Twin Peaks Securitization	7/25/2051	7/25/2023	10.00	%	50.0		44.9		44.2		2021 Twin Peaks Securitization	7/25/2051	7/25/2023	10.00	%	50.0		45.2		44.2
2021 Fazoli's/Native Securitization	2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	9.00	%	40.0		36.0		35.1		2021 Fazoli's/Native Securitization	7/25/2051	7/25/2023	9.00	%	40.0		36.2		35.2
Total Securitized Debt	Total Securitized Debt					938.3		904.5		899.3		Total Securitized Debt					968.3		934.2		899.3
Elevation Note	Elevation Note	7/19/2026	N/A	6.00	%	6.5		4.3		5.6		Elevation Note	7/19/2026	N/A	6.00	%	6.5		4.1		5.6
Equipment Notes	Equipment Notes	5/5/2027 to 3/7/2029	N/A	7.99% to 8.49%		0.7		0.7		—		Equipment Notes	5/5/2027 to 3/7/2029	N/A	7.99% to 8.49%		0.7		0.7		—
Twin Peaks Construction Loan												Twin Peaks Construction Loan	3/12/2023 with One Six-Month Extension	N/A	8.00	%	1.5		1.5		—
Total debt	Total debt					945.5		909.5		904.9		Total debt					977.0		940.5		904.9
Current portion of long-term debt	Current portion of long-term debt					—		(0.9)		(0.6)		Current portion of long-term debt					—		(2.4)		(0.6)
Long-term debt	Long-term debt					$	945.5	$	908.6	$	904.3	Long-term debt					$	977.0	$	938.1	$	904.3

Terms of Outstanding Debt

2021 FAT Royalty Securitization

On April 26, 2021, FAT Brands Royalty I, LLC (“FB Royalty”), a special purpose, wholly-owned subsidiary of FAT Brands Inc., completed the issuance and sale of three tranches of fixed rate secured notes (the “2021 FAT Royalty Securitization

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Notes”) with a total aggregate principal amount of $144.5 million. The 2021 FB Royalty Securitization Notes are generally secured by a security interest in substantially all the assets of FB Royalty and its subsidiaries.

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

Closing Date

Class

Seniority

Principal Balance

Coupon

Final Legal Maturity Date

7/6/2022

A-2

Senior

$42.7

4.75%

7/25/2051

7/6/2022

B-2

Senior Subordinated

$14.2

8.00%

7/25/2051

7/6/2022

M-2

Subordinated

$19.6

9.00%

7/25/2051

Of the $76.5 million aggregate principal amount, ~~$61.5~~$30.0 million was ~~issued to FAT Brands Inc. and will be eliminated in consolidation. The remainder of~~sold privately during the ~~notes were sold privately,~~third quarter, resulting in net proceeds of ~~$13.5~~$27.1 million (net of debt offering costs of $0.6 million and original issue discount of ~~$0.9~~$2.3 million). The remaining $46.5 million in aggregate principal was issued to FAT Brands Inc. and has been eliminated in consolidation. [pending execution of put preferred for debt exchange if signed prior to filing]

2021 GFG Royalty Securitization

In connection with the acquisition of GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC ("GFG Royalty"), a special purpose, wholly-owned subsidiary of FAT Brands, completed the issuance and sale of three tranches of fixed rate secured notes (the "2021 GFG Royalty Securitization Notes") with a total aggregate principal amount of $350.0 million. Immediately following the closing of the acquisition of GFG the Company contributed the franchising subsidiaries of GFG to GFG Royalty, pursuant to a Contribution Agreement. The GFG Securitization Notes are generally secured by a security interest in substantially all the assets of GFG Royalty and its subsidiaries.

2021 Twin Peaks Securitization

In connection with the acquisition of Twin Peaks on October 1, 2021, the Company completed the issuance and sale in a private offering through its special purpose, wholly-owned subsidiary, FAT Brands Twin Peaks I, LLC, of three tranches of fixed rate secured notes (the "Twin Peaks Securitization Notes") with a total aggregate principal amount of $250.0 million. Immediately following the closing of the acquisition of Twin Peaks the Company contributed the franchising subsidiaries of Twin Peaks to FAT Brands Twin Peaks I, LLC,, pursuant to a Contribution Agreement. The Twin Peaks Securitization Notes are generally secured by a security interest in substantially all the assets of FAT Brands Twin Peaks I, LLC and its subsidiaries.

2021 Fazoli's / Native Securitization

In connection with the acquisition of Fazoli's and Native Grill & Wings on December 15, 2021, the Company completed the issuance and sale in a private offering through its special purpose, wholly-owned subsidiary, FAT Brands Fazoli's Native I, LLC, of three tranches of fixed rate secured notes (the "Fazoli's/Native Securitization Notes") with a total aggregate principal amount of $193.8 million. Immediately following the closing of the acquisition of Fazoli's and Native the Company contributed the franchising subsidiaries of these entities to FAT Brands Fazoli's Native I, LLC, pursuant to a Contribution Agreement. The Fazoli's/Native Securitization Notes are generally secured by a security interest in substantially all the assets of FAT Brands Fazoli's Native I, LLC and its subsidiaries.

Terms and Debt Covenant Compliance

The 2021 FAT Royalty Securitization Notes, the 2021 GFG Royalty Securitization Notes, the 2021 Twin Peaks Securitization Notes and the 2021 Fazoli's/Native Securitization Notes (collectively, the "Securitization Notes"), require that the principal (if any) and interest obligations be segregated to ensure appropriate funds are reserved to pay the quarterly principal and interest amounts due. The amount of monthly cash flow that exceeds the required monthly interest reserve is generally remitted to the

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Company. Interest payments are required to be made on a quarterly basis and, unless repaid on or before July 25, 2023, additional interest equal to 1.0% per annum will accrue on the then outstanding principal balance of each tranche.

The material terms of the Securitization Notes contain covenants which are standard and customary for these types of agreements, including the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and (iii) senior leverage ratio. As of ~~June 26,~~September 25, 2022, the Company was in compliance with these covenants.

Elevation Note

On June 19, 2019, the Company completed the acquisition of Elevation Burger. A portion of the purchase price included the issuance to the Seller of a convertible subordinated promissory note (the “Elevation Note”) with a principal amount of $7.5 million, bearing interest at 6.0% per ~~year~~annum 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. The annualized effective interest rate for the Elevation Note during the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022 was ~~11.2%~~12.3%. In June 2022, pursuant to the claw-back provision of the purchase agreement, the balance of the Elevation Note was reduced by $1.0 million to $6.5 million.

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

Equipment Financing (Twin Peaks)

During fiscal year 2022, an indirect subsidiary of the Company entered into certain equipment financing arrangements to borrow up to $1.0 million, the proceeds of which will be used to purchase certain equipment for a new Twin Peaks restaurant and to retrofit existing restaurants with equipment (the "Equipment Financing"). The Equipment Financing has maturity dates between May 5, 2027, and March 7, 2029, and bear interest at fixed rates between 7.99% and 8.49% per annum. The Equipment Financing is secured by certain equipment of the Twin Peaks restaurant.

Construction Loan Agreement (Twin Peaks)

On July 12, 2022, an indirect subsidiary of the Company entered into a construction loan agreement to borrow up to $4.5 million, the proceeds of which will be used for a new corporate Twin Peaks in Northlake, TX (the "Construction Loan"). The Construction Loan has an initial maturity of March 12, 2023, with an optional six-month extension, bearing interest at a fixed rate of 8% per year and is secured by land and building.

NOTE 12. SERIES B CUMULATIVE PREFERRED STOCK

GFG Preferred Stock Consideration

On July 22, 2021, the Company completed the acquisition of GFG. A portion of the consideration paid included 3,089,245 newly issued shares of the Company’s Series B Preferred Stock (the "GFG Preferred Stock Consideration"). Additionally, on July 22, 2021, the Company entered into a Put/Call Agreement with the GFG sellers, pursuant to which the Company may purchase, or the GFG sellers may require the Company to purchase, the GFG Preferred Stock Consideration for $67.5 million plus any accrued but unpaid dividends on or before August 20, 2022 (extended from the original date of April 22, 2022), subject to the other provisions of the Put/Call Agreement. IfSince the Company ~~does~~did not deliver the applicable cash proceeds to the GFG Sellers ~~when due,~~by that date, the ~~then~~ amount ~~due will accrue~~accrues interest at the rate of ~~5.0%~~5% per annum until repayment is completed. On March 22, 2022, the Company received a put notice on the GFG Preferred Stock Consideration and reclassified the GFG Preferred Stock Consideration to current liabilities on its condensed consolidated balance sheet.

On September 16, 2022, the Company entered into an agreement with one of the GFG sellers who holds 1,544,623 put preferred shares. Pursuant to the agreement, the closing date of the redemption was extended from April 22, 2022 to July 23, 2023 and, effective August 23, 2022, the interest rate applicable to such holder's 1,544,623 put shares was increased from 5% to 10% per annum, payable monthly in arrears. In September 2022, the Company paid $0.8 million for the interest that had accrued through August 2022.

Twin Peaks Preferred Stock Consideration

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

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The Twin Peaks seller agreed to a lock-up period with respect to the Twin Peaks Preferred Stock Consideration, during which time the seller ~~may~~could not offer, sell or transfer any interest in these shares. The lock-up provisions ~~restrict~~restricted 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 with the seller of Twin Peaks referenced below.

On October 1, 2021, the Company and the Seller entered into a 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~~Unpaid balances, when due, ~~the amounts then due will~~ accrue interest at ~~the~~a rate of 10.0% per annum until repayment is completed. On October 7, 2021, the Company received a put notice on the Initial Put/Call Shares and the Secondary Put/Call Shares. The Company has classified the Twin Peaks Preferred Stock Consideration as a current liability on its condensed consolidated balance sheet.

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NOTE 13. SHARE-BASED COMPENSATION

Effective September 30, 2017, the Company adopted the 2017 Omnibus Equity Incentive Plan (the “Plan”). The Plan was amended on October 19, 2021 to increase the number of shares available for issuance under the Plan. The Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, FAT Brands Inc. and its subsidiaries. The Plan provides a maximum of 4,000,000 shares available for grant.

The Company has periodically issued stock options under the Plan. All of the stock options issued by the Company to date have included a vesting period of three years, with one-third of each grant vesting annually. As of ~~June 26,~~September 25, 2022, there were ~~2,610,936~~2,575,936 shares of stock options outstanding with a weighted average exercise price of ~~$10.51.~~$10.50.

During the thirteen weeks ended ~~June 27,~~September 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 recognized over the vesting period. There were no new grants during the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022.

The Company recognized share-based compensation expense in the amount of ~~$1.9~~$2.0 million and ~~$0.2~~$0.3 million, during the thirteen weeks ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021, respectively. The Company recognized share-based compensation expense in the amount of ~~$4.0~~$6.1 million and ~~$0.2~~$0.5 million during the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022, and ~~June 27,~~September 26, 2021, respectively. As of ~~June 26,~~September 25, 2022, there remains ~~$9.0~~$8.1 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 14. WARRANTS

The Company’s warrant activity for the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022 was as follows:


		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Warrants exercisable at December 26, 2021	Warrants exercisable at December 26, 2021	1,707,670	$	4.72	3.2	Warrants exercisable at December 26, 2021	1,707,670	$	4.72	3.2
Exercised	Exercised	(21,850)	$	3.64	3.3	Exercised	(31,399)	$	3.60	3.3
Warrants outstanding at June 26, 2022		1,685,820	$	4.54	2.7
Warrants exercisable at June 26, 2022		1,685,820	$	4.54	2.7
Warrants outstanding and exercisable at September 25, 2022						Warrants outstanding and exercisable at September 25, 2022	1,676,271	$	4.44	2.7

During the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022, ~~21,850~~31,399 warrants were exercised in exchange for ~~21,850~~31,399 shares of common stock with net proceeds to the Company of $0.1 million.

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NOTE 15. DIVIDENDS ON COMMON STOCK

On ~~April~~July 12, 2022, the Board of Directors declared a cash dividend of ~~$0.13~~$0.14 per share of Class A common stock and Class B common stock, payable on ~~June~~September 1, 2022 to stockholders of record as of ~~May~~August 16, 2022, for a total of ~~$2.1~~$2.3 million.

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NOTE 16. COMMITMENTS AND CONTINGENCIES

Litigation and Investigations

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

On June 10, 2021, plaintiffs James Harris and Adam Vignola (“Plaintiffs”), putative stockholders of the Company, filed a shareholder derivative action in the Delaware Court of Chancery nominally on behalf of the Company against the Company’s directors (Squire Junger, James Neuhauser, Edward Rensi and Andrew Wiederhorn (the “Individual Defendants”)), and the Company’s majority stockholders, Fog Cutter Holdings, LLC and Fog Cutter Capital Group, Inc. (collectively with the Individual Defendants, “Defendants”). Plaintiffs assert claims of breach of fiduciary duty, unjust enrichment and waste of corporate assets arising out of the Company’s December 2020 merger with Fog Cutter Capital Group, Inc. On August 5, 2021, Defendants filed a motion to dismiss Plaintiffs’ complaint (the “Motion”). Argument on the Motion was heard on February 11, 2022. At the conclusion of the argument, the Court indicated that it would deny the Motion with respect to most claims and most Defendants, but would reserve final decision until after more fully considering the arguments as to the unjust enrichment claim and one of the Individual Defendants. On May 25, 2022, the Court ultimately denied the Motion in its entirety. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. As ~~this matter is still in the early stages and~~ discovery is ~~just underway,~~ongoing, we cannot predict the outcome of this lawsuit. This lawsuit does not assert any claims against the Company. However, subject to certain limitations, we are obligated to indemnify our directors in connection with the lawsuit and any related litigation or settlements amounts, which may be time-consuming, result in significant expense and divert the attention and resources of our management. An unfavorable outcome may exceed coverage provided under our insurance policies, could have an adverse effect on our financial condition and results of operations and could harm our reputation.

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

On March 17, 2022, plaintiffs James Harris and Adam Vignola (“Plaintiffs”), putative stockholders of the Company, filed a shareholder derivative action in the Delaware Court of Chancery nominally on behalf of the Company against the Company’s directors (Squire Junger, James Neuhauser, Edward Rensi and Andrew Wiederhorn (the “Individual Defendants”)), and the Company’s majority stockholder, Fog Cutter Holdings, LLC (collectively with the Individual Defendants, “Defendants”). Plaintiffs assert claims of breach of fiduciary duty in connection with the Company’s June 2021 recapitalization transaction. On May 27, 2022, Defendants filed a motion to dismiss Plaintiff's complaint (the "Motion"). NoThe hearing ~~date has been~~for the Motion is set for ~~the Motion.~~November 17, 2022, at 1:00 pm ET. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. As this matter is still in the early stages, we cannot predict the outcome of this lawsuit. This lawsuit does not assert any claims against the Company. However, subject to certain limitations, we are obligated to indemnify our directors in connection with the lawsuit and any related litigation or settlements amounts, which may be time-consuming, result in significant expense and divert the attention and resources of our management. An unfavorable outcome may exceed coverage provided under our insurance policies, could have an adverse effect on our financial condition and results of operations and could harm our reputation.

Robert J. Matthews, et al., v. FAT Brands, Inc., Andrew Wiederhorn, Ron Roe, Rebecca Hershinger and Ken Kuick (United States District Court for the Central District of California, Case No. 2:22-cv-01820)

On March 18, 2022, plaintiff Robert J. Matthews, a putative investor in the Company, filed a putative class action lawsuit against the Company, Andrew Wiederhorn, Ron Roe, Rebecca Hershinger and Ken Kuick, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), alleging that the defendants are responsible for false and misleading statements and omitted material facts in the Company’s reports filed with the SEC under the 1934 Act related to the LA Times story published on February 19, 2022 about the company and its management. The plaintiff alleges that the Company’s public statements wrongfully inflated the trading price of the Company’s common stock, preferred stock and warrants. The plaintiff is seeking to certify the complaint as a class action and is seeking compensatory damages in an amount to be determined at trial. On April 25, 2022, Kerry Chipman, a putative investor in the Company, filed a

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putative class action lawsuit against the Company, Andrew Wiederhorn, Ron Roe, Rebecca Hershinger and Ken Kuick in the United States District Court for the Central Division of California, asserting substantially the same claims as those made by Matthews in the above-referenced lawsuit. On May 2, 2022, the Court entered an order consolidating the actions filed by Matthews and Chipman under the caption In re FAT Brands Inc. Securities Litigation. On June 13, 2022, the Court appointed plaintiff Robert Matthews as lead plaintiff and The Rosen Law Firm, P.A., as lead counsel in the consolidated action. Plaintiffs filed their Consolidated Amended Complaint on June 27, 2022. On July 19, 2022, the parties entered into a stipulation to stay the litigation so that they can engage in voluntary mediation. In August 2022, after mediation ~~which is scheduled~~the Company reached an agreement in principle to ~~occur in August 2022. As~~settle this matter for a cash payment by the Company of $2.5 million and issuance of $0.5 million in Class A common stock. The Stipulation of Settlement and other documents pertinent to the settlement, along with a motion for preliminary approval thereof, were filed with the court on September 23, 2022. The hearing on the motion for preliminary approval is ~~still~~set for October 24, 2022, at 9:00 am PT. Upon final approved by the court, the settlement will provide a full release of all claims by the settlement class members against all defendants, including the Company and the named officers and directors, will expressly deny any liability, wrongdoing or responsibility by any of the defendants, and will result in the ~~early stages, we cannot predict the outcome of this lawsuit nor the success~~dismissal of the ~~parties' anticipated mediation.~~litigation with prejudice.

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Government Investigations

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

Stratford Holding LLC v. Foot Locker Retail Inc. (U.S. District Court for the Western District of Oklahoma, Case No. 5:12-cv-772-HE)

In 2012 and 2013, two property owners in Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and our subsidiary Fog Cutter Capital Group Inc. ("FCCG") (now known as Fog Cutter Acquisition, LLC), for alleged environmental contamination on their properties, stemming from dry cleaning operations on one of the properties. The property owners seek damages in the range of $12.0 million to $22.0 million. From 2002 to 2008, a former ~~Fog Cutter~~FCCG subsidiary managed a lease portfolio, which included the subject property. ~~Fog Cutter~~FCCG denies any liability, although it did not timely respond to one of the property owners’ complaints and several of the defendants’ cross-complaints and thus is in default. The parties are currently conducting discovery, and the matter is scheduled for trial for ~~October 2022.~~June 2023. The Company is unable to predict the ultimate outcome of this matter, however, reserves have been recorded on the balance sheet relating to this litigation. There can be no assurance that the defendants will be successful in defending against these actions.

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

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

The Company is involved in other claims and legal proceedings from time-to-time that arise in the ordinary course of business, including those involving the Company’s franchisees. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on its business, financial condition, results of operations, liquidity or capital resources. As of ~~Jun~~September 25, 2022 and December 26, ~~2022,~~2021, the Company had accrued an aggregate of $5.1 million for the specific matters mentioned above and claims and legal proceedings involving franchisees as of that date.

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NOTE 17. GEOGRAPHIC INFORMATION AND MAJOR FRANCHISEES

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


		Thirteen Weeks Ended				Twenty-Six Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021			September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021
United States	United States	$	100.5	$	6.3	$	195.8	$	11.1	United States	$	100.9	$	26.3	$	296.7	$	37.4
Other countries	Other countries	2.3		2.0		4.4		3.8		Other countries	2.3		3.5		6.7		7.3
Total revenue	Total revenue	$	102.8	$	8.3	$	200.2	$	14.9	Total revenue	$	103.2	$	29.8	$	303.4	$	44.7

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

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During the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021, no individual franchisee accounted for more than 10% of the Company’s revenue.

NOTE 18. SUBSEQUENT EVENTS

Management has evaluated all events and transactions that occurred subsequent to ~~June 26,~~September 25, 2022 through the date of issuance of these condensed consolidated financial statements. During this period, the Company did not have any significant subsequent ~~events other than as disclosed in Note 11.~~events.

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

The following discussion and analysis of our results of operations, financial condition, and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the ~~twenty-six~~thirty-nine weeks ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021, as applicable. Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases, and in statements made by or with the approval of authorized personnel constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, including but not limited to, COVID-19. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed on March 23, 2022 “Item 1A. Risk Factors” and elsewhere in this report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire.

COVID-19

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

Executive Overview

Business overview

FAT Brands Inc. is a leading multi-brand restaurant franchising company that develops, markets, and acquires primarily quick-service, fast casual and casual dining ~~concepts~~ restaurant concepts around the world. As of ~~June 26,~~September 25, 2022, the Company owned seventeen restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli's, Twin Peaks, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses. As of ~~June 26,~~September 25, 2022, the Company had 2,354 locations. Of this amount, 2,261 stores were franchised, representing approximately 96% of total restaurants.

We generally do not own or operate restaurant locations, but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties. This ~~asset light~~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,~~costs, while taking advantage of significant corporate overhead synergies. The ~~acquisition of additional brands and restaurant concepts as well as expansion of our existing brands are key elements of our growth strategy.~~

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acquisition of additional brands and restaurant concepts as well as expansion of our existing brands are key elements of our growth strategy.

Our revenues are derived primarily from two sales channels, franchised restaurants and company-owned restaurants, which we operate as one segment. The primary sources of revenues are the ~~sale~~sales of food and beverages at our ~~company~~company-owned restaurants and the collection of royalties, franchise fees and advertising revenue from sales of food and beverages at our franchised restaurants.

Results of Operations

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

~~Results of Operations of FAT Brands Inc.~~

~~The following table summarize key components of our condensed consolidated results of operations for the thirteen and twenty-six weeks ended June 26, 2022 and June 27, 2021.~~

(~~in thousands~~)

Thirteen Weeks Ended Twenty-Six Weeks Ended
June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021
Statements of operations data:
Revenue
Royalties $ 21,665 $ 6,161 $ 42,563 $ 11,057
Restaurant sales 60,044 234 118,121 234
Advertising fees 9,568 1,370 18,929 2,560
Factory revenues 8,570 — 16,749 —
Franchise fees 1,295 482 2,009 1,022
Management fees and other income 1,643 35 1,817 58
Total revenue 102,785 8,282 200,188 14,931
Costs and expenses
General and administrative expense 20,841 5,097 45,437 9,624
Cost of restaurant and factory revenues 49,846 244 104,644 244
Depreciation and amortization 6,711 386 13,181 784
Refranchising loss (gain) 453 (856) 1,001 (429)
Acquisition costs 135 917 383 932
Advertising fees 11,596 1,367 21,853 2,560
Total costs and expenses 89,582 7,155 186,499 13,715
Income from operations 13,203 1,127 13,689 1,216
Total other (expense) income, net (21,642) (9,050) (41,359) (11,700)
Loss before income tax expense (8,439) (7,923) (27,670) (10,484)
Income tax (benefit) provision (251) (1,992) 4,273 (2,121)
Net loss (8,188) (5,931) (31,943) (8,363)
Less: Net loss attributable to noncontrolling interest — (5) — (5)
Net loss attributable to FAT Brands Inc. $ (8,188) $ (5,926) $ (31,943) $ (8,358)

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Results of Operations of FAT Brands Inc.

The following table summarize key components of our condensed consolidated results of operations for the thirteen and thirty-nine weeks ended September 25, 2022 and September 26, 2021.

(in thousands)


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021
Statements of Operations Data:

Revenue
Royalties	$	22,833	$	13,742	$	65,396	$	24,800
Restaurant sales	61,352		3,879		179,473		4,113
Advertising fees	9,479		5,483		28,408		8,043
Factory revenues	7,839		5,480		24,588		5,480
Franchise fees	754		1,087		2,763		2,109
Management fees and other income	965		90		2,782		148
Total revenue	103,222		29,761		303,410		44,693

Costs and expenses
General and administrative expense	28,751		10,589		74,188		20,214
Cost of restaurant and factory revenues	55,257		7,133		159,901		7,377
Depreciation and amortization	6,895		2,377		20,076		3,161
Refranchising loss (gain)	122		(250)		1,123		(679)
Acquisition costs	—		2,053		383		2,985
Advertising fees	11,185		5,483		33,038		8,043
Total costs and expenses	102,210		27,385		288,709		41,101

Income from operations	1,012		2,376		14,701		3,592

Total other expense, net	(23,933)		(7,194)		(65,292)		(18,893)

Loss before income tax expense	(22,921)		(4,818)		(50,591)		(15,301)

Income tax provision (benefit)	516		(1,183)		4,789		(3,303)

Net loss	(23,437)		(3,635)		(55,380)		(11,998)
Less: Net loss attributable to noncontrolling interest	—		(14)		—		(19)
Net loss attributable to FAT Brands Inc.	$	(23,437)	$	(3,621)	$	(55,380)	$	(11,979)

For the ~~twenty-six weeks ended June 26,~~Thirty-Nine Weeks Ended September 25, 2022 and ~~June 27,~~September 26, 2021:

Revenue - Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and other revenue. Total revenue increased ~~$185.3~~$258.7 million, or ~~1,241%~~579%, in the first ~~two~~three quarters of 2022, to ~~$200.2~~$303.4 million compared to ~~$14.9~~$44.7 million in the same period of 2021. The increase reflects revenue from the acquisition of GFG in July 2021, the acquisition of Twin Peaks in October 2021, the ~~acquisition~~acquisitions of Fazoli's ~~in December 2021~~ and ~~the acquisition of~~ Native in December 2021 (collectively, the "2021 Acquisitions") and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales.

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$~~172.8~~247.6 million, or ~~1,260%~~602%, in the first ~~two~~three quarters of 2022 to ~~$186.5~~$288.7 million compared to the same period in the prior year, primarily due to the 2021 Acquisitions.

General and administrative ~~expenses~~expense increased $~~35.8~~54.0 million, or ~~372%~~267%, in the first ~~two~~three quarters of 2022 compared to the same period in the prior year, primarily due to the 2021 Acquisitions, ~~and~~ increased compensation costs, professional fees related to pending litigation and government investigations, and travel, reflecting the significant expansion of the organization.

Cost of restaurant and factory revenues totaled ~~$104.6~~$159.9 million for the first ~~two~~three quarters of 2022 and was related to the operations of the company-owned restaurant locations and the dough factory operated by GFG associated with the 2021 Acquisitions, partially offset by amounts claimed under the business relief provision under the CARES Act known as the Employee Retention Credit, , a refundable payroll tax credit of qualified wages paid during ~~2020~~2021 and ~~2021.~~2020.

Depreciation and amortization increased ~~$12.4~~$16.9 million, or ~~1,581%~~535% in the first ~~two~~three quarters of 2022 compared to the same period in the prior year, primarily due to depreciation of company-owned restaurant property and equipment and amortizing intangible assets related to the 2021 Acquisitions.

Refranchising losses in the first ~~half~~three quarters of 2022 were ~~$1.0~~$1.1 million and were comprised of restaurant costs and expenses, net of food sales. Refranchising gains in the first ~~half~~three quarters of 2021 were ~~$0.4~~$0.7 million and were comprised of ~~$1.1~~$1.6 million in net gains related to refranchised restaurants, partially offset by ~~$0.4~~$0.9 million in restaurant operating costs, net of food sales.

Advertising expenses increased ~~$19.3~~$25.0 million in the first ~~two~~three quarters of 2022 compared to the prior year period. These expenses vary in relation to ~~the~~ advertising ~~revenue~~revenues and reflect advertising expenses related to the 2021 Acquisitions and the increase in customer activity as the recovery from COVID continues.

~~Other expense, net – Other~~Total other expense, net for the first ~~two~~three quarters of 2022 and 2021 was ~~$41.4~~$65.3 million and ~~$11.7~~$18.9 million, respectively, primarily comprised of net interest expense of ~~$44.7~~$69.2 million and ~~$5.4~~$12.7 million, respectively. ~~Other~~Total other expense, net for the first ~~half~~three quarters of 2021 also consisted of a $6.4 million net loss on the extinguishment of debt.

Income tax ~~(benefits)~~ provision ~~benefit~~(benefit) – The effective rate was ~~(15.4)~~(9.5)% and ~~20.2%~~21.6% for the first ~~two~~three quarters of 2022 and 2021, respectively. The difference in effective rate was primarily due to increases in our valuation allowance.

For the ~~thirteen weeks ended June 26,~~Thirteen Weeks Ended September 25, 2022 and ~~June 27,~~September 26, 2021:

Revenue - Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and other revenue. Total revenue increased ~~$94.5~~$73.5 million, or ~~1,141%~~247%, in the ~~second~~third quarter of 2022, to ~~$102.8~~$103.2 million compared to ~~$8.3~~$29.8 million in the same period of 2021. The increase reflects revenue from the acquisition of GFG in July 2021, the acquisition of Twin Peaks in October 2021, the ~~acquisition~~acquisitions of Fazoli's ~~in December 2021~~ and ~~the acquisition of~~ Native in December 2021 (collectively, the "2021 Acquisitions") and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties from restaurant sales.

Costs and expenses – Costs and expenses consist of general and administrative ~~costs,~~expense, cost of restaurant and factory revenues, ~~net~~depreciation and amortization, refranchising ~~(gains) losses~~loss (gain), acquisition costs, and advertising ~~expense.~~fees. Costs and expenses increased $~~82.4~~74.8 million, or ~~1,152%~~273%, in the ~~second quarters~~third quarter of 2022 to ~~$89.6~~$102.2 million compared to the same period in the prior year, primarily due to the 2021 Acquisitions.

General and administrative ~~expenses~~expense increased ~~$15.7~~$18.2 million, or ~~309%~~172%, in the ~~second quarters~~third quarter of 2022 compared to the same period in the prior year, primarily due to the 2021 Acquisitions, ~~and~~ increased compensation costs, professional fees related to pending litigation and government investigations, and travel, reflecting the significant expansion of the organization.

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Cost of restaurant and factory revenues totaled ~~$49.8~~$55.3 million ~~for~~in the ~~second~~third quarter of 2022 and was related to the operations of the company-owned restaurant locations and the dough factory operated by GFG associated with the 2021 Acquisitions, partially offset by amounts claimed under the business relief provision under the CARES Act known as the Employee Retention Credit, a refundable payroll tax credit of qualified wages paid during ~~2020~~2021 and ~~2021.~~2020.

Depreciation and amortization increased ~~$6.3~~$4.5 million, or ~~1,639%~~190% in the ~~second~~third quarter of 2022 compared to the same period in the prior year, primarily due to depreciation of company-owned restaurant property and equipment and amortizing intangible assets related to the 2021 Acquisitions.

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Refranchising losses in the ~~second~~third quarter of 2022 were ~~$0.5~~$0.1 million and were comprised restaurant costs and expenses, net of food sales. Refranchising gains in the ~~second~~third quarter of 2021 were ~~$0.9~~$0.3 million and were comprised of ~~$1.1~~$0.5 million in net gains related to refranchised restaurants, partially offset by $0.2 million in restaurant operating costs, net of food sales.

Advertising expenses increased ~~$10.2~~$5.7 million in the ~~second~~third quarter of 2022 compared to the prior year period. These expenses vary in relation to ~~the~~ advertising ~~revenue~~revenues and reflect advertising expenses related to the 2021 Acquisitions and the increase in customer activity as the recovery from COVID continues.

~~Other~~Total other expense, net – ~~Other~~Total other expense, net for the ~~second quarter~~third quarters of 2022 and 2021 was ~~$21.6~~$23.9 million and ~~$9.1~~$7.2 million, respectively, primarily comprised of net interest expense of ~~$23.7~~$24.5 million and ~~$2.7~~$7.2 million, respectively. ~~Other expense, net for the second quarter of 2021 also consisted of a $6.4 million net loss on the extinguishment of debt.~~

Income Tax ~~Benefit~~Provision (Benefit) – The effective rate was ~~3.0%~~(2.3)% and ~~25.1%~~24.6% for the ~~second quarter~~third quarters of 2022 and 2021, respectively. The difference in effective rate was primarily due to increases in our valuation allowance.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, acquisitions and expansion of franchised restaurant locations and for other general business purposes. Our primary sources of funds for liquidity during the ~~first two quarters of~~thirty-nine weeks ended September 25, 2022 consisted of cash on hand at the beginning of the period.

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

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

We have liabilities of $135.0 million relating to put options ~~held~~exercised by others on our Series B Cumulative Preferred ~~Stock due in 2022.~~Stock. The Company has contractual options pursuant to the put/call agreements to extend this repayment via incremental interest payments and there are capital market options that the Company may consider. We believe that we have sufficient liquidity to meet our liquidity needs and capital resource requirements for at least the next twelve months primarily through currently available cash and cash equivalents, cash flows from operations, and access to the capital markets.

Comparison of Cash Flows

Our cash and restricted cash balance was ~~$51.4~~$62.1 million as of ~~June 26,~~September 25, 2022, compared to $99.9 million as of December 26, 2021.

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The following table ~~summarize~~summarizes key components of our condensed consolidated cash flows for the 2639 weeks ended ~~June 26,~~September 25, 2022 and ~~June 27,~~September 26, 2021:

For the ~~Twenty-Six~~Thirty-Nine Weeks Ended

(in millions)


		June 26, 2022		June 27, 2021			September 25, 2022		September 26, 2021

Net cash used in operating activities	Net cash used in operating activities	$	(28.0)	$	(4.9)	Net cash used in operating activities	$	(36.6)	$	(4.0)
Net cash (used in) provided by investing activities		(9.3)		0.2
Net cash (used in) provided by financing activities		(11.2)		51.5
Net cash used in investing activities						Net cash used in investing activities	(14.4)		(346.2)
Net cash provided by financing activities						Net cash provided by financing activities	13.2		386.5
Net cash flows	Net cash flows	$	(48.5)	$	46.8	Net cash flows	$	(37.8)	$	36.3

Operating Activities

Net cash used in operating activities increased $~~23.1~~32.6 million in the ~~first two quarters of~~thirty-nine weeks ended September 25, 2022 compared to 2021, primarily due to higher debt service costs associated with our securitizations and by changes in working capital.

Investing Activities

Net cash used in investing activities was ~~$9.3~~$14.4 million in the ~~first two quarters of~~thirty-nine weeks ended September 25, 2022, compared to net cash ~~provided by~~used in investing activities of ~~$0.2~~$346.2 million in the comparable period of 2021. The ~~increase~~decrease was primarily due to ~~higher~~the 2021 Acquisitions, offset by increased purchases of property and equipment in 2022 in connection with company-owned restaurants acquired during fiscal year 2021.

Financing Activities

Net cash ~~used in~~provided by financing activities was ~~$11.2~~$13.2 million ~~for~~in the ~~first two quarters of~~thirty-nine weeks ended September 25, 2022 and was primarily comprised of proceeds from borrowings, offset by dividends paid on our Class A and Class B ~~common stock~~Common Stock and our Series B Cumulative Preferred Stock.

Dividends

On ~~April~~July 12, 2022, the Board of Directors declared a cash dividend of ~~$0.13~~$0.14 per share of Class A and Class B ~~common stock,~~Common Stock, payable on ~~June~~September 1, 2022 to stockholders of record as of ~~May~~August 16, 2022, for a total of ~~$2.1~~$2.3 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.

Capital Expenditures

As of ~~June 26,~~September 25, 2022, we do not have any material commitments for capital expenditures.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 26, 2021. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical

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accounting estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended December 26, 2021.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s ~~“disclosure controls~~“Disclosure Controls and ~~procedures”~~Procedures” (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of ~~June 26,~~September 25, 2022, have concluded that, in regard to the segregation of duties and the financial close process, our ~~disclosure controls~~Disclosure Controls and ~~procedures~~Procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting in connection with an evaluation that occurred during the thirteen weeks ended ~~June 26,~~September 25, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Inherent Limitations Over Internal Controls

We do not expect that our ~~disclosure controls~~Disclosure Controls and ~~procedures~~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,~~frauds, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, please see Note 16, Commitments and Contingencies, to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which Note is incorporated by reference in this Item 1.

ITEM 1A. RISK FACTORS

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” and elsewhere in our Annual Report on Form 10-K filed on March 23, 2022, which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in such factors discussed in our Annual Report. The risks described in our Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit
Number
Incorporated By Reference to
Filed
Herewith
Description Form Exhibit Filing Date
10.1 Letter Agreement, dated March 30, 2022, by and between FAT Brands Inc. and Kenneth J. Kuick 8-K 10.1 4/05/2022
31.1
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.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)

Exhibit

Number

Incorporated By Reference to

Filed

Herewith

Description

Form

Exhibit

Filing Date

31.1

Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

101.INS

Inline XBRL Instance Document

X (Furnished)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

X (Furnished)

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X (Furnished)

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

X (Furnished)

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101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

X (Furnished)

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

X (Furnished)

SIGNATURE

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.

~~July 29,~~October 21, 2022	By	/s/ Kenneth J. Kuick
		Kenneth J. Kuick
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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