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 ~~September~~June 25, ~~2022~~2023


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 ~~October 14, 2022,~~July 28, 2023, there were ~~15,305,908~~15,424,709 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

~~September~~June 25, ~~2022~~2023

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)	108
	Notes to Condensed Consolidated Financial Statements (Unaudited)	129

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2722
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3427
Item 4.	Controls and Procedures	3427

PART II.	OTHER INFORMATION	3527
Item 1.	Legal Proceedings	3527
Item 1A.	Risk Factors	3527
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3527
Item 3.	Defaults Upon Senior Securities	3528
Item 4.	Mine Safety Disclosures	3528
Item 5.	Other Information	3528
Item 6.	Exhibits	3528

SIGNATURE		3628

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)


		September 25, 2022		December 26, 2021			June 25, 2023		December 25, 2022
				Audited					Audited
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash	Cash	$	23,912	$	56,656	Cash	$	30,569	$	28,668
Restricted cash	Restricted cash	24,853		24,740		Restricted cash	26,564		25,375
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		253		231
Accounts receivable, net of allowances of $11,814 and $24,207 as of June 25, 2023 and December 25, 2022, respectively						Accounts receivable, net of allowances of $11,814 and $24,207 as of June 25, 2023 and December 25, 2022, respectively	29,006		23,880
Inventory						Inventory	6,254		6,925
Assets classified as held-for-sale	Assets classified as held-for-sale	4,994		5,476		Assets classified as held-for-sale	3,887		4,767
Other current assets	Other current assets	13,357		11,853		Other current assets	8,004		6,086
Total current assets	Total current assets	109,251		119,040		Total current assets	104,284		95,701
Noncurrent restricted cash		13,334		18,525
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
Non-current restricted cash						Non-current restricted cash	14,743		14,720
Operating lease right-of-use assets	Operating lease right-of-use assets	95,168		98,552		Operating lease right-of-use assets	101,587		101,114
Goodwill	Goodwill	293,811		295,128		Goodwill	293,282		293,282
Other intangible assets, net	Other intangible assets, net	643,025		652,788		Other intangible assets, net	617,755		625,294
Property and equipment, net	Property and equipment, net	84,927		80,501		Property and equipment, net	79,577		79,189
Other assets	Other assets	3,406		2,534		Other assets	4,613		4,003
Total assets	Total assets	$	1,244,194	$	1,270,032	Total assets	$	1,215,841	$	1,213,303

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	$	20,952	$	27,527	Accounts payable	$	16,303	$	18,328
Accrued expenses and other liabilities	Accrued expenses and other liabilities	53,403		46,295		Accrued expenses and other liabilities	51,156		52,800
Deferred income, current portion	Deferred income, current portion	2,172		2,636		Deferred income, current portion	1,862		2,019
Accrued advertising	Accrued advertising	16,125		10,853		Accrued advertising	14,032		14,819
Accrued interest payable	Accrued interest payable	12,594		10,678		Accrued interest payable	16,722		13,241
Dividend payable on preferred shares	Dividend payable on preferred shares	1,565		1,574		Dividend payable on preferred shares	1,278		1,467
Liabilities related to assets classified as held-for-sale	Liabilities related to assets classified as held-for-sale	4,362		4,780		Liabilities related to assets classified as held-for-sale	3,479		4,084
Current portion of operating lease liability		14,415		14,341
Operating lease liability, current portion						Operating lease liability, current portion	14,904		14,815
Redeemable preferred stock	Redeemable preferred stock	135,000		67,500		Redeemable preferred stock	91,836		91,836
Current portion of long-term debt		2,432		631
Current portion of acquisition purchase price payable		350		1,173
Other		2,886		10,500
Long-term debt, current portion						Long-term debt, current portion	35,848		49,611
Acquisition purchase price payable						Acquisition purchase price payable	4,000		4,000
Total current liabilities	Total current liabilities	266,256		198,488		Total current liabilities	251,420		267,020

Deferred income, net of current portion						Deferred income, net of current portion	22,529		21,698
Deferred income tax liabilities, net						Deferred income tax liabilities, net	29,147		27,181
Operating lease liability, net of current portion						Operating lease liability, net of current portion	95,815		95,620
Long-term debt, net of current portion						Long-term debt, net of current portion	1,018,494		958,630
Other liabilities						Other liabilities	1,631		2,332
Total liabilities						Total liabilities	1,419,036		1,372,481

Table of Contents

Deferred income, net of current portion 20,677 17,662
Deferred income tax liabilities, net 13,685 12,921
Operating lease liability, net of current portion 89,961 92,920
Long-term debt, net of current portion 938,142 904,265
Other liabilities 1,942 976
Total liabilities 1,330,663 1,227,232
Commitments and contingencies (Note 16)
Redeemable preferred stock — 64,455
Stockholders’ deficit
Preferred stock, $0.0001 par value; 15,000,000 shares authorized; 3,221,471 shares issued and outstanding at 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) (25,216) (24,837)
Accumulated deficit (107,859) (52,479)
Total stockholders’ deficit (86,469) (21,655)
Total liabilities and stockholders’ deficit $ 1,244,194 $ 1,270,032


Commitments and contingencies (Note 13)

Stockholders’ deficit
Preferred stock, $0.0001 par value; 15,000,000 shares authorized; 3,338,573 shares issued and outstanding at June 25, 2023 and 3,252,154 shares issued and outstanding at December 25, 2022; liquidation preference $25 per share	43,566		45,504
Class A common stock and Class B common stock and additional paid-in capital as of June 25, 2023: $0.0001 par value per share; 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,611,175 shares issued and outstanding (Class A 15,340,370, Class B 1,270,805). Common stock and additional paid-in capital as of December 25, 2022: $0.0001 par value; 51,600,000 shares authorized; 16,571,675 shares issued and outstanding (Class A 15,300,870, Class B 1,270,805)	(28,877)		(26,015)
Accumulated deficit	(217,884)		(178,667)
Total stockholders’ deficit	(203,195)		(159,178)
Total liabilities and stockholders’ deficit	$	1,215,841	$	1,213,303

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 Thirty-Nine Weeks Ended September 25, 2022 and September 26, 2021~~


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Twenty-Six Weeks Ended
		September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021			June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022

Revenue	Revenue									Revenue
Royalties	Royalties	$	22,833	$	13,742	$	65,396	$	24,800	Royalties	$	22,751	$	21,665	$	45,236	$	42,563
Restaurant sales	Restaurant sales	61,352		3,879		179,473		4,113		Restaurant sales	62,778		60,044		125,379		118,121
Advertising fees	Advertising fees	9,479		5,483		28,408		8,043		Advertising fees	9,668		9,568		19,019		18,929
Factory revenues	Factory revenues	7,839		5,480		24,588		5,480		Factory revenues	9,686		8,570		18,851		16,749
Franchise fees	Franchise fees	754		1,087		2,763		2,109		Franchise fees	763		1,295		1,565		2,009
Management fees and other income		965		90		2,782		148
Other revenue										Other revenue	1,118		1,643		2,405		1,817
Total revenue	Total revenue	103,222		29,761		303,410		44,693		Total revenue	106,764		102,785		212,455		200,188

Costs and expenses	Costs and expenses									Costs and expenses
General and administrative expense	General and administrative expense	28,751		10,589		74,188		20,214		General and administrative expense	9,947		20,841		38,362		45,437
Cost of restaurant and factory revenues	Cost of restaurant and factory revenues	55,257		7,133		159,901		7,377		Cost of restaurant and factory revenues	59,502		49,846		118,589		104,644
Depreciation and amortization	Depreciation and amortization	6,895		2,377		20,076		3,161		Depreciation and amortization	7,061		6,711		14,177		13,181
Refranchising loss (gain)		122		(250)		1,123		(679)
Refranchising loss										Refranchising loss	179		453		338		1,001
Acquisition costs	Acquisition costs	—		2,053		383		2,985		Acquisition costs	—		135		—		383
Advertising fees	Advertising fees	11,185		5,483		33,038		8,043		Advertising fees	11,610		11,596		22,137		21,853
Total costs and expenses	Total costs and expenses	102,210		27,385		288,709		41,101		Total costs and expenses	88,299		89,582		193,603		186,499

Income from operations	Income from operations	1,012		2,376		14,701		3,592		Income from operations	18,465		13,203		18,852		13,689

Other (expense) income, net	Other (expense) income, net									Other (expense) income, net
Interest expense	Interest expense	(19,504)		(7,072)		(57,530)		(11,939)		Interest expense	(20,008)		(18,998)		(45,098)		(38,026)
Interest expense related to preferred shares	Interest expense related to preferred shares	(4,967)		(173)		(11,681)		(725)		Interest expense related to preferred shares	(4,311)		(4,715)		(9,354)		(6,714)
Net loss on extinguishment of debt		—		(13)		—		(6,418)
Other income, net	Other income, net	538		64		3,919		189		Other income, net	109		2,071		265		3,381
Total other expense, net	Total other expense, net	(23,933)		(7,194)		(65,292)		(18,893)		Total other expense, net	(24,210)		(21,642)		(54,187)		(41,359)

Loss before income tax expense		(22,921)		(4,818)		(50,591)		(15,301)
Loss before income tax provision (benefit)										Loss before income tax provision (benefit)	(5,745)		(8,439)		(35,335)		(27,670)

Income tax provision (benefit)	Income tax provision (benefit)	516		(1,183)		4,789		(3,303)		Income tax provision (benefit)	1,346		(251)		3,882		4,273

Net loss	Net loss	(23,437)		(3,635)		(55,380)		(11,998)		Net loss	$	(7,091)	$	(8,188)	$	(39,217)	$	(31,943)
Less: Net loss attributable to noncontrolling interest		—		(14)		—		(19)
Net loss attributable to FAT Brands Inc.		$	(23,437)	$	(3,621)	$	(55,380)	$	(11,979)

Net loss										Net loss	$	(7,091)	$	(8,188)	$	(39,217)	$	(31,943)
Dividends on preferred shares										Dividends on preferred shares	(1,615)		(1,661)		(3,381)		(3,314)
											$	(8,706)	$	(9,849)	$	(42,598)	$	(35,257)

Basic and diluted loss per common share	Basic and diluted loss per common share	$	(1.42)	$	(0.26)	$	(3.37)	$	(0.85)	Basic and diluted loss per common share	$	(0.53)	$	(0.60)	$	(2.58)	$	(2.15)
Basic and diluted weighted average shares outstanding	Basic and diluted weighted average shares outstanding	16,528,327		14,144,857		16,441,555		14,094,772		Basic and diluted weighted average shares outstanding	16,522,379		16,405,108		16,521,590		16,396,896
Cash dividends declared per common share	Cash dividends declared per common share	$	0.14	$	0.13	$	0.40	$	0.39	Cash dividends declared per common share	$	0.14	$	0.13	$	0.28	$	0.26

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 ~~Thirty-Nine~~Twenty-Six Weeks Ended ~~September~~June 25, ~~2022~~2023

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)


	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 25, 2022	15,300,870	1,270,805	$	2	$	—	$	(26,017)	$	(26,015)	3,252,154	$	—	$	45,504	$	45,504	$	(178,667)	$	(159,178)
Net loss	—	—	—		—		—		—		—	—		—		—		(39,217)		(39,217)
Issuance of common and preferred stock	39,500	—	—		—		209		209		86,419	—		1,443		1,443		—		1,652
Share-based compensation	—	—	—		—		1,572		1,572		—	—		—		—		—		1,572
Dividends paid on common stock	—	—	—		—		(4,643)		(4,643)		—	—		—		—		—		(4,643)

Dividends paid on Series B preferred stock	—	—	—		—		—		—		—	—		(3,381)		(3,381)		—		(3,381)

Balance at June 25, 2023	15,340,370	1,270,805	$	2	$	—	$	(28,879)	$	(28,877)	3,338,573	$	—	$	43,566	$	43,566	$	(217,884)	$	(203,195)

For the Twenty-Six 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 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 and preferred stock	21,850	—	—		—		64		64		—	—		19		19		—		83
Share-based compensation	—	—	—		—		4,076		4,076		—	—		—		—		—		4,076
Dividends paid on common stock	—	—	—		—		(4,263)		(4,263)		—	—		—		—		—		(4,263)
Dividends paid 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)

Table of Contents

For the ~~Thirty-Nine~~Thirteen Weeks Ended ~~September 26, 2021~~June 25, 2023

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.

~~Table of Contents~~


	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 26, 2023	15,341,822	1,270,805	$	2	$	—	$	(27,185)	$	(27,183)	3,272,980		$	—	$	44,131	$	44,131	$	(210,793)	$	(193,845)
Net loss	—	—	—		—		—		—		—		—		—		—		(7,091)		(7,091)
Issuance of common and preferred stock	(1,452)	—	—		—		152		152		65,593		—		1,050		1,050		—		1,202
Share-based compensation	—	—	—		—		477		477		—		—		—		—		—		477
Dividends paid on common stock	—	—	—		—		(2,322)		(2,322)		—		—		—		—		—		(2,322)
Dividends paid on Series B preferred stock	—	—	—		—		—		—		—		—		(1,615)		(1,615)		—		(1,615)

Balance at June 25, 2023	15,340,370	1,270,805	$	2	$	—	$	(28,879)	$	(28,877)	$	3,338,573	$	—	$	43,566	$	43,566	$	(217,884)	$	(203,195)

For the Thirteen Weeks Ended ~~September 25,~~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 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)

~~Table of Contents~~

~~For the Thirteen 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 June 27, 2021 12,491,528 — $ 1 $ — $ (45,087) $ (45,086) 1,643,272 $ — $ 29,092 $ 29,092 $ 93 $ (29,254) $ (45,155)
Net loss — — — — — — — — — — (14) (3,621) (3,635)
Issuance of common stock through exercise of warrants 199,379 — — — 659 659 — — 151 151 — — 810
Issuance of preferred stock — — — — — — — — (35) (35) — — (35)
Share-based compensation — — — — 258 258 — — — — — — 258
Measurement period adjustment in accordance with ASU 2015-16 — — — — 70 70 — — — — — — 70
Stock contracted for issue in payment of debt 62,500 — — — — — — — — — — — —
Sale of interest in operating restaurant — — — — 500 500 — — — — — — 500
Dividends paid on common stock — — — — (2,116) (2,116) — — — — — — (2,116)
Dividends paid on Series B preferred stock — — — — — — — — (864) (864) — — (864)
Issuance of common stock in connection with acquisition of LS GFG Holdings Inc. (1) 1,964,865 — — — 21,809 21,809 — — — — — — 21,809
Stock dividend of Class B shares 294,729 1,270,683 1 — (26) (25) — — — — — — (25)
Series A preferred shares retired through issuance of Series B preferred shares — — — — — — — — 9,564 9,564 — — 9,564
Balance at September 26, 2021 15,013,001 1,270,683 $ 2 $ — $ (23,933) $ (23,931) 1,643,272 $ — $ 37,908 $ 37,908 $ 79 $ (32,875) $ (18,819)
(1) Excludes 3,089,245 shares of preferred stock classified as redeemable preferred stock as of 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		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 paid on common stock	—	—	—		—		(2,132)		(2,132)		—	—		—		—		—		(2,132)
Dividends paid 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)

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 ~~Thirty-Nine~~Twenty-Six Weeks Ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021~~2022

2022 2021
Cash flows from operating activities:
Net loss $ (55,380) $ (11,998)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes 3,438 (3,384)
Net loss on extinguishment of debt — 4,872
Depreciation and amortization 20,076 3,161
Share-based compensation 6,116 488
Change in operating right-of-use assets 3,866 1,662
Accretion of loan fees and interest 8,014 1,249
Accretion of preferred shares — 26
Adjustments of purchase price liability (1,790) 72
Gain on sale of refranchised assets — (869)
Provision for bad debts 4,296 225
Change in:
Accounts receivable (26,097) (3,023)
Other current and noncurrent assets (2,374) (768)
Deferred income 2,551 1,244
Accounts payable (6,575) 1,646
Accrued expenses and other liabilities 7,108 (3,672)
Accrued advertising 5,272 646
Accrued interest payable 1,916 3,797
Dividend payable on preferred shares (9) 699
Other current and noncurrent liabilities (7,032) (79)
Total adjustments 18,776 7,992
Net cash used in operating activities (36,604) (4,006)
Cash flows from investing activities:
Acquisitions, net of cash acquired (2,772) (346,484)
Payments received on notes receivable 1,693 140
Net proceeds from sale of refranchised restaurants — 1,942
Purchases of property and equipment (13,356) (1,661)
Other — (87)
Net cash used in investing activities (14,435) (346,150)
Cash flows from financing activities:
Proceeds from borrowings, net of issuance costs 29,327 479,721
Repayments of borrowings (720) (93,046)
Issuance of preferred shares, net — 8,246
Change in operating lease liabilities (2,885) (1,441)
Payments made on acquisition purchase price liability — (1,075)

~~Table of Contents~~


Exercise of warrants		117		2,192
							2023		2022
Cash flows from operating activities:						Cash flows from operating activities:
Net loss						Net loss	$	(39,217)	$	(31,943)
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	1,966		3,256
Depreciation and amortization						Depreciation and amortization	14,177		13,181
Share-based compensation						Share-based compensation	1,572		4,076
Accretion of loan fees and interest						Accretion of loan fees and interest	8,520		5,787
Adjustments of purchase price liability						Adjustments of purchase price liability	—		48
Provision for bad debts						Provision for bad debts	(12,395)		423
Change in:						Change in:
Accounts receivable						Accounts receivable	7,267		(16,530)
Inventory						Inventory	672		(405)
Other current and noncurrent assets						Other current and noncurrent assets	(2,670)		(420)
Operating lease assets and liabilities						Operating lease assets and liabilities	85		377
Deferred income						Deferred income	674		1,959
Accounts payable						Accounts payable	(2,025)		(3,924)
Accrued expenses and other liabilities						Accrued expenses and other liabilities	(1,644)		(1,231)
Accrued advertising						Accrued advertising	(788)		2,985
Accrued interest payable						Accrued interest payable	3,481		483
Other current and noncurrent liabilities						Other current and noncurrent liabilities	(887)		(6,413)
Total adjustments						Total adjustments	18,005		3,652
Net cash used in operating activities						Net cash used in operating activities	(21,212)		(28,291)

Cash flows from investing activities:						Cash flows from investing activities:
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	—		(2,772)
Purchases of property and equipment						Purchases of property and equipment	(7,026)		(10,523)
Payments received on notes receivable						Payments received on notes receivable	143		1,647
Other						Other	—		(192)
Net cash used in investing activities						Net cash used in investing activities	(6,883)		(11,840)

Cash flows from financing activities:						Cash flows from financing activities:
Proceeds from borrowings, net of issuance costs						Proceeds from borrowings, net of issuance costs	38,115		704
Repayments of borrowings						Repayments of borrowings	(535)		(514)

Proceeds from issuance of common and preferred shares						Proceeds from issuance of common and preferred shares	1,652		83
Dividends paid on redeemable preferred stock	Dividends paid on redeemable preferred stock	(1,062)		(690)		Dividends paid on redeemable preferred stock	—		(1,062)
Dividends paid on common shares	Dividends paid on common shares	(6,585)		(5,337)		Dividends paid on common shares	(4,643)		(4,263)
Dividends paid on preferred shares	Dividends paid on preferred shares	(4,975)		(2,097)		Dividends paid on preferred shares	(3,381)		(3,314)
Net cash provided by financing activities		13,217		386,473
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	31,208		(8,366)

Net (decrease) increase in cash and restricted cash		(37,822)		36,317
Net increase (decrease) in cash and restricted cash						Net increase (decrease) in cash and restricted cash	3,113		(48,497)
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	68,763		99,921
Cash and restricted cash at end of the period	Cash and restricted cash at end of the period	$	62,099	$	43,528	Cash and restricted cash at end of the period	$	71,876	$	51,424

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	$	46,488	$	5,874	Cash paid for interest	$	50,971	$	32,430
Cash paid for income taxes	Cash paid for income taxes	$	713	$	639	Cash paid for income taxes	$	675	$	447

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 ~~September~~June 25, ~~2022,~~2023, 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 ~~September~~June 25, ~~2022,~~2023, the Company had ~~2,354 locations. Of this amount, 2,261 stores~~approximately 2,300 locations open and under construction, of which approximately 95% were ~~franchised, representing approximately 96% of total restaurants.~~franchised.

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

InThe outbreak of the COVID-19 pandemic in March 2020 ~~the World Health Organization declared the outbreak~~had a number of ~~a novel coronavirus (COVID-19) as a pandemic, which continues to impact the United States~~adverse effects on our business and ~~other countries. As a result, at certain times the Company~~that of our franchisees, ~~temporarily closed some retail~~including temporary and permanent closures of restaurant locations, reduced or modified store operating hours, ~~adopted a “to-go” only operating model or a combination of these actions. These actions have reduced consumer traffic, all resulting~~difficulties in ~~a negative impact to franchisee~~staffing restaurants and ~~Company revenue.~~supply chain disruptions. While the ~~disruption~~disruptions to our business from the COVID-19 pandemic ~~is currently expected to be temporary, there is still~~have mostly subsided, the resurgence of COVID-19 or its variants, as well as an outbreak of other widespread health epidemics or pandemics, could cause a ~~great deal~~closure of ~~uncertainty around the severity~~restaurants and ~~duration of the disruption. We may experience longer-term effects~~disrupt our operations and have a material adverse effect on our business, financial condition 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.~~operations.

Liquidity

The Company recognized income from operations of ~~$14.7~~$18.9 million and ~~$3.6~~$13.7 million during the ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021,~~2022, respectively. The Company has a history of net losses and an accumulated deficit of ~~$107.9~~$217.9 million as of ~~September~~June 25, ~~2022.~~2023. Additionally, the Company had negative working capital of ~~$157.0~~$147.1 million. Of this amount, ~~$135.0~~$91.8 million represents ~~the current portion of~~ redeemable preferred stock as discussed in Note ~~12.~~9. Since the Company did not deliver the applicable cash proceeds at the related due dates, the amount accrues interest until the payments are completed. The Company had ~~$23.9~~$30.6 million of unrestricted cash at ~~September~~June 25, ~~2022~~2023 and plans on the combination of cash ~~generated~~flows from operations, ~~and~~ cash on hand, $92.7 million of issued but not sold aggregate principal amount of fixed rate secured notes and $63.5 million aggregate principal amount of repurchased but not re-sold fixed rate secured notes (see Note 8) 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 primarily from two sales channels, franchised restaurants and company-owned locations, which we operate as one 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. These financial statements should be read in conjunction with the audited financial statements and the related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 25, 2022

~~Fiscal year~~Nature of operations – 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.~~years, as is the case for fiscal year 2023. In a 52-week year, all four quarters are comprised of 13 weeks. In a 53-week year, one extra week is added to the fourth quarter.

~~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 Tax 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"). InDuring 2022, the Company filed with the Internal Revenue Service credits totaling $22.0 million, $10.1 million of which was filed during the thirteen and twenty-six weeks ended June 26, 2022. During the fourth quarter of 2022, in accordance with IAS 20, the Company fully reserved the amounts claimed until such time that it has been determined itthat the Company has reasonable assurance ~~for receipt of~~that the ~~ERC and during~~credits will be realized. During the thirteen ~~and thirty-nine~~ weeks ended ~~September~~June 25, ~~2022 recorded an ERC benefit~~2023, the Company reversed $12.7 million of ~~$2.2 million and $14.8 million within cost~~its reserve as it determined there is reasonable assurance that it will be realized.

Use of ~~restaurant and factory revenues and general and administrative expense as a reduction to labor expense~~estimates in the preparation of the condensed consolidated financial statements – The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of ~~operations. The Company recorded a corresponding accrual~~America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Significant estimates include the determination of fair values of goodwill and other intangible assets, allowances for ~~the benefit expected to be received within~~uncollectible notes receivable and accounts receivable, and the valuation allowance related to deferred tax assets. Estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial statement reclassification – Certain account balances from prior periods have been reclassified in ~~the~~these condensed consolidated ~~balance sheets as of September 25, 2022.~~financial statements to conform to current period classifications.

Recently ~~Issued~~Adopted 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~~write-offs 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~~adopted ASC No. 2022-02 ~~and does~~for the fiscal year beginning December 26, 2022, which did not ~~expect~~have an effect on the ~~adoption of this standard will have a material impact on its~~Company's 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.

~~Table of Contents~~

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~~replaced the ~~current~~previous incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of this amendment was 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

~~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 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 five 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 thirty-nine weeks ended 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.

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had an effective date for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities were 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. The Company meets the definition of an SRC and adopted 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, if applicable. The Company adopted ASU No. 2016-13 for the fiscal year beginning December 26, 2022. The adoption did not require an adjustment to retained earnings and did not have an effect on the Company's condensed consolidated financial statements.

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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 4.3. REFRANCHISING

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

The ~~Company meets all of the criteria requiring that acquired~~following assets used in the operation of certain restaurants meet all of the criteria requiring that they be classified as ~~held-for-sale. As a result, the following assets~~held-for-sale, and have been classified ~~as held-for-sale on~~accordingly in the accompanying condensed consolidated balance sheets as of ~~September~~June 25, ~~2022~~2023 and December ~~26, 2021~~25, 2022 (in millions):


		September 25, 2022		December 26, 2021			June 25, 2023		December 25, 2022

Property and equipment	Property and equipment	$	0.7	$	0.8	Property and equipment	$	0.6	$	0.7
Operating lease right-of-use assets	Operating lease right-of-use assets	4.3		4.7		Operating lease right-of-use assets	3.3		4.1
Total	Total	$	5.0	$	5.5	Total	$	3.9	$	4.8

Operating lease liabilities related to the assets classified as held-for-sale in the amount of ~~$4.4~~$3.5 million and ~~$4.8~~$4.1 million have been classified as current liabilities onin the accompanying condensed consolidated balance sheets as of ~~September~~June 25, ~~2022~~2023 and December ~~26, 2021,~~25, 2022, respectively.

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

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


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Restaurant costs and expenses, net of revenue	$	0.2	$	0.5	$	0.4	$	1.0
Gain on store sales or closures	—		—		(0.1)		—
Refranchising loss	$	0.2	$	0.5	$	0.3	$	1.0

~~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 September 25, 2022 and December 26, 2021 trade notes receivable was fully reserved.

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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 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 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 September 25, 2022 and December 26, 2021, the balance of the Elevation Note was $1.5 million and $1.7 million, respectively, which were net of discounts of $0.1 million and $0.2 million, respectively. During the thirteen and thirty-nine weeks ended September 25, 2022, the Company recognized $42,283 and $132,160 in interest income on the Elevation Buyer Note, respectively. During the thirteen and thirty-nine weeks ended September 26, 2021, the Company recognized $49,000 and $151,000 in interest income on the Elevation Buyer Note, respectively.

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 6.4. PROPERTY AND EQUIPMENT, NET

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


		September 25, 2022		December 26, 2021			June 25, 2023		December 25, 2022
Real estate	Real estate	$	60.6	$	60.5	Real estate	$	73.6	$	67.7
Equipment	Equipment	36.0		22.9		Equipment	25.4		26.5
		$	96.6	$	83.4		$	99.0	$	94.2
Accumulated Depreciation		(11.7)		(2.9)
Accumulated depreciation						Accumulated depreciation	(19.4)		(15.0)
Property and equipment, net	Property and equipment, net	$	84.9	$	80.5	Property and equipment, net	$	79.6	$	79.2

Depreciation expense during the thirteen weeks ended June 25, 2023 and June 26, 2022 was $3.3 million and $3.0 million, respectively. Depreciation expense during the twenty-six weeks ended June 25, 2023 and June 26, 2022 was $6.7 million and $5.8 million, respectively.

Upon retirement or other disposal of property and equipment, the cost and related amounts of accumulated depreciation are eliminated from the asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds, is recorded in earnings.

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NOTE 7.5. 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
Goodwill Trademarks
December 26, 2021 $ 175.6 $ 295.1 $ 477.2
Amortization (11.3) — —
Additions 1.8 — —
Adjustment to preliminary purchase price (0.3) (1.3) —
September 25, 2022 $ 165.8 $ 293.8 $ 477.2


	Amortizing Intangible Assets		Non-Amortizing Intangible Assets
			Goodwill		Trademarks
December 25, 2022	$	162.1	$	293.3	$	463.2
Amortization	(7.5)		—		—
June 25, 2023	$	154.6	$	293.3	$	463.2

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


		September 25, 2022							December 26, 2021							June 25, 2023							December 25, 2022
			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	(12.5)		$	96.7	$	109.4	$	(5.7)	$	103.7	Franchise agreements		$	109.2	$	(19.4)	$	89.8	$	109.2	$	(14.8)	$	94.4
Customer relationships	Customer relationships		73.9		(6.6)		67.3		73.9		(2.4)		71.5		Customer relationships		73.9		(10.9)		63.0		73.9		(8.1)		65.8
Other	Other		2.1		(0.3)		1.8		0.4		—		0.4		Other		2.1		(0.3)		1.8		2.1		(0.2)		1.9
			$	185.2	$	(19.4)	$	165.8	$	183.7	$	(8.1)	$	175.6			$	185.2	$	(30.6)	$	154.6	$	185.2	$	(23.1)	$	162.1

Non-amortizing intangible assets	Non-amortizing intangible assets														Non-amortizing intangible assets
Trademarks	Trademarks						477.2						477.2		Trademarks						463.2						463.2
Total amortizing and non-amortizing intangible assets, net	Total amortizing and non-amortizing intangible assets, net						$	643.0					$	652.8	Total amortizing and non-amortizing intangible assets, net						$	617.8					$	625.3

Amortization expense for the thirteen weeks ended June 25, 2023 and June 26, 2022 was $3.8 million and $3.7 million, respectively. Amortization expense for the twenty-six weeks ended June 25, 2023 and June 26, 2022 was $7.5 million and $7.4 million, respectively.

The expected future amortization of ~~the Company’s capitalized franchise agreements is as follows~~definite-life intangible assets by fiscal year (in millions):


Fiscal year:
Remaining 2022		$	3.8
2023		15.0
Fiscal Year:				Fiscal Year:
Remainder of 2023				Remainder of 2023	$	7.5
2024	2024	14.7		2024	14.7
2025	2025	14.5		2025	14.5
2026	2026	14.5		2026	14.5
2027				2027	14.5
Thereafter	Thereafter	103.3		Thereafter	88.9
Total	Total	$	165.8	Total	$	154.6

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

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NOTE ~~8. DEFERRED INCOME~~

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

September 25,
2022 December 26,
2021
Deferred franchise fees $ 22.5 $ 19.8
Deferred royalties 0.1 0.2
Deferred vendor incentives 0.2 0.3
Total $ 22.8 $ 20.3

~~NOTE 9.~~6. INCOME TAXES

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


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended							Thirteen Weeks Ended						Twenty-Six Weeks Ended
		September 25, 2022			September 26, 2021			September 25, 2022			September 26, 2021				June 25, 2023			June 26, 2022			June 25, 2023			June 26, 2022
Provision (benefit) for income taxes	Provision (benefit) for income taxes	$	0.5		$	(1.2)		$	4.8		$	(3.3)		Provision (benefit) for income taxes	$	1.3		$	(0.3)		$	3.9		$	4.3
Effective tax rate	Effective tax rate	(2.3)		%	24.6		%	(9.5)		%	21.6		%	Effective tax rate	(23.4)		%	3.0		%	(11.0)		%	(15.4)		%

The difference between the statutory tax rate of 21% and the effective tax rate of ~~(2.3)~~(23.4)% and ~~(9.5)~~(11.0)% in the thirteen weeks and ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022,~~2023, 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 of 3.0% and (15.4)% in the thirteen weeks and ~~thirty-nine~~twenty-six weeks ended ~~September~~June 26, ~~2021~~2022, respectively, was primarily due to increases in the valuation allowance, nondeductible expenses and the impact of state income ~~taxes and the forgiveness of loans under the Paycheck Protection Program (the “PPP Loans”).~~

taxes.

NOTE ~~10.~~7. LEASES

The Company recognized lease expense of ~~$4.6~~$4.7 million and ~~$1.4~~$4.8 million for the thirteen weeks ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021,~~2022, respectively. The Company recognized lease expense of ~~$13.9~~$9.5 million and ~~$2.8~~$9.3 million for the ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021,~~2022, respectively.

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


		September 25, 2022		December 26, 2021			June 25, 2023		December 25, 2022

Operating lease right-of-use assets	Operating lease right-of-use assets	$	95.2	$	98.6	Operating lease right-of-use assets	$	101.6	$	101.1
Right-of-use assets classified as held-for-sale	Right-of-use assets classified as held-for-sale	4.3		4.7		Right-of-use assets classified as held-for-sale	3.3		4.1
Total right-of-use assets	Total right-of-use assets	$	99.5	$	103.3	Total right-of-use assets	$	104.9	$	105.2

Operating lease liabilities	Operating lease liabilities	$	104.4	$	107.3	Operating lease liabilities	$	110.7	$	110.4
Lease liabilities related to assets held-for-sale	Lease liabilities related to assets held-for-sale	4.4		4.8		Lease liabilities related to assets held-for-sale	3.5		4.1
Total operating lease liabilities	Total operating lease liabilities	$	108.8	$	112.1	Total operating lease liabilities	$	114.2	$	114.5

The contractual future maturities of the Company’s operating lease liabilities as of ~~September~~June 25, ~~2022,~~2023, including anticipated lease extensions, are as follows (in millions):


Fiscal year:
Remainder of 2023	$	5.2
2024	15.5
2025	15.1
2026	13.8
2027	13.7
Thereafter	181.2
Total lease payments	$	244.5
Less imputed interest	(133.8)
Total	$	110.7

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Fiscal year:
Remainder of 2022 $ 4.2
2023 16.2
2024 15.1
2025 14.5
2026 13.3
Thereafter 163.6
Total lease payments $ 226.9
Less imputed interest (118.1)
Total $ 108.8

The current portion of the operating lease liability as of ~~September~~June 25, ~~2022~~2023 was ~~$14.4~~$14.9 million.

Supplemental cash flow information for the ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 related to leases was as follows (in millions):


		Thirty-Nine Weeks Ended					Twenty-Six Weeks Ended
		September 25, 2022		September 26, 2021			June 25, 2023		June 26, 2022
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	$	12.2	$	2.3	Operating cash flows from operating leases	$	8.8	$	8.1

NOTE 8. DEBT

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


	June 25, 2023								December 25, 2022
	Final Maturity	Anticipated Repayment Date	Rate		Face Value		Book Value		Book Value
Senior Debt
FB Royalty Securitization	4/25/2051	7/25/2026	4.75	%	$	139.8	$	135.9	$	135.3
GFG Royalty Securitization	7/25/2051	7/25/2026	6.00	%	274.0		265.1		228.9
Twin Peaks Securitization	7/25/2051	1/25/2025	7.00	%	150.0		148.4		147.5
Fazoli's/Native Securitization	7/25/2051	1/25/2025	6.00	%	128.8		125.7		124.8
Senior Subordinated Debt
FB Royalty Securitization	4/25/2051	7/25/2026	8.00	%	46.6		45.4		45.2
GFG Royalty Securitization	7/25/2051	7/25/2026	7.00	%	84.0		82.3		82.0
Twin Peaks Securitization	7/25/2051	1/25/2025	9.00	%	50.0		48.3		47.3
Fazoli's/Native Securitization	7/25/2051	1/25/2025	7.00	%	25.0		23.8		23.5
Subordinated Debt
FB Royalty Securitization	4/25/2051	7/25/2026	9.00	%	34.6		32.4		32.1
GFG Royalty Securitization	7/25/2051	7/25/2026	9.50	%	57.0		54.0		53.5
Twin Peaks Securitization	7/25/2051	1/25/2025	10.00	%	50.0		47.1		45.5
Fazoli's/Native Securitization	7/25/2051	1/25/2025	9.00	%	40.0		37.5		37.0
Total Securitized Debt					1,079.8		1,045.9		1,002.6
Elevation Note	7/19/2026	N/A	6.00	%	3.5		3.5		3.9
Equipment Notes	5/5/2027 to 3/7/2029	N/A	7.99% to 8.49%		1.2		1.2		1.3
Twin Peaks Construction Loan	8/5/2023	N/A	8.00	%	2.2		2.2		0.4
Twin Peaks Construction Loan II	1/9/2024	N/A	10.83	%	1.5		1.5		—
Total Debt					$	1,088.2	1,054.3		1,008.2
Current portion of long-term debt							(35.8)		(49.6)
Long-term Debt							$	1,018.5	$	958.6

Terms of Outstanding Debt

FB Royalty Securitization

On April 26, 2021, FAT Brands Royalty I, LLC ("FB Royalty"), a special purpose, wholly-owned subsidiary of FAT Brands Inc., completed the issuance and sale of three tranches of fixed rate secured notes with a total aggregate principal amount of $144.5 million.

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~~NOTE 11. DEBT~~

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

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

notes. Of the $76.5 million aggregate principal amount, $30.0 million was sold privately during the third quarter of 2022, resulting in net proceeds of $27.1 million (net of debt offering costs of $0.6 million and original issue discount of $2.3 million). The remaining $46.5 million in aggregate principal was ~~issued~~sold privately on October 21, 2022, when the Company entered into an Exchange Agreement with the Twin Peaks sellers and redeemed 1,821,831 shares of the Company's 8.25% Series B Cumulative Preferred Stock at a price of $23.69 per share, plus accrued and unpaid dividends to ~~FAT Brands Inc.~~the date of redemption, in exchange for $46.5 million aggregate principal amount of secured debt ($43.2 million net of debt offering costs and ~~has been eliminated in consolidation. [pending execution~~original issue discount).

Prior to the redemption, the Twin Peaks sellers held 2,847,393 shares of ~~put preferred for debt exchange if signed~~Series B Cumulative Preferred Stock.

Pursuant to the Exchange Agreement, (i) at any time prior to ~~filing]~~July 25, 2023, the Company may call from the Twin Peaks sellers all or a portion of the Class M-2 Notes at the outstanding principal balance multiplied by 0.86, plus any accrued plus unpaid interest thereon; (ii) at any time on or after the date of the Exchange Agreement, the Company may call from the Twin Peaks sellers, and at any time on or after July 25, 2023, the Twin Peaks sellers may put to the Company, all or a portion of the Class A-2 Notes and/or Class B-2 Notes at the outstanding principal balance multiplied by 0.94, plus any accrued plus unpaid interest thereon; and (iii) at any time on or after July 25, 2023, the Company may call from the Twin Peaks sellers, and the Twin Peaks sellers may put to the Company, all or a portion of the Class M-2 Notes at the outstanding principal balance multiplied by 0.91, plus any accrued plus unpaid interest thereon. If the Company does not remit the applicable call price or put price upon a duly exercised call or put, as applicable, the amount owed by the Company will accrue interest at 10% per annum, which interest is due and payable in cash monthly by the Company. As of June 25, 2023, the outstanding principal balance owned by the Twin Peaks sellers and subject to the put/call option was $18.4 million.

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

GFG Royalty Securitization

In connection with the acquisition of GFG, on July 22, 2021, FAT Brands GFG Royalty I, LLC ("GFG Royalty"), a special purpose, wholly-owned subsidiary of FAT Brands, completed the issuance and sale in a private offering 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.

On December 15, 2022, GFG Royalty issued an additional $113.5 million aggregate principal amount of three tranches of fixed rate secured notes. Of the $113.5 million aggregate principal amount, $25.0 million was sold privately during the fourth quarter of 2022. In January 2023, an additional $40.0 million aggregate principal amount was sold privately, resulting in net proceeds of $34.8 million. The remaining $48.5 million in aggregate principal was issued to FAT Brands, Inc., pending sale to third party investors.

The GFG ~~Securitization Notes~~Royalty 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~~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~~ securitization notes

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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,~~securitization notes, the ~~2021~~ GFG Royalty ~~Securitization Notes,~~securitization notes, the ~~2021~~ Twin Peaks ~~Securitization Notes~~securitization notes and the ~~2021~~ Fazoli's/Native ~~Securitization Notes~~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~~beginning July ~~25,~~26, 2023, additional interest equal to 1.0% per annum will accrue on the then outstanding principal balance of each tranche. Principal payments, with an amount equal to 0.5% of the initial principal amount, will be made on the scheduled quarterly payment date on and following the anticipated call date, starting in October 2023.

The material terms of the Securitization Notes contain covenants which are standard and customary for these types of agreements, including the following financial covenants: (i) debt service coverage ratio, (ii) leverage ratio and (iii) senior leverage ratio. As of ~~September~~June 25, ~~2022,~~2023, 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 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 thirty-nine weeks ended September 25, 2022 was 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.~~Company arising under any agreement or instrument to which Company or any of its Affiliates is a party that evidences indebtedness for borrowed money that is senior in right of payment.

Equipment Financing (Twin Peaks)

During fiscal year 2022, an indirect subsidiary of the Company entered into certain equipment financing arrangements to borrow up to ~~$1.0~~$1.4 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,~~August 10, 2027 and ~~March 7, 2029,~~April 1, 2028, 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,~~December 5, 2022, an indirect subsidiary of the Company entered into a construction loan agreement to borrow up to $4.5 million, the proceeds of which will be used for a new corporate Twin Peaks ~~in Northlake, TX~~restaurant (the "Construction Loan"). The Construction Loan has an initial maturity of ~~March 12,~~August 5, 2023, with an optional six-month extension, bearing interest at ~~a fixed rate~~the greater of the 3-month Secured Overnight Financing Rate (SOFR) plus 360 basis points, or 8% per year, and is secured by land and building.

On March 9, 2023, 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 Sarasota, Florida (the "Sarasota Construction Loan"). The Sarasota Construction Loan has an initial maturity of January 9, 2024, with an optional three-month extension, bearing interest at the greater of the 3-month Overnight Financing Rate (SOFR) plus 575 basis points or 4% per year and is secured by land and building.

FB Resid Holdings 1, LLC

On July 8, 2023, FB Resid Holdings I, LLC (“FB Resid”), a special purpose, wholly-owned subsidiary of FAT Brands, completed the issuance of two tranches of fixed rate secured notes with a total aggregate principal amount of $150.0 million. Of the $150.0 million aggregate principal amount, $105.8 million was sold privately, resulting in net proceeds of $105.3 million. A portion of the proceeds was used to purchase $64.6 million of outstanding Securitization Notes, which will be held pending re-sale to third party investors. The remaining $44.2 million in aggregate principal of notes issued by FB Resid was issued to a wholly-owned subsidiary of FAT Brands, Inc., pending sale to third party investors.

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NOTE ~~12. SERIES B CUMULATIVE~~9. REDEEMABLE 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 Cumulative Preferred Stock valued at $67.3 million (the "GFG Preferred Stock Consideration"). Additionally, on July 22, 2021, the Company entered into a ~~Put/Call Agreement~~put/call agreement with the GFG sellers, pursuant to which the Company may purchase, or the GFG ~~sellers~~Sellers may require the Company to purchase, the GFG Preferred Stock Consideration for $67.5 million plus any accrued but unpaid dividends on or before August 20, 2022 (extended from the original date of April 22, 2022), subject to the other provisions of the Put/Call Agreement. Since the Company did not deliver the applicable cash proceeds to the GFG Sellers by that date, the amount accrues interest at the rate of 5% per annum until repayment is completed. On March 22, 2022, the Company received a put notice on the GFG Preferred Stock Consideration and reclassified the GFG Preferred Stock Consideration from redeemable preferred stock to current liabilities on its ~~condensed~~ consolidated balance sheet. As of June 25, 2023, the carrying value of the redeemable preferred stock was $67.5 million.

On September 16, 2022, the Company entered into an agreement with one of the GFG sellers who ~~holds~~held 1,544,623 put preferred shares. Pursuant to the agreement, ~~the closing date of the redemption was extended from April 22, 2022 to July 23, 2023 and,~~ effective August 23, 2022, the interest rate applicable to such holder's 1,544,623 put shares was increased from 5% to 10% per annum, payable monthly in arrears. ~~In September 2022,~~During the thirteen and twenty-six weeks ended June 25, 2023, the Company paid ~~$0.8~~$0.9 million ~~for~~and $1.7 million of interest, respectively.

On March 9, 2023, the Company entered into an agreement with the second GFG seller who held 1,544,623 put preferred shares. Pursuant to the agreement, effective August 23, 2022, the interest ~~that had accrued through August 2022.~~rate applicable to such holder's 1,544,623 put shares was increased from 5% to 10% per annum, payable on the date of redemption.

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 8.25% 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 could not offer, sell or transfer any interest in these shares. The lock-up provisions 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. valued at $67.5 million.

On October 1, 2021, the Company and the Twin Peaks Seller entered into a Put/Call Agreement (the “Put/Call Agreement”) pursuant to which the Company was granted the right to call from the Twin Peaks Seller, and the Twin Peaks Seller was granted the right to put to the Company, the Initial Put/Call Shares at any time until March 31, 2022 for a cash payment of $42.5 million, and the Secondary Put/Call Shares at any time until September 30, 2022 for a cash payment of $25.0 million (the Initial Put/call Shares together with the Secondary Put/Call Shares total $67.5 million), plus any accrued but unpaid dividends on such shares. Unpaid balances, when due, accrue interest at a rate of 10.0% per annum 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~~

On October 21, 2022, the Company ~~has classified~~entered into an Exchange Agreement with the Twin Peaks Seller and redeemed 1,821,831 shares of the Company’s 8.25% Series B Cumulative Preferred Stock at a price of $23.69 per share, plus accrued and unpaid dividends to the date of redemption in exchange for $46.5 million aggregate principal amount of secured debt ($43.2 million net of debt offering costs and original issue discount) as discussed in Note 8.

As of June 25, 2023, the carrying value of the Twin Peaks Preferred Stock Consideration ~~as a current liability on its condensed consolidated balance sheet.~~totaled $24.3 million. The Company recognized interest expense relating to the Twin Peaks Preferred Stock Consideration for the thirteen weeks and twenty-six weeks ended June 25, 2023 in the amount of $0.6 million and $1.2 million, respectively.

NOTE ~~13.~~10. 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~~December 20, 2022 to increase the number of shares available for issuance under the Plan. The Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, FAT Brands Inc. and its subsidiaries. The Plan provides a maximum of ~~4,000,000~~5,000,000 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 ~~September~~June 25, ~~2022,~~2023, there were ~~2,575,936~~2,929,954 shares of stock options outstanding with a weighted average exercise price of ~~$10.50.~~

During the thirteen weeks ended 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 thirty-nine weeks ended September 25, 2022.

The Company recognized share-based compensation expense in the amount of $2.0 million and $0.3 million, during the thirteen weeks ended September 25, 2022 and September 26, 2021, respectively. The Company recognized share-based compensation expense in the amount of $6.1 million and $0.5 million during the thirty-nine weeks ended September 25, 2022, and September 26, 2021, respectively. As of September 25, 2022, there remains $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 thirty-nine weeks ended September 25, 2022 was as follows:~~

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

~~During the thirty-nine weeks ended September 25, 2022, 31,399 warrants were exercised in exchange for 31,399 shares of common stock with net proceeds to the Company of $0.1 million.~~$9.49.

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During the thirteen and twenty-six weeks ended June 25, 2023, the Company granted a total of 566,907 stock options under the Plan with a grant date fair value of $1.0 million. The related compensation expense will be recognized over the vesting period. There were no new grants during the twenty-six weeks ended June 26, 2022.

The Company recognized share-based compensation expense in the amount of $0.5 million and $1.9 million during the thirteen weeks ended June 25, 2023 and June 26, 2022, respectively. The Company recognized share-based compensation expense in the amount of $1.6 million and $4.0 million during the twenty-six weeks ended June 25, 2023 and June 26, 2022, respectively. As of June 25, 2023, there remains $4.1 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 ~~15. DIVIDENDS ON~~11. WARRANTS

The Company’s warrant activity for the twenty-six weeks ended June 25, 2023 was as follows:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Warrants exercisable at December 25, 2022	1,591,256	$	3.88	2.4
Granted	1,918	$	3.01	2.1
Exercised	(84,432)	$	3.16	2.1
Warrants outstanding and exercisable at June 25, 2023	1,508,742	$	3.70	1.8

During the twenty-six weeks ended June 25, 2023, 84,432 warrants were exercised in exchange for 39,500 shares of common stock with net proceeds to the Company of $0.2 million.

NOTE 12. COMMON STOCK

On ~~July 12, 2022,~~April 4, 2023, the Board of Directors declared a cash dividend of $0.14 per share of Class A common stock and Class B common stock, payable on ~~September~~June 1, ~~2022~~2023 to stockholders of record as of ~~August 16, 2022,~~May 15, 2023, for a total of ~~$2.3 million.~~$2,320,469.

On November 14, 2022, we entered into an ATM Sales Agreement (the "Sales Agreement") with ThinkEquity LLC (the "Agent"), pursuant to which we may offer and sell from time to time through the Agent up to $21,435,000 maximum aggregate offering price of shares of our Class A Common Stock and/or 8.25% Series B Preferred Stock. During the three months ended June 25, 2023 pursuant to the Sales Agreement, we sold and issued 65,593 shares of Series B Cumulative Preferred Stock, at a weighted average share price of $15.31, paid the Agent commissions of $30,123 for such sales and received net proceeds of $1.0 million (net of fees and commissions) for such sales.

NOTE ~~16.~~13. 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 current and former 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~~which the ~~Motion was heard~~Court denied in an oral ruling on February 11, ~~2022. At the conclusion of the argument, the Court indicated that it would deny the Motion with respect to most claims~~2022 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~~subsequent written order on May 25, 2022. On April 7, 2022, the Court ~~ultimately denied~~entered a Scheduling Order setting forth the key dates and deadlines that would govern the litigation, including a discovery cutoff of March 24, 2023 and trial date of February 5-9, 2024. To date, the parties have engaged in substantial written discovery, though no depositions have been taken. On

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February 3, 2023, the Company’s board of directors appointed a Special Litigation Committee (“SLC”), which retained independent counsel and moved for a six-month stay of the action pending resolution of the SLC's investigation, which the Court granted on February 17, 2023. On April 5, 2023, the Court granted Plaintiffs’ motion to lift the stay of the proceedings, and entered a Second Amended Pre-Trial Scheduling Order resetting key dates and deadlines, including a fact discovery cutoff of August 4, 2023, and a trial date to be set sometime after May 10, 2024. On May 4, 2023, a new SLC was appointed, and on May 8, 2023, the new SLC moved for a six-month stay of the action pending resolution of its investigation. Two days later, on May 10, 2023, the United States of America moved for a partial stay of discovery pending its own investigation. On May 31, 2023, the Court granted the United States of America’s Motion, except that it granted a six-month stay of all proceedings in ~~its entirety.~~the action, and on that basis deemed the SLC’s motion to be moot. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. ~~As discovery is ongoing, we~~We cannot predict the outcome of this lawsuit. This lawsuit does not assert any claims against the Company. However, subject to certain limitations, we are obligated to indemnify our directors in connection with defense costs for the lawsuit and any related litigation, ~~or settlements amounts,~~ which may exceed coverage provided under our insurance policies, and thus could have an adverse effect on our financial condition. The lawsuit and any related litigation also 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 current and former 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"). ~~The hearing for~~Argument on the Motion ~~is set for~~was heard on November 17, 2022, ~~at 1:00 pm ET.~~and again on February 23, 2023, and the Court took its decision under advisement. The Court denied the motion on April 5, 2023. On May 2, 2023, the Court entered a pre-trial scheduling order setting key dates and deadlines that will govern the litigation, including a fact discovery cutoff of February 2, 2024, and a trial date to be set sometime after October 15, 2024. On July 21, 2023, the Company’s board of directors appointed a Special Litigation Committee (“SLC”), which retained independent counsel and moved for a six-month stay of the action pending resolution of the SLC’s investigation. The Court has yet to rule or issue a briefing schedule as to the SLC’s Motion to Stay. Defendants dispute the allegations of the lawsuit and intend to vigorously defend against the claims. As this matter is still in the early stages, we cannot predict the outcome of this lawsuit. This lawsuit does not assert any claims against the Company. However, subject to certain limitations, we are obligated to indemnify our directors in connection with defense costs for the lawsuit and any related litigation, ~~or settlements amounts,~~ which may exceed coverage provided under our insurance policies, and thus could have an adverse effect on our financial condition. The lawsuit and any related litigation also 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 the Company reached an agreement in principle to settle this matter for a cash payment by the Company of $2.5 million and issuance of $0.5 million in Class A common stock. The Stipulation of Settlement and other documents pertinent to the settlement, along with a motion for preliminary approval thereof, were filed with the court on September 23, 2022. The hearing on the motion for preliminary approval is 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 dismissal of the litigation with prejudice.

Government Investigations

~~The~~In December 2021, the U.S. Attorney’s Office for the Central District of California (the “U.S. Attorney”) and the U.S. Securities and Exchange Commission (the “SEC”) informed the Company ~~in December 2021~~ that they ~~have~~had opened investigations relating to the Company and our former Chief Executive Officer, Andrew Wiederhorn, and ~~are~~were formally seeking documents and materials concerning, among other things, the Company’s December 2020 merger with Fog Cutter Capital Group Inc., transactions between ~~these~~those entities and Mr. Wiederhorn, ~~and~~as well as compensation, extensions of credit and other benefits or payments received by Mr. Wiederhorn or his ~~family.~~family from those entities. From August 23, 2022 until March 28, 2023, our Board of Directors maintained a Special Review Committee (the “SRC”) comprised of directors other than Mr. Wiederhorn to oversee a review of the issues raised by the U.S. Attorney and SEC investigations. The Company ~~is cooperating~~intends to cooperate with the ~~government~~U.S. Attorney and the SEC regarding these matters and weis continuing to actively respond to inquiries and requests from the U.S. Attorney and the SEC. We believe that the Company is not currently a target of the U.S. Attorney’s investigation. At this ~~early~~ stage, ~~the Company is~~we are not able to reasonably estimate or predict the outcome or duration of either of the ~~government~~U.S. Attorney’s or the SEC’s investigations.

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

In 2012 and 2013, two property owners in Oklahoma City, Oklahoma sued numerous parties, including Foot Locker Retail Inc. and our subsidiary Fog Cutter Capital Group Inc. ~~("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 ~~FCCG~~Fog Cutter subsidiary managed a lease portfolio, which included the subject property. ~~FCCG~~Fog Cutter denies any liability, although it did not timely respond to one of the property owners’ complaints and several of the defendants’ cross-complaints and thus is in default. The parties are currently

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conducting ~~discovery,~~discovery. The court has vacated the current trial date and has not yet reset the ~~matter is scheduled for~~ trial ~~for June 2023.~~date. 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 ~~FCCG~~Fog Cutter Capital Group, Inc. (“FCCG”) in New York state court for an indemnification claim (the “NY case”) stemming from an earlier lawsuit in Georgia regarding a certain lease portfolio formerly managed by a former FCCG subsidiary. In February 2018, SBN obtained a final judgment in the NY case for a total of $0.7 million, which included $0.2 million in interest dating back to March 2012. SBN then obtained a sister state judgment in Los Angeles Superior Court, Case No. BS172606 (the “California case”), which included the $0.7 million judgment from the NY case, plus additional statutory interest and fees, for a total judgment of $0.7 million. In May 2018, SBN filed a cost memo, requesting an additional $12,411 in interest to be added to the judgment in the California case, for a total of $0.7 million. In May ~~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.

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

On January 13, 2023, SBN filed another complaint against FCCG in New York state court for an indemnification claim stemming from a lawsuit in Oklahoma City regarding the same lease portfolio formerly managed by Fog Cap, and a bankruptcy proceedings involving Fog Cap. SBN alleges that under a February 2008 stock purchase agreement, Fog Cutter is required to indemnify SBN and its affiliates. According to the complaint, SBN has, at the time of filing the complaint, incurred costs subject to indemnification of approximately $12 million. FCCG has filed a motion to dismiss the complaint, or alternatively to stay the case, which motion is currently pending before the court. We are unable at this time to express any opinion as to the outcome of this matter or as to the possible range of loss, if any.

The Company is involved in 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 ~~September~~June 25, ~~2022 and December 26, 2021,~~2023, 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.~~14. GEOGRAPHIC INFORMATION ~~AND MAJOR FRANCHISEES~~

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Twenty-Six Weeks Ended
		September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021			June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
United States	United States	$	100.9	$	26.3	$	296.7	$	37.4	United States	$	105.1	$	100.5	$	207.9	$	195.8
Other countries	Other countries	2.3		3.5		6.7		7.3		Other countries	1.7		2.3		4.6		4.4
Total revenue	Total revenue	$	103.2	$	29.8	$	303.4	$	44.7	Total revenue	$	106.8	$	102.8	$	212.5	$	200.2

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

During the ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021,~~2022, no individual franchisee accounted for more than 10% of the Company’s revenue.

NOTE ~~18.~~15. SUBSEQUENT EVENTS

~~Management has evaluated all events and transactions that occurred subsequent~~In July 2023, the Company's subsidiary, FB Resid Holdings I, LLC, completed the sale to ~~September 25, 2022 through the date~~third parties of ~~issuance~~$105.8 million in aggregate principal amount of ~~these condensed consolidated financial statements. During this period, the Company did not have any significant subsequent events.~~

secured debt, as disclosed further in Note 8.

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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 ~~thirty-nine~~thirteen weeks and twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021,~~2022, 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.~~factors. 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~~February 24, 2023 “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 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 and polished casual restaurant concepts around the world. As of ~~September~~June 25, ~~2022,~~2023, 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 ~~September~~June 25, ~~2022,~~2023, the Company had ~~2,354 locations. Of this amount, 2,261 stores~~approximately 2,300 locations open or under construction, of which approximately 95% were franchised.

Under our franchised ~~representing approximately 96% of total restaurants.~~

~~We generally do not own or operate restaurant locations, but rather~~business model, we 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 ~~costs,~~cost, while taking advantage of significant corporate overhead synergies. The

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

Results of Operations

We operate on a 52-week or 53-week fiscal year ending on the last Sunday of the calendar year. In a 52-week fiscal year, each quarter contains 13 weeks of operations. In a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations, which may cause our revenue, expenses and other results of operations to be higher due to an additional week of operations. The 2023 fiscal year is a 53-week year. The 2022 fiscal year was a 52-week year.

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Results of Operations of FAT Brands Inc.

The following table ~~summarize~~summarizes key components of our condensed consolidated results of operations for the thirteen weeks and ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021.~~2022.

(dollars in ~~thousands~~)thousands)


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Twenty-Six Weeks Ended
		September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021			June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Statements of Operations Data:	Statements of Operations Data:									Statements of Operations Data:

Revenue	Revenue									Revenue
Royalties	Royalties	$	22,833	$	13,742	$	65,396	$	24,800	Royalties	$	22,751	$	21,665	$	45,236	$	42,563
Restaurant sales	Restaurant sales	61,352		3,879		179,473		4,113		Restaurant sales	62,778		60,044		125,379		118,121
Advertising fees	Advertising fees	9,479		5,483		28,408		8,043		Advertising fees	9,668		9,568		19,019		18,929
Factory revenues	Factory revenues	7,839		5,480		24,588		5,480		Factory revenues	9,686		8,570		18,851		16,749
Franchise fees	Franchise fees	754		1,087		2,763		2,109		Franchise fees	763		1,295		1,565		2,009
Management fees and other income		965		90		2,782		148
Other revenue										Other revenue	1,118		1,643		2,405		1,817
Total revenue	Total revenue	103,222		29,761		303,410		44,693		Total revenue	106,764		102,785		212,455		200,188

Costs and expenses	Costs and expenses									Costs and expenses
General and administrative expense	General and administrative expense	28,751		10,589		74,188		20,214		General and administrative expense	9,947		20,841		38,362		45,437
Cost of restaurant and factory revenues	Cost of restaurant and factory revenues	55,257		7,133		159,901		7,377		Cost of restaurant and factory revenues	59,502		49,846		118,589		104,644
Depreciation and amortization	Depreciation and amortization	6,895		2,377		20,076		3,161		Depreciation and amortization	7,061		6,711		14,177		13,181
Refranchising loss (gain)		122		(250)		1,123		(679)
Refranchising loss										Refranchising loss	179		453		338		1,001
Acquisition costs	Acquisition costs	—		2,053		383		2,985		Acquisition costs	—		135		—		383
Advertising fees	Advertising fees	11,185		5,483		33,038		8,043		Advertising fees	11,610		11,596		22,137		21,853
Total costs and expenses	Total costs and expenses	102,210		27,385		288,709		41,101		Total costs and expenses	88,299		89,582		193,603		186,499

Income from operations	Income from operations	1,012		2,376		14,701		3,592		Income from operations	18,465		13,203		18,852		13,689

Total other expense, net	Total other expense, net	(23,933)		(7,194)		(65,292)		(18,893)		Total other expense, net	(24,210)		(21,642)		(54,187)		(41,359)

Loss before income tax expense		(22,921)		(4,818)		(50,591)		(15,301)
Loss before income tax provision (benefit)										Loss before income tax provision (benefit)	(5,745)		(8,439)		(35,335)		(27,670)

Income tax provision (benefit)	Income tax provision (benefit)	516		(1,183)		4,789		(3,303)		Income tax provision (benefit)	1,346		(251)		3,882		4,273

Net loss	Net loss	(23,437)		(3,635)		(55,380)		(11,998)		Net loss	$	(7,091)	$	(8,188)	$	(39,217)	$	(31,943)
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 ~~Thirty-Nine~~Twenty-Six Weeks Ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021:~~2022:

Revenue - Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and other revenue. Total revenue increased ~~$258.7~~$12.3 million, or ~~579%~~6.1%, in the first ~~three~~two quarters of ~~2022,~~2023 to ~~$303.4~~$212.5 million compared to ~~$44.7~~$200.2 million in the same period of ~~2021. The increase reflects revenue~~2022, driven by system-wide sales growth and revenues from the acquisition of GFG in July 2021, the acquisition of Twin Peaks in October 2021, the acquisitions of Fazoli's and Native in December 2021 (collectively, the "2021 Acquisitions") and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties fromnew restaurant ~~sales.~~openings.

Costs and expenses – Costs and expenses consist of general and administrative expense, cost of restaurant and factory revenues, depreciation and amortization, refranchising loss ~~(gain), acquisition costs,~~ and advertising fees. Costs and expenses increased$7.1 million, or 3.8%, in the first two quarters of 2023 to $193.6 million compared to the same period in the prior year, primarily due to increased activity from Company owned restaurants and the Company's factory, as well as professional fees related to certain litigation matters.

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~~$247.6~~General and administrative expense decreased $7.1 million, or ~~602%~~15.6%, in the first ~~three~~two quarters of ~~2022 to $288.7 million~~2023 compared to the same period in the prior year, primarily due to the ~~2021 Acquisitions.~~

~~General and administrative expense increased$54.0~~recognition of $12.7 million ~~or 267%,~~ in Employee Retention Credits during the ~~first three quarters~~second quarter of ~~2022 compared to the same period in the prior year, primarily due to the 2021 Acquisitions, increased compensation costs,~~2023, partially offset by professional fees related to ~~pending~~certain litigation ~~and government investigations, and travel, reflecting the significant expansion of the organization.~~matters.

Cost of restaurant and factory revenues ~~totaled $159.9~~increased $13.9 million, ~~for~~or 13.3%, in the first ~~three~~two quarters of ~~2022 and was related~~2023, primarily due to ~~the operations of the~~higher company-owned restaurant ~~locations~~and dough factory revenues 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~~recognition of $10.1 million in Employee Retention ~~Credit, a refundable payroll tax credit~~Credits recognized during the second quarter of ~~qualified wages paid during 2021 and 2020.~~2022.

Depreciation and amortization increased ~~$16.9~~$1.0 million, or ~~535%~~7.6% in the first ~~three~~two quarters of ~~2022~~2023 compared to the same period in the prior year, primarily due to depreciation of ~~company-owned restaurant~~new property and equipment ~~and amortizing intangible assets related to the 2021 Acquisitions.~~at company-owned restaurant locations.

Refranchising ~~losses~~net loss in the first ~~three~~two quarters of ~~2022 were $1.1~~2023 of $0.3 million ~~and were~~was comprised of $0.4 million in restaurant operating costs, ~~and expenses,~~ net of food ~~sales. Refranchising gains in the first three quarters of 2021 were $0.7 million and were comprised of $1.6~~sales, partially offset by $0.1 million in net gains related to the sale or closure of refranchised ~~restaurants, partially offset by $0.9~~restaurants. Refranchising losses in the first half of 2022 were $1.0 million inand were comprised of restaurant operating costs, net of food sales.

Advertising expenses increased ~~$25.0~~$0.3 million in the first ~~three~~two quarters of ~~2022~~2023 compared to the prior year period. These expenses vary in relation to advertising ~~revenues and reflect advertising expenses related to the 2021 Acquisitions and the increase in customer activity as the recovery from COVID continues.~~revenues.

Total other expense, net, for the first ~~three~~two quarters of 2023 and 2022 ~~and 2021~~ was ~~$65.3~~$54.2 million and ~~$18.9~~$41.4 million, respectively, ~~primarily comprised~~which is inclusive of ~~net~~ interest expense of ~~$69.2~~$54.5 million and ~~$12.7~~$44.7 million, respectively. ~~Total other expense, net for~~This increase is primarily due to new debt offerings which occurred in the second half of fiscal year 2022 and first ~~three quarters~~quarter of ~~2021 also consisted of a $6.4 million net loss on the extinguishment of debt.~~2023.

Income tax provision (benefit) – The effective rate was ~~(9.5)~~(11.0)% and ~~21.6%~~(15.4)% for the first ~~three~~two quarters of ~~2022~~2023 and ~~2021,~~2022, respectively. The difference in effective rate was primarily due to increases in our valuation allowance.

For the Thirteen Weeks Ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021:~~2022:

Revenue - Revenue consists of royalties, franchise fees, advertising fees, restaurant sales, factory revenue and other revenue. Total revenue increased ~~$73.5~~$4.0 million, or ~~247%~~3.9%, in the ~~third~~second quarter of ~~2022,~~2023 to ~~$103.2~~$106.8 million compared to ~~$29.8~~$102.8 million in the same period of ~~2021. The increase reflects revenue~~2022, driven by by system-wide sales growth and revenues from the acquisition of GFG in July 2021, the acquisition of Twin Peaks in October 2021, the acquisitions of Fazoli's and Native in December 2021 (collectively, the "2021 Acquisitions") and the continuing recovery from the negative effects of the COVID-19 pandemic on royalties fromnew restaurant ~~sales.~~openings.

Costs and expenses – Costs and expenses consist of general and administrative expense, cost of restaurant and factory revenues, depreciation and amortization, refranchising loss ~~(gain), acquisition costs,~~ and advertising fees. Costs and expenses ~~increased~~decreased $~~74.8~~1.3 million, or ~~273%~~1.4%, in the ~~third~~second quarter of ~~2022~~2023 to ~~$102.2~~$88.3 million compared to the same period in the prior year. This decrease is due to the recognition of Employee Retention Credits, offset by increased activity from Company-owned restaurants and the Company's factory.

General and administrative expense decreased $10.9 million, or 52.3%, in the second quarter of 2023 compared to the same period in the prior year, primarily due to the ~~2021 Acquisitions.~~

~~General and administrative expense increased $18.2~~recognition of $12.7 million ~~or 172%,~~ in Employee Retention Credits during the ~~third~~second quarter of ~~2022 compared to the same period in the prior year, primarily due to the 2021 Acquisitions, increased compensation costs,~~2023, partially offset by professional fees related to ~~pending~~certain litigation ~~and government investigations, and travel, reflecting the significant expansion of the organization.~~matters.

Cost of restaurant and factory revenues ~~totaled $55.3~~increased $9.7 million, or 19.4%, in the second quarter of 2023, primarily due to higher company-owned restaurant and dough factory revenues and the recognition of $10.1 million in Employee Retention Credits recognized during the ~~third~~second quarter of 2022 and was related to the operations of the company-owned restaurant locations and the dough factory operated by GFG associated with the 2021 Acquisitions, partially offset by amounts claimed under the business relief provision under the CARES Act known as the Employee Retention Credit, a refundable payroll tax credit of qualified wages paid during 2021 and 2020.2022.

Depreciation and amortization increased ~~$4.5~~$0.4 million, or ~~190%~~5.2% in the ~~third~~second quarter of ~~2022~~2023 compared to the same period in the prior year, primarily due to depreciation of ~~company-owned restaurant~~new property and equipment at company-owned restaurant locations.

Refranchising net loss in the second quarter of 2023 of $0.2 million was comprised of restaurant operating costs, net of food sales. Refranchising losses in the second quarter of 2022 were $0.5 million and ~~amortizing intangible assets related~~were comprised of restaurant operating costs, net of food sales.

Advertising expenses in the second quarter of 2023 were consistent with the prior year period. These expenses vary in relation to ~~the 2021 Acquisitions.~~advertising revenues.

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Refranchising losses in the third quarter of 2022 were $0.1 million and were comprised restaurant costs and expenses, net of food sales. Refranchising gains in the third quarter of 2021 were $0.3 million and were comprised of $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 $5.7 million in the third quarter of 2022 compared to the prior year period. These expenses vary in relation to advertising revenues and reflect advertising expenses related to the 2021 Acquisitions and the increase in customer activity as the recovery from COVID continues.

~~Total other expense, net –~~ Total other expense, net, for the ~~third quarters~~second quarter of 2023 and 2022 ~~and 2021~~ was ~~$23.9~~$24.2 million and ~~$7.2~~$21.6 million, respectively, ~~primarily comprised~~which is inclusive of ~~net~~ interest expense of ~~$24.5~~$24.3 million and ~~$7.2~~$23.7 million, respectively. This increase is primarily due to new debt offerings which occurred in the second half of fiscal year 2022 and first quarter of 2023.

Income ~~Tax Provision (Benefit)~~tax provision (benefit) – The effective rate was ~~(2.3)~~(23.4)% and ~~24.6%~~3.0% for the ~~third quarters~~second quarter of ~~2022~~2023 and ~~2021,~~2022, 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 ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 consisted of cash on hand at the beginning of the ~~period.~~period and net proceeds of $34.8 million from the sale of secured debt as discussed in Note 8 of the accompanying condensed consolidated financial statements.

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 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~~$91.8 million relating to put options exercised by others on our Series B Cumulative Preferred Stock. The Company has contractual options pursuant to the put/call agreements to extend this repayment via incremental interest payments and there are capital market options that the Company may consider. We believe that we have sufficient liquidity to meet our liquidity needs and capital resource requirements for at least the next twelve months primarily through currently available cash and cash equivalents, cash flows from operations and access to the capital markets.

~~Comparison of Cash Flows~~

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

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Comparison of Cash Flows

Our cash and restricted cash balance was $71.9 million as of June 25, 2023, compared to $68.8 million as of December 25, 2022.

The following table summarizes key components of our condensed consolidated cash flows for the 3926 weeks ended ~~September~~June 25, ~~2022~~2023 and ~~September~~June 26, ~~2021:~~2022:

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

(in millions)


		September 25, 2022		September 26, 2021
							June 25, 2023		June 26, 2022
Net cash used in operating activities	Net cash used in operating activities	$	(36.6)	$	(4.0)	Net cash used in operating activities	$	(21.2)	$	(28.3)
Net cash used in investing activities	Net cash used in investing activities	(14.4)		(346.2)		Net cash used in investing activities	(6.9)		(11.9)
Net cash provided by financing activities		13.2		386.5
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	31.2		(8.4)
Net cash flows	Net cash flows	$	(37.8)	$	36.3	Net cash flows	$	3.1	$	(48.5)

Operating Activities

Net cash used in operating activities ~~increased~~decreased $~~32.6~~7.1 million in the ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 compared to ~~2021,~~2022, primarily due to the receipt of Employee Retention Credits in the first quarter of 2023, partially offset by higher debt service costs associated with our securitizations and by changes in working capital.

Investing Activities

Net cash used in investing activities was ~~$14.4~~$6.9 million in the ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022,~~2023, compared to net cash used in investing activities of ~~$346.2~~$11.9 million in the comparable period of ~~2021.~~2022. The decrease was primarily due to ~~the 2021 Acquisitions, offset by increased purchases of property and equipment~~2022 acquisition activity that has not recurred in ~~2022 in connection with company-owned restaurants acquired during~~ fiscal year ~~2021.~~2023.

Financing Activities

Net cash provided by financing activities was ~~$13.2~~$31.2 million in the ~~thirty-nine~~twenty-six weeks ended ~~September~~June 25, ~~2022~~2023 and was primarily comprised of proceeds from borrowings offset by dividends paid on our Class A and Class B Common Stock and our Series B Cumulative Preferred Stock.

Dividends

On ~~July 12, 2022,~~April 4, 2023, the Board of Directors declared a cash dividend of $0.14 per share of Class A and Class B Common Stock, payable on ~~September~~June 1, ~~2022~~2023 to stockholders of record as of ~~August 16, 2022,~~May 15, 2023, for a total of ~~$2.3 million.~~$2,320,469.

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 ~~September~~June 25, ~~2022,~~2023, 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.~~25, 2022. 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

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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

~~Table of Contents~~

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.~~

25, 2022.

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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~~principal executive officers and ~~our Chief Financial Officer,~~principal financial officer, after evaluating the effectiveness of the Company’s “Disclosure Controls and Procedures” (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of ~~September~~June 25, ~~2022,~~2023, have concluded that, in regard to the segregation of duties and the financial close process, our Disclosure Controls and 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 ~~September~~June 25, ~~2022~~2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Inherent Limitations Over Internal Controls

We do not expect that our Disclosure Controls and Procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of 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.

~~Table of Contents~~

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, please see Note ~~16,~~13, 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,~~February 24, 2023, 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.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~During the fiscal quarter ended June 25, 2023, no director or officer of the Company adopted or terminated a "Rule 10-b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

ITEM 6. EXHIBITS

~~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)~~

~~Table of Contents~~

~~101.LAB~~

~~Inline XBRL Taxonomy Extension Label Linkbase Document~~

~~X (Furnished)~~

~~101.PRE~~

~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~

~~X (Furnished)~~

Exhibit

Number

Incorporated By Reference to

Filed

Herewith

Description

Form

Exhibit

Filing Date

3.1

Amended and Restated Bylaws, effective as of May 2, 2023

8-K

3.1

5/08/2023

31.1

C o-C hief Executive Officer and Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

C o-C hief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications of the Co-Chief Executive Officer s 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)

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.

~~October 21, 2022~~August 4, 2023	By	/s/ Kenneth J. Kuick
		Kenneth J. Kuick
		Co-Chief Executive Officer and Chief Financial Officer
		(Principal Financial Officer and ~~Accounting Officer)~~duly authorized signatory for the registrant)

3628


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

Commitments and contingencies (Note 16)

Redeemable preferred stock	—		64,455

Stockholders’ deficit
Preferred stock, $0.0001 par value; 15,000,000 shares authorized; 3,221,471 shares issued and outstanding at 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)	(25,216)		(24,837)
Accumulated deficit	(107,859)		(52,479)
Total stockholders’ deficit	(86,469)		(21,655)
Total liabilities and stockholders’ deficit	$	1,244,194	$	1,270,032


	2022		2021
Cash flows from operating activities:
Net loss	$	(55,380)	$	(11,998)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes	3,438		(3,384)
Net loss on extinguishment of debt	—		4,872
Depreciation and amortization	20,076		3,161
Share-based compensation	6,116		488
Change in operating right-of-use assets	3,866		1,662
Accretion of loan fees and interest	8,014		1,249
Accretion of preferred shares	—		26
Adjustments of purchase price liability	(1,790)		72
Gain on sale of refranchised assets	—		(869)
Provision for bad debts	4,296		225
Change in:
Accounts receivable	(26,097)		(3,023)
Other current and noncurrent assets	(2,374)		(768)
Deferred income	2,551		1,244
Accounts payable	(6,575)		1,646
Accrued expenses and other liabilities	7,108		(3,672)
Accrued advertising	5,272		646
Accrued interest payable	1,916		3,797
Dividend payable on preferred shares	(9)		699
Other current and noncurrent liabilities	(7,032)		(79)
Total adjustments	18,776		7,992
Net cash used in operating activities	(36,604)		(4,006)

Cash flows from investing activities:
Acquisitions, net of cash acquired	(2,772)		(346,484)
Payments received on notes receivable	1,693		140
Net proceeds from sale of refranchised restaurants	—		1,942
Purchases of property and equipment	(13,356)		(1,661)
Other	—		(87)
Net cash used in investing activities	(14,435)		(346,150)

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


	September 25, 2022		December 26, 2021

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


Fiscal year:
Remainder of 2022	$	4.2
2023	16.2
2024	15.1
2025	14.5
2026	13.3
Thereafter	163.6
Total lease payments	$	226.9
Less imputed interest	(118.1)
Total	$	108.8