fat-20220327

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 March 27, 2022


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

Commission file number 001-38250

FAT Brands Inc.

(Exact name of registrant as specified in its charter)


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

9720 Wilshire Blvd., Suite 500

Beverly Hills, CA 90212

(Address of principal executive offices, including zip code)

(310) 319-1850

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

FAT

The Nasdaq Stock Market LLC

Class B Common Stock, par value $0.0001 per share

FATBB

The Nasdaq Stock Market LLC

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

FATBP

The Nasdaq Stock Market LLC

Warrants to purchase Class A Common Stock

FATBW

The Nasdaq Stock Market LLC

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

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

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


Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

Emerging growth company	o

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

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

As of May 2, 2022, there were 15,131,597 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

March 27, 2022

TABLE OF CONTENTS


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

	FAT Brands Inc. and Subsidiaries:
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27

SIGNATURES		28

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)


	March 27, 2022		December 26, 2021
			Audited
Assets
Current assets
Cash	$	28,973	$	56,656
Restricted cash	33,043		24,740
Accounts receivable, net of allowance for doubtful accounts of $3,328 and $4,016 as of March 27, 2022 and December 26, 2021, respectively	17,966		19,555
Trade and other notes receivable, net of allowance for doubtful accounts of $129 as of both March 27, 2022 and December 26, 2021	238		231
Assets classified as held for sale	5,337		5,476
Other current assets	11,647		11,853
Total current assets	97,204		118,511

Noncurrent restricted cash	18,525		18,525
Notes receivable – noncurrent, net of allowance for doubtful accounts of $271, as of both March 27, 2022 and December 26, 2021	3,431		3,493
Operating lease right of use assets	96,813		98,552
Goodwill	295,343		295,128
Other intangible assets, net	648,888		652,788
Property and equipment, net	81,399		80,501
Other assets	3,205		2,534
Total assets	$	1,244,808	$	1,270,032

Liabilities and Stockholders’ Deficit
Liabilities
Current liabilities
Accounts payable	$	23,495	$	27,527
Accrued expenses and other liabilities	42,651		46,295
Deferred income, current portion	2,827		2,636
Accrued advertising	12,312		10,853
Accrued interest payable	12,614		10,678
Dividend payable on preferred shares	1,565		1,574
Liabilities related to assets classified as held for sale	4,647		4,780
Current portion of operating lease liability	14,394		14,341
Redeemable preferred stock	135,000		67,500
Current portion of long-term debt	851		631
Current portion of acquisition purchase price payable	1,197		1,173
Other	10,390		10,500
Total current liabilities	261,943		198,488

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Deferred income, net of current portion	18,755		17,662
Deferred income tax liabilities, net	16,210		12,921
Operating lease liability, net of current portion	91,576		92,920
Long-term debt, net of current portion	907,068		904,265
Other liabilities	362		976
Total liabilities	1,295,914		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 March 27, 2022 and December 26, 2021, respectively; liquidation preference $25 per share	49,920		55,661
Class A common stock and Class B common stock and additional paid-in capital as of March 27, 2022: $0.0001 par value per share: 51,600,000 shares authorized (Class A 50,000,000, Class B 1,600,000); 16,402,402 shares issued and outstanding (Class A 15,131,597, Class B 1,270,805). Common stock and additional paid-in capital as of December 26, 2021: $0.0001 par value; 51,600,000 shares authorized; 16,380,552 shares issued and outstanding (Class A 15,109,747, Class B 1,270,805).	(24,792)		(24,837)
Accumulated deficit	(76,234)		(52,479)
Total stockholders’ deficit	(51,106)		(21,655)
Total liabilities and stockholders’ deficit	$	1,244,808	$	1,270,032

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

Table of Contents

FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share data)

For the Thirteen Weeks Ended March 27, 2022 and March 28, 2021


	2022		2021

Revenue
Royalties	$	20,898	$	4,898
Restaurant sales	58,077		—
Advertising fees	9,361		1,188
Factory revenues	8,179		—
Franchise fees	714		540
Management fees and other income	174		23
Total revenue	97,403		6,649

Costs and expenses
General and administrative expense	31,066		4,926
Cost of restaurant and factory revenues	54,799		—
Refranchising loss	548		427
Acquisition costs	248		15
Advertising fees	10,257		1,192
Total costs and expenses	96,918		6,560

Income from operations	485		89

Other income (expense), net
Interest expense	(19,027)		(2,460)
Interest expense related to preferred shares	(1,999)		(288)
Other income, net	1,310		98
Total other expense, net	(19,716)		(2,650)

Loss before income tax expense	(19,231)		(2,561)

Income tax provision (benefit)	4,524		(129)

Net loss	$	(23,755)	$	(2,432)

Basic and diluted loss per common share	$	(1.45)	$	(0.20)
Basic and diluted weighted average shares outstanding	16,388,471		11,970,505
Cash dividends declared per common share	$	0.13	$	—

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

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FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(dollars in thousands)

For the Thirteen Weeks Ended March 27, 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	—	—	—		—		—		—		—	—		—		—		(23,755)		(23,755)
Issuance of common stock through exercise of warrants	21,850	—	—		—		61		61		—	—		18		18		—		79
Share-based compensation	—	—	—		—		2,112		2,112		—	—		—		—		—		2,112
Dividends declared on common stock	—	—	—		—		(2,128)		(2,128)		—	—		—		—		—		(2,128)
Dividends declared on Series B preferred stock	—	—	—		—		—		—		—	—		(1,652)		(1,652)		—		(1,652)
Exercise of Series B preferred stock put option	—	—	—		—		—		—		—	—		(4,107)		(4,107)		—		(4,107)
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)

For the Thirteen Weeks Ended March 28, 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 December 27, 2020	11,926,264	—		$	1	$	—	$	(42,776)	$	(42,775)	1,183,272	$	—	$	21,788	$	21,788	$	(20,896)	$	(41,883)
Net loss	—	—		—		—		—		—		—	—		—		—		(2,432)		(2,432)
Issuance of common stock through exercise of warrants	103,000	—		—		—		426		426		—	—		89		89		—		515
Share-based compensation	—	—		—		—		37		37		—	—		—		—		—		37
Measurement period adjustment in accordance with ASU 2015-16	—	—		—		—		(1,203)		(1,203)		—	—		—		—		—		(1,203)
Dividends declared on Series B preferred stock	—	—		—		—		—		—		—	—		(610)		(610)		—		(610)
Balance at March 28, 2021	12,029,264	$	—	$	1	$	—	$	(43,516)	$	(43,515)	1,183,272	$	—	$	21,267	$	21,267	$	(23,328)	$	(45,576)

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

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FAT BRANDS INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands)

For the Thirteen Weeks Ended March 27, 2022 and March 28, 2021


	2022		2021
Cash flows from operating activities
Net loss	$	(23,755)	$	(2,432)
Adjustments to reconcile net loss to net cash used in operations:
Deferred income taxes	3,068		(995)
Depreciation and amortization	6,561		398

SEC Form 10-Q filed by FAT Brands Inc.