Form 8-K/A - Current report: [Amend]

Name	Symbol	Market	Type
FAT Brands Inc	NASDAQ:FATBP	NASDAQ	Preference Share

	Price Change	% Change	Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Traded	Last Trade
	0.00	0.00%	13.50	13.20	13.50				0	11:29:09

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 25, 2023

FAT Brands Inc.

(Exact name of Registrant as Specified in Its Charter)

Delaware

001-38250

82-1302696

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

9720 Wilshire Blvd., Suite 500

Beverly Hills, CA

90212

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (310) 319-1850

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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	FAT	The Nasdaq Stock Market LLC
Class B Common Stock	FATBB	The Nasdaq Stock Market LLC
Series B Cumulative Preferred Stock	FATBP	The Nasdaq Stock Market LLC
Warrants to purchase Common Stock	FATBW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

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. ☐

Explanatory Note

This Current Report on Form 8-K/A amends the Current Report on Form 8-K previously filed by FAT Brands, Inc. (the “Company”) on September 26, 2023 related to the acquisition of Barbeque Integrated, Inc. and Subsidiaries (“BBQI”). This Current Report on Form 8-K/A includes the financial statements that had been omitted from the previously filed Current Report on Form 8-K as permitted by Item 9.01(a) and (b) of Form 8-K.

On September 25, 2023, the Company acquired BBQI from affiliates of Sun Capital Partners, Inc. BBQI owns and operates Smokey Bones Barbeque and Grill restaurant facilities.

The Company is filing this Current Report on Form 8-K/A to provide certain financial statements of BBQI and unaudited pro forma financial information of BBQI and the Company required by Item 9.01 of Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired

The audited consolidated financial statements of BBQI as of and for the year ended January 1, 2023 are included as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated by reference herein.

The unaudited condensed consolidated financial statements of BBQI as of and for the interim six months ended July 2, 2023 are included as Exhibit 99.2 to this Current Report on Form 8-K/A as Exhibit 99.2 and are incorporated by reference herein.

(b) Pro forma Financial Information

The unaudited pro forma combined financial information of FAT Brands Inc. and its subsidiaries and BBQI with respect to the year ended December 25, 2022 and the six months ended June 25, 2023 are included as Exhibit 99.3 to this Current Report on Form 8-K/A and are incorporated by reference herein.

(d) Exhibits

The following exhibits are filed herewith:

Exhibit No.		Description

23.1		Consent of BDO USA LLP

99.1		Audited Consolidated Financial Statements for BBQI as of and for the year ended January 1, 2023

99.2		Unaudited Condensed Consolidated Financial Statements for BBQI as of and for the twenty-six weeks ended July 2, 2023

99.3		Unaudited Pro Forma Condensed Combined Balance Sheet as of June 25, 2023 and Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 25, 2022 and the twenty-six weeks ended June 25, 2023

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

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

Date: October 27, 2023

	FAT Brands Inc.

	By:	/s/ Kenneth J. Kuick
		Kenneth J. Kuick
		Chief Financial Officer

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITOR

Barbeque Integrated, Inc.

Fort Lauderdale, Florida

We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (No. 333-239032), Form S-3 (No. 333-261371, No. 333-261365 and No. 333-256342) and Form S-8 (No. 333-239031, No. 333-261362 and No. 333-270023) of Fat Brands Inc. of our report dated April 14, 2023, relating to the financial statements of Barbeque Integrated, Inc., which appears in this Current Report on Form 8-K/A.

/s/ BDO USA, P.C.

Fort Lauderdale, Florida

October 27, 2023

Exhibit 99.1

Consolidated Financial Statements and
Independent Auditor’s Report

Barbeque Integrated, Inc. and Subsidiaries

As of January 1, 2023

	Page

Independent Auditor’s Report	1-2

Consolidated financial statements:

Consolidated balance sheet	3

Consolidated statement of operations	4

Consolidated statement of stockholder’s deficit	5

Consolidated statement of cash flows	6

Notes to consolidated financial statements	7-17

Independent Auditor’s Report

Board of Directors

Barbeque Integrated, Inc.

Plantation FL

Opinion

We have audited the consolidated financial statements of Barbeque Integrated, Inc. and its subsidiaries (the Company), which comprise the consolidated balance sheet as of January 1, 2023, and the related consolidated statement of operations, stockholder’s deficit, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2023, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued or available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

	●	Exercise professional judgment and maintain professional skepticism throughout the audit.

	●	Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

	●	Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

	●	Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

	●	Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ BDO USA, LLP

Fort Lauderdale, FL

April 14, 2023

Barbeque Integrated, Inc. and Subsidiaries

Consolidated balance sheet

	January 1, 2023
Asset
Current assets:
Cash and cash equivalents	$	3,361,801
Accounts and other receivables		1,598,643
Inventories		2,741,796
Other current assets, net		1,790,801
Total current assets		9,493,041

Property and equipment, net		28,614,321
Right of Use Assets, net		39,110,685
Intangible assets, net		224,858
Deposits		563,465
Total assets	$	78,006,370

Liabilities and Stockholder’s Equity
Current liabilities:
Accounts payable		4,756,256
Accrued expenses		6,207,965
Current portion of operating lease liability		12,541,042
Unearned revenue		2,935,166
Total current liabilities		26,440,429

Related party note payable		19,553,963
Operating lease liability		39,889,679
Deferred tax liability, net		282,776
Lease exit obligation		808,882
Total Liabilities		86,975,729

Commitments and contingencies

Stockholder’s deficit:
Common stock, $.001 par value, 1,000 shares authorized, Issued and outstanding		1
Additional paid-in capital		23,421,960
Accumulated deficit		(32,391,320	)
Total liabilities and stockholder’s deficit	$	78,006,370

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

Barbeque Integrated, Inc. and Subsidiaries

Consolidated statement of operations

For the fiscal year ended	January 1, 2023

Net sales:	$	184,643,679

Cost of sales (exclusive of items shown seperately below):
Food and beverage costs		54,215,174
Labor and benefits		55,431,240
Rent Expense		12,326,805
Restaurant operating expenses		43,041,354
Restaurant exits costs		30,287
Total cost of sales (exclusive of items shown seperately below)		165,044,860

Operating expenses:
Selling, general and administrative		13,779,594
Depreciation and amortization		6,639,455
Asset Impairment loss		1,331,421
Total operating expenses		21,750,470
Operating loss		(2,151,651	)

Non-operating loss, net:
Interest expense		(870,991	)
Other income		(302,438	)
Total non-operating loss, net		(1,173,429	)

Loss from operations before income taxes		(3,325,080	)

Income tax expense		(65,597	)

Net loss	$	(3,390,677	)

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

Barbeque Integrated, Inc. and Subsidiaries

Consolidated statement of stockholder’s deficit

	Shares		Common Stock		Additional Paid-In Capital		Accumulated Deficit			Total
Balances - January 2, 2022		1000		1		23,421,960		(29,380,309	)		(5,958,348	)
Cumulative effect of Adoption of ASU 2016-02 at January 3, 2022								379,666			379,666
Net loss								(3,390,677	)		(3,390,677	)
Balances - January 1, 2023		1000	$	1	$	23,421,960	$	(32,391,320	)	$	(8,969,359	)

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

Barbeque Integrated, Inc. and Subsidiaries

Consolidated statement of cash flows

For the fiscal year ended	January 1, 2023
Cash flows from operating activities:
Net loss	$	(3,390,677	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		6,639,455
Asset impairment loss		1,331,421
Loss on disposal of property and equipment		62,534
Non-cash lease cost		12,088,327
Inventory obsolescense		49,237
Deferred income taxes		25,259
Interest accretion on debt		403,963
Loss on lease termination		285,527
Proceeds from landlords for construction reimbursements		736,720
Lease termination payments		(537,500	)
Changes in operating assets and liabilities
Accounts receivable		(494,671	)
Inventories		9,907
Other current assets		(296,771	)
Deposits		32,251
Accounts payable		750,742
Accrued expenses and other liabilities		(3,136,447	)
Operating lease liability		(12,995,977	)
Income taxes receivable		(124,239	)
Unearned revenue		(725,851	)
Net cash provided by operating activities		713,210

Cash flows from operating activities:
Purchases of property and equipment		(10,351,431	)
Purchases of intangibles		(28,579	)
Net cash used in investing activities		(10,380,010	)

Cash flows from financing activities:
Borrowings under revolving line of credit		11,250,000
Payment of revolving line of credit		(1,000,000	)
Net cash provided by investing activities		10,250,000

Net increase in cash and cash equivalents		583,200
Cash and cash equivalents, beginning of year		2,778,601
Cash and cash equivalents, end of year	$	3,361,801

Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	477,882
Cash paid during the year for income taxes	$	170,581
Accrued capital expenditures	$	(645,274	)
Right of use assets obtained in exchange of lease liabilities	$	4,378,563
Right of use assets reduced for terminated leases	$	1,060,854

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

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

Note A – Organization and Summary of Significant Accounting Policies

Business and Basis of Presentation

The principal business of Barbeque Integrated, Inc., a wholly-owned subsidiary of Barbeque Holding, LLC, and its subsidiaries, Smokey Bones, LLC and Integrated Card Solutions, LLC (collectively, “the Company”), is to own and operate food and beverage restaurant facilities located in the Eastern and Midwest United States. The Company commenced its operations upon the acquisition of the assets and liabilities of Smokey Bones Barbeque and Grill (SB) restaurants from GMRI, Inc., GMR Restaurants of Pennsylvania, Inc., and Darden Concepts, Inc. on December 31, 2007.

Fiscal Year

The Company operates on a 52 or 53 week fiscal year. The 2022 fiscal year was a 52 week year ended on January 1, 2023.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company. All significant intercompany transactions are eliminated in the consolidation process.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material.

Working Capital

Our operations have not required significant working capital, and, like many restaurant companies, we may have negative working capital during the year. Revenues are received primarily in credit card or cash receipts, and restaurant operations do not require significant receivables or inventories. The Company provided net cash from operations of $713,210 for the year ended January 1, 2023.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash and accounts receivable from credit card processors. The Company considers all highly liquid investment instruments purchased with original maturities of three months or less from date of purchase to be cash equivalents. Accounts receivable from credit card processors are both short-term and liquid in nature and are typically converted to cash within three days of the sales transaction. At January 1, 2023, the Company had $1,928,822 in receivables from credit card processors, which were subsequently collected.

Inventories

Inventory consists of food, beverages and merchandise and is stated at the lower of cost or net realizable value. Cost is determined utilizing the first-in, first-out method. Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating lower of cost or market.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

Property and Equipment

Property and equipment are capitalized and recorded at cost, less accumulated depreciation. Depreciation and amortization is provided for utilizing the straight-line method over the estimated useful lives of the assets, which generally are as follows:

Furniture, fixtures and equipment			3-7 years
Leasehold improvements			7-20 years

Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements, or the remaining term of the lease. Normal repair and maintenance costs are charged to expense as incurred. Renovations, betterments and major repairs that materially extend the life of properties are capitalized and the assets replaced, if any, are retired. Upon the sale or retirement of property and equipment, the accounts are relieved of the cost and the related accumulated depreciation and amortization and any resulting gain or loss is included in the accompanying consolidated statements of operations.

The Company capitalizes all direct costs incurred in the construction and renovation of its restaurants. Upon completion, these costs are reclassified from construction in progress to the applicable property and equipment classification and depreciated.

Impairment of Long-Lived Assets

The Company evaluates impairment whenever events or changes in circumstances indicate that the carrying amount of an asset grouping may not be recoverable.

For long-lived assets, including intangibles, the Company assesses periodically whether there are indicators of impairment. If such indicators are present, the Company assesses the recoverability of the long-lived assets by determining whether the carrying value of such assets can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest charges, is less than the book value, the excess of the net book value over the estimated fair value, based on discounted future cash flows and appraisals, is charged to operations in the period in which such impairment is determined by management. For the year ended January 1, 2023, the Company recorded impairment of long-lived assets of $1,331,421 included in asset impairment loss in the accompanying consolidated statements of operations.

Intangible Assets

Intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful life.

Deferred Loan Costs

The Company capitalized costs relating to its debt financing and is amortizing these costs over the life of the related debt using the straight line method, which approximates the effective interest method. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction to the carrying amount of the debt liability.

Insurance Accruals

The Company maintains insurance coverage to cover material potential losses related to workers’ compensation, general liability and certain employment claims. During fiscal year 2022, the Company had a $25,000 self-insured retention limit for any covered general liability claim. Accrued liabilities related to general liability claims of $265,301 as of January 1, 2023 are included in accrued expenses in the accompanying consolidated balance sheets. Amounts have been recorded based on the Company’s estimates of the anticipated ultimate costs to settle all claims, both reported and unreported.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

Revenue Recognition

Revenues are recognized in accordance with current guidance for revenue recognition as codified in Accounting Standards Topic 606 (“ASC 606”). Under ASC 606, revenue is recognized upon the transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenue is recognized when payment is tendered at the time of sale. The Company presents sales net of sales tax and other sales related discounts.

Unearned revenue pertains to gift cards that have been sold but not yet redeemed and earned awards under the Company’s loyalty program but not yet redeemed. Revenue is recognized when gift cards and loyalty rewards are redeemed by the customer. Breakage for unredeemed amounts is estimated based on historical experience and is recognized as revenue in proportion to the pattern of rights exercised by the customer. The Company recognized $165,000 as breakage for the year ended January 1, 2023.

Food and Beverage Costs

Food and beverage costs include inventory, warehousing and related purchasing and distribution costs.

Vendor Rebates

Third party vendor funds received in connection with marketing agreements are recognized as a reduction of marketing expense during the period in which the marketing activities occur. Third party vendor funds received in connection with volume purchase agreements are recognized as a reduction of cost of goods sold during the period in which purchases occur. Differences between estimated and actual periodic amounts are settled in accordance with the terms of the agreements.

Advertising Costs

Advertising costs are recorded as expenses in the period in which the costs are incurred. The total amount charged to advertising expense was $3,595,469 for the year ended January 1, 2023 and are included as a selling, general and administrative expense in the accompanying consolidated statements of operations.

Income Taxes

Deferred income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in effect when those differences reverse. The deferred tax provision generally represents the net change in deferred tax assets and liabilities during the period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

Accounting Pronouncements Adopted in 2022

ASU 2016-02 In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which requires lessees to recognize right of use (ROU) assets and lease liabilities on the balance sheet. The Company adopted the new standard as of January 3, 2022 using the modified retrospective method with an option to use certain practical expedients. The Company elected the transition method that allows it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative period information has not been restated and continues to be reported under the accounting standard in effect for that period.

The Company recognized operating lease liabilities and corresponding ROU assets for substantially all of the leases it previously accounted for as operating leases, including leases related to closed restaurant properties. The initial ROU assets were calculated as the present value of the remaining operating lease payments using the incremental borrowing rate as of January 3, 2022, reduced by accrued occupancy costs such as closed restaurant exit obligations, deferred rent, unamortized lease incentives and impairment of ROU asset on certain underperforming restaurant operations consistent with leaseholds impaired prior to adoption of the new standard.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

The unamortized deferred gain on sale leaseback transaction (see Note G) and the initial impairment of ROU assets were adjusted through a cumulative adjustment to opening balance of retained earnings. The $379,666 adjustment consisted of $1,839,839 recognition of deferred gain on sale leaseback reduced by a $1,460,173 impairment of the initial ROU assets related to closed store locations.

Subsequent to adoption of ASU 2016-02, the Company assesses whether an agreement contains a lease at inception and reviews all leases for finance or operating classification once control is obtained. ROU assets represent the Company’s right to an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The ROU asset also includes lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum lease term for new restaurant properties and significant leasehold improvements costs are incurred near the end of a lease term. The Company also uses judgement in determining its incremental borrowing rate, which is based on its current borrowing rates or published market rates on debt with terms similar to the underlying lease. Lease cost amortization is recognized on a straight-line over the lease term unless the related ROU asset has been adjusted for an impairment charge.

ASU 2019-12 In December 2019, the FASB issued ASU 2019-12, Income Taxes (“Topic 740”) as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted the new standard as of January 3, 2022. The standard did not have a significant impact on the Company’s financial statements.

Note B – Intangible Assets

Intangible assets consist of the following:

Remaining

January 1, 2023

Useful Life

Definite lived intangible assets:

Trade name

11,619,922

15 years

Licenses

431,430

13 years

Favorable lease

458,380

19 years

4 years

Other

34,286

5 years

12,544,018

Accumulated amortization

(12,319,160

)

Intangible assets, net

224,858

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

The amortization expense for intangible assets was approximately $797,000 for the year ended January 1, 2023 and is included in depreciation and amortization in the accompanying consolidated statements of operations. Future amortization expense will be as follows:

For years ended	Amount
2023		36,204
2024		36,202
2025		36,202
2026		36,202
2027		12,077
Thereafter		67,971
	$	224,858

Note C – Property and Equipment

Property and equipment, net, consists of the following:

	January 1, 2023

Leasehold improvements	$	30,817,856
Furniture, fixtures and equipment		42,917,557
		73,735,413
Less: Accumulated depreciation and amortization		(45,121,092	)
	$	28,614,321

Depreciation and amortization expense for the year ended January 1, 2023 was $5,842,236.

Note D – Fair Value Measurements

The Company does not have a material amount of financial assets or liabilities that are required under U.S. GAAP to be measured on a recurring basis at fair value. The Company is not a party to any material derivative financial instruments. The Company does not have a material amount of non-financial assets or non-financial liabilities that are required under U.S. GAAP to be measured at fair value on a recurring basis. The Company has not elected to use the fair value measurement option, as permitted under U.S. GAAP, for any assets or liabilities for which fair value measurement is not presently required. The Company believes the fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short duration. Due to the negotiation of its promissory note close to its fiscal year-end, the Company believes that the fair value of its Related party note payable approximates carrying value. The fair value of the related party note payable, which is classified as Level 2 in the fair value hierarchy, is determined based on market prices or, if market prices are not available, the present value of the underlying cash flows discounted at our incremental borrowing rates.

Note E – Financing Obligations

Promissory Note

On November 10, 2022, the Company entered into a promissory note with a related party (“Promissory Note”). The Promissory Note’s original draw repaid the Company’s outstanding revolving line of credit and interest and allows for additional unspecified amount of advances upon request. The Promissory Note has a fixed interest rate of 9.5% accruing daily. Interest accretes to the outstanding balance. The Promissory Note has a maturity date of November 10, 2027, allows for prepayments and requires mandatory prepayment in the event of sale, public offering or liquidation. As of January 1, 2023, the Promissory Note had an outstanding balance of $19,553,963, including $403,963 in accreted interest.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

Revolving Line of Credit

On April 20, 2021, the Company entered into a $20,000,000 revolving credit loan authorization agreement with BMO Harris Bank N.A. (“BMO Agreement”). The BMO Agreement did not have a stated maturity and was due on demand. Interest on the BMO borrowings was paid quarterly at interest rates based on either LIBOR + 2.5% or Prime rate minus 0.25%. This revolving line of credit was fully repaid the balance upon executing the Promissory Note.

Note F – Exit Activities and Operating Lease Obligations

The Company periodically evaluates the performance of its operating restaurants. In fiscal 2022, the Company closed one location upon expiration of the lease. The costs incurred to close the restaurants in fiscal 2022 primarily relate to demarking the restaurants, removing equipment and lease termination and are included in restaurant exit costs on the accompanying consolidated statements of operations.

In fiscal 2022, the Company entered into an early lease termination agreement on a closed location. At January 1, 2023, the balance amounted to approximately $808,000 and is included in lease exit obligation on the accompanying consolidated balance sheet.

Closed restaurant operating expenses, net of sublease income, totaling $30,287 for the year ended January 1, 2023 are included as restaurant exit cost in the accompanying consolidated statement of operations.

Note G – Operating Leases

The Company leases restaurant facilities and equipment under non-cancelable operating leases having initial terms of 10 to 20 years for facilities and 2 to 3 years for equipment. Most of these restaurant facility leases also have renewal clauses of 5-10 years exercisable at the option of the Company while the equipment leases have 1 year renewals. Certain leases contain contingent rent, determined as a percentage of sales as defined in the applicable lease agreement and obligate the Company to pay occupancy costs such as property taxes, insurance and utilities. Variable lease payments, if any, included in rent expense consist of contingent rent, rent payments based on changes in an index and occupancy related costs such as common area maintenance expenses and property taxes. The Company includes renewal periods in its operating lease commitment when the renewals are considered reasonably assured of being exercised. We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward prior conclusions about lease identification, classification and initial direct costs for leases entered into prior to adoption of Topic 842. Additionally, we elected to not separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future.

Upon transition, on January 3, 2022. The Company recorded the following increases (decreases) to the respective line items on the Consolidated Balance Sheet:

	Adjustment as of January 3, 2022
Right of use assets, net	$	44,608,885
Lease exit obligation		(3,903,352	)
Other Liabilities		(2,374,333	)
Deferred rent		(5,559,393	)
Operating lease liability		57,906,136
Retained earnings		379,666

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

Supplemental information related to the operating lease liability is as follows:

Fiscal year ending	January 1, 2023
Operating leases, property	$	52,321,563
Operating leases, equipment		109,158
Total operating leases		52,430,721
Current portion of operating leases, property		(12,478,646	)
Current portion of operating leases, equipment		(62,396	)
Total current portion		(12,541,042	)
Long-term portion	$	39,889,679

Weight average remaining term in years
Operating leases, property		4.5
Operating leases, equipment		1.4
Weight average discount rate
Operating leases, property		5.00	%
Operating leases, equipment		5.00	%

Maturities of the operating lease liabilities is as follows at January 1, 2023:

	Operating			Operating
	Leases			Leases
Fiscal year ending		Property			Equipment			Total
2023	$	12,762,463		$	63,753		$	12,826,216
2024		12,023,569			39,563			12,063,132
2025		10,844,362			11,396			10,855,758
2026		9,541,776			-			9,541,776
2027		9,067,927			-			9,067,927
Thereafter		7,365,138			-			7,365,138
Total lease payments		61,605,235			114,712			61,719,947
Less amount representing interest		(9,283,672	)		(5,554	)		(9,289,226	)
Present value of lease liabilities		52,321,563			109,158			52,430,721
Less current portion		(12,478,646	)		(62,396	)		(12,541,042	)
Long-term portion of lease liabilities	$	39,842,917		$	46,762		$	39,889,679

In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to the COVID-19 pandemic as lease modifications. The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. For the year ended December 27, 2020, the Company was granted approximately $2,100,000 in non-substantial lease concessions in the form of rent payment deferrals related to the COVID-19 pandemic. The deferrals require monthly repayment primarily through December 31, 2021. All deferrals had been repaid by January 2, 2023. The Company elected to not account for these rent concessions as lease modifications.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

Note H – Concentrations

The Company has agreements with one primary distributor for the delivery of food items and supplies which are purchased from multiple vendors but warehoused at the distributor’s facilities. This distributor provided for approximately 90.0% of food shipments (approximately $41.8 million) during the year ended January 1, 2023. The Company does not anticipate any interruption in deliveries from this distributor. In the event deliveries were disrupted for any reason, management believes alternative sources for shipment of purchases are available. In addition, the Company has suppliers that provide products or services to the restaurants. Management believes numerous alternative suppliers exist and no disruption is anticipated.

Note I – Income Taxes

The Company’s income tax expense was comprised of the following:

	Year End
	January 1, 2023
Current:
Federal	$	-
State		40,338
		40,338
Deferred:
Federal		25,259
	$	25,259

The Company accounts for income taxes whereby deferred income tax assets and liabilities are computed annually for differences between the financial reporting and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax rates and laws applicable to periods in which the differences are expected to affect taxable income.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

The components of the deferred tax assets and liability at January 1, 2023 was as follows:

	January 1, 2023
Deferred income tax assets:
Amortization of intangibles	$	31,446
Lease termination		208,898
Lease liabilities		13,540,496
Tax credit carryforwars		17,326,065
Net operating loss carryforward		3,238,194
Accrued payroll		317,035
Insurance reserves		155,223
163(j) interest limitation		224,929
Other		302,215
		35,344,501

Deferred income tax liability:
Right of use assets		(10,100,530	)
Property and equipment depreciation		(3,244,261	)
		(13,344,791	)

		21,999,710
Less: Valuation allowance		(22,282,486	)
Net deferred income tax liability	$	(282,776	)

A valuation allowance is utilized to reduce the carrying amount of deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of January 1, 2023, the Company has a deferred tax liability of $282,775 representing the benefit management has estimated will more likely than not be realized. After consideration of all of the evidence, both positive and negative, management has determined that a valuation allowance at January 1, 2023 is necessary to reserve for its deferred tax assets.

The income tax rate for the year ended January 1, 2023 was primarily impacted by tax credits and an increase to the valuation allowance.

As of January 1, 2023, the Company estimates indefinite pre-tax net operating loss carryforwards of approximately $11,324,000 and pre-tax state and city net operating loss carryforwards of approximately $987,000. The Company’s net operating losses are not subject to annual Section 382 limitations due to lack of ownership changes impacting the future realization.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Increases or decreases to the unrecognized tax benefits could result from management’s belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The table below summarizes the open tax years and ongoing examinations in major jurisdictions as of January 1, 2023:

Jurisdiction	Open Years	In Process
United States – Federal Income Tax	2019-2022	N/A
United States – various states	2019-2022	N/A

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of January 1, 2023, the Company had no material uncertain tax positions and provisions for interest or penalties related to uncertain tax positions.

On March 27, 2020, former President Trump signed into law the CARES Act. The legislation enacts various measures to assist companies affected by the COVID-19 pandemic. Key income tax-related provisions of the bill include temporary modifications to net operating loss utilization and carryback limitations, allowance of refundable alternative minimum tax credits, reduced limitation of charitable contributions, reduced limitation of business interest expense, and technical corrections to depreciation of qualified improvement property.

The Company continues to evaluate the impact from the passage of the CARES Act in the financial statements as of January 1, 2023. The Company utilized deferred payments of payroll tax which amounted to accrual of $0 as of January 1, 2023. Other new tax regulations under the CARES Act do not have a material impact on the financial statements. The Company has also reviewed the effects of the Act in determining the realizability of its deferred tax assets and did not change its conclusion that a valuation allowance is needed.

On December 27, 2020, former President Trump signed into law the Consolidated Appropriations Act, an omnibus spending bill that includes an array of COVID-related tax relief for individuals and businesses. The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the CARES Act. The Act also extends a number of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar year 2022, which were deductible at 50% for year ended December 31, 2020. The Company determined that income tax effects related to the passage of the Consolidated Appropriations Act were not material to the financial statements for the year ended January 1, 2023.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The act includes the largest-ever U.S. investment committed to combat climate change, allocating $369 billion to energy security and clean energy programs over the next 10 years, including provisions incentivizing manufacturing of clean energy equipment. Starting on January 1, 2023, the IR Act imposed a 15% alternative minimum tax (AMT) on corporations with book income in excess of $1 billion. The Company is not expected to be subject to the new excise and AMT tax requirements. The Inflation Reduction Act of 2022 will not have a significant impact on the Company’s financial statements.

Note J –Contingencies

The Company’s management and its legal counsel assess contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, management and the Company’s legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

Barbeque Integrated, Inc. and Subsidiaries

Notes to consolidated financial statements - continued

Loss contingencies considered remote are generally not disclosed unless they involve guarantees or may materially adversely affect the financial position of the Company, in which case the nature of the guarantee or other matter would be disclosed. The Company does not believe any reserves need to be established for any of the periods presented.

Note K – Related Party Transactions

On December 31, 2007, the Company entered into a management services agreement (“Services Agreement”) with Sun Capital Partners Management V, LLC (“Sun”), a related party. The management fee and other reimbursable expenses paid to Sun during the fiscal year ended January 1, 2023 are included in selling, general and administrative expense in the accompanying consolidated statements of operations.

As disclosed in Note E, the Company entered into a promissory note with Sun Barbecue, LLC to refinance its existing debt and repay the Company’s outstanding revolving line of credit and interest for a total borrowing of approximately $19,292,000.

Note L – Subsequent Events

Management has evaluated subsequent events for potential disclosure in or adjustment to the consolidated financial statements through April 14, 2023, the date that the accompanying consolidated financial statements were available to be issued.

Exhibit 99.2

Condensed Consolidated Interim Financial Statements

Barbeque Integrated, Inc. and Subsidiaries

As of and for the six month period ended July 2, 2023

	Page
Condensed consolidated interim financial statements:
Condensed consolidated balance sheet	1
Condensed consolidated statement of operations	2
Condensed consolidated statement of stockholder’s deficit	3
Condensed consolidated statement of cash flows	4
Notes to condensed consolidated interim financial statements	5-11

Barbeque Integrated, Inc. and Subsidiaries

Condensed consolidated balance sheet

	July 2, 2023
Assets
Current assets:
Cash and cash equivalents	$	3,645,466
Accounts and other receivables, net		1,070,259
Inventories, net		2,655,772
Other current assets		2,548,067
Total current assets		9,919,564

Property and equipment, net		26,831,415
Right of Use Assets, net		37,481,033
Intangible assets, net		206,757
Deposits		563,465
Total assets	$	75,002,234

Liabilities and Stockholder’s Equity
Current liabilities:
Accounts payable		4,767,533
Accrued expenses		5,142,062
Current portion of operating lease liability		12,543,451
Unearned revenue		2,567,612
Total current liabilities		25,020,658

Related party note payable		20,498,662
Operating lease liability		37,551,978
Deferred tax liability, net		68,843
Lease exit obligation		541,685
Total Liabilities		83,681,826

Commitments and contingencies (see Notes G and J)

Stockholder’s deficit:
Common stock, $.001 par value, 1,000 shares authorized, Issued and outstanding		1
Additional paid-in capital		23,421,960
Accumulated deficit		(32,101,553	)
Total liabilities and stockholder’s deficit	$	75,002,234

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

Barbeque Integrated, Inc. and Subsidiaries

Condensed consolidated statements of operations

For the six month period ended	July 2, 2023

Net sales:	$	92,285,945

Cost of sales (exclusive of items shown seperately below):
Food and beverage costs		25,557,411
Labor and benefits		27,572,875
Rent Expense		6,025,731
Restaurant operating expenses		21,307,973
Restaurant exits costs		42,948
Total cost of sales (exclusive of items shown seperately below)		80,506,938

Operating expenses:
Selling, general and administrative		7,532,016
Depreciation and amortization		3,158,511
Total operating expenses		10,690,527
Operating income		1,088,480

Non-operating loss, net:
Interest expense		(996,582	)
Other income		20,367
Total non-operating loss, net		(976,215	)

Income from operations before income taxes		112,265

Income tax benefit		177,502

Net income	$	289,767

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

Barbeque Integrated, Inc. and Subsidiaries

Condensed consolidated statements of stockholder’s deficit

	Shares		Common Stock		Additional Paid-In Capital		Accumulated Deficit			Total
Balances - January 1, 2023		1000	$	1	$	23,421,960	$	(32,391,320	)	$	(8,969,359	)

Net income								289,767			289,767

Balances - July 2, 2023		1000		1		23,421,960		(32,101,553	)		(8,679,592	)

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

Barbeque Integrated, Inc. and Subsidiaries

Condensed consolidated statements of cash flows

For the six month period ended	July 2, 2023
Cash flows from operating activities:
Net income	$	289,767
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		3,158,511
Non-cash lease cost		3,828,822
Interest accretion on debt		944,699
Loss on lease termination		(267,197	)
Changes in operating assets and liabilities
Accounts receivable		528,384
Inventories		86,024
Other current assets		(757,266	)
Accounts payable		11,277
Accrued expenses and other liabilities		(1,065,903	)
Operating lease liability		(4,534,462	)
Income taxes liability		(213,933	)
Unearned revenue		(367,554	)
Net cash provided by operating activities		1,641,169

Cash flows used in investing activities:
Purchases of property and equipment		(1,357,504	)
Net cash used in investing activities		(1,357,504	)

Net increase in cash and cash equivalents		283,665
Cash and cash equivalents, beginning of period		3,361,801
Cash and cash equivalents, end of period		3,645,466

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	21,708
Cash paid during the period for income taxes	$	30,171

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

Barbeque Integrated, Inc. and Subsidiaries
Notes to condensed consolidated financial statements - continued

Note A – Organization and Summary of Significant Accounting Policies

Business and Basis of Presentation

Fiscal Year

The Company operates on a 52-week calendar and its fiscal year ends on the last Sunday of the calendar year. Consistent with industry practice, the Company measures its stores’ performance based upon 7-day work weeks. Using the 52-week cycle ensures consistent weekly reporting for operations and ensures that each week has the same days since certain days are more profitable than others. The use of this fiscal year means a 53rd week is added to the fiscal year every 5 or 6 years. In a 52-week year, all four quarters are comprised of 13 weeks. In a 53-week year, one extra week is added to the fourth quarter. The reporting period for the six months ended July 2, 2023, is comprised of 26 weeks.

Principles of Consolidation

The condensed consolidated interim financial statements include the accounts of the Company. All significant intercompany transactions are eliminated in the consolidation process.

Use of Estimates

The preparation of interim financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities at the date of the interim financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material.

Working Capital

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash and accounts receivable from credit card processors. The Company considers all highly liquid investment instruments purchased with original maturities of three months or less from date of purchase to be cash equivalents. Accounts receivable from credit card processors are both short-term and liquid in nature and are typically converted to cash within three days of the sales transaction. At July 2, 2023, the Company had $1,972,849, in receivables from credit card processors, which were subsequently collected.

Inventories

Barbeque Integrated, Inc. and Subsidiaries

Notes to condensed consolidated interim financial statements - continued

Property and Equipment

Furniture, fixtures and equipment		3-7 years
Leasehold improvements		7-20 years

Impairment of Long-Lived Assets

The Company evaluates impairment whenever events or changes in circumstances indicate that the carrying amount of an asset grouping may not be recoverable.

For long-lived assets, including intangibles, the Company assesses periodically whether there are indicators of impairment. If such indicators are present, the Company assesses the recoverability of the long-lived assets by determining whether the carrying value of such assets can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest charges, is less than the book value, the excess of the net book value over the estimated fair value, based on discounted future cash flows and appraisals, is charged to operations in the period in which such impairment is determined by management. For the six months ended July 2, 2023, the Company did not identify any indicators of potential impairment.

Intangible Assets

Intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful life.

Insurance Accruals

The Company maintains insurance coverage to cover material potential losses related to workers’ compensation, general liability and certain employment claims. During fiscal years 2023 and 2022, the Company had a $25,000 self-insured retention limit for any covered general liability claim. Accrued liabilities related to general liability claims of $154,171 as of July 2, 2023, respectively, are included in accrued expenses in the accompanying condensed consolidated balance sheet. Amounts have been recorded based on the Company’s estimates of the anticipated ultimate costs to settle all claims, both reported and unreported.

Barbeque Integrated, Inc. and Subsidiaries

Notes to condensed consolidated interim financial statements - continued

Revenue Recognition

Revenue is recognized in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. Revenue is recognized upon the transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenue is recognized when payment is tendered at the time of sale. The Company presents sales net of sales tax and other sales related discounts.

Food and Beverage Costs

Food and beverage costs include inventory, warehousing and related purchasing and distribution costs.

Vendor Rebates

Advertising Costs

Advertising costs are recorded as expenses in the period in which the costs are incurred. The total amount charged to advertising expense was $1,910,158 for the six months ended July 2, 2023 and are included as a selling, general and administrative expense in the accompanying condensed consolidated statement of operations.

Income Taxes

Accounting Standards Adopted in the Current Fiscal Year

Additional new accounting guidance became effective for the Company as of the beginning of fiscal 2023 that the Company reviewed and concluded was either not applicable to its operations or had no material effect on its condensed consolidated interim financial statements in the current or future fiscal years.

Newly Issued Accounting Standards Not Yet Adopted

The Company reviewed all other newly issued accounting pronouncements and concluded that they either are not applicable to the Company’s operations or that no material effect is expected on the Company’s condensed consolidated interim financial statements when adoption is required in the future.

Barbeque Integrated, Inc. and Subsidiaries

Notes to condensed consolidated interim financial statements - continued

Note B – Intangible Assets

Intangible assets consist of the following:

Remaining

Useful

July 2, 2023

Life

Definite lived intangible assets:

Trade name

11,619,922

15 years

Licenses

431,430

13 years

Favorable lease

458,380

19 years

4 years

Other

34,286

5 years

12,544,018

Accumulated amortization

(12,337,261

)

Intangible assets, net

206,757

The amortization expense for intangible assets was approximately $18,000 for the six months ended July 2, 2023, and is included in depreciation and amortization in the accompanying condensed consolidated statement of operations. Future amortization expense will be as follows:

Fiscal year:	Amount
Remainder 2023		18,104
2024		36,202
2025		36,202
2026		36,202
2027		12,077
Thereafter		67,970
	$	206,757

Note C – Property and Equipment

Property and equipment, net, consists of the following:

	July 2, 2023

Leasehold improvements	$	31,058,783
Furniture, fixtures and equipment		44,034,134
		75,092,917
Less: Accumulated depreciation and amortization		(48,261,502	)
	$	26,831,415

Depreciation and amortization expense for the six months ended July 2, 2023 was $3,140,410.

Note D – Fair Value Measurements

Barbeque Integrated, Inc. and Subsidiaries

Notes to condensed consolidated interim financial statements - continued

The Company has not elected to use the fair value measurement option, as permitted under U.S. GAAP, for any assets or liabilities for which fair value measurement is not presently required. The Company believes the fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short duration. Due to the sale of the Company sold to a third party as disclosed in Note L below, there were no changes in the terms of the Company’s related party note payable and it was repaid at the carrying value of the date of the transaction. The Company believes that the fair value of its Related party note payable approximates carrying value. The fair value of the related party note payable, which is classified as Level 3 in the fair value hierarchy, is determined based on market prices or, if market prices are not available, the present value of the underlying cash flows discounted at our incremental borrowing rates.

Note E – Financing Obligations

Promissory Note

On November 10, 2022, the Company entered into a promissory note with a related party (“Promissory Note”). The Promissory Note’s original draw repaid the Company’s outstanding debt and interest and allows for additional unspecified amount of advances upon request. The Promissory Note has a fixed interest rate of 9.5% accruing daily. Interest accretes to the outstanding balance. The Promissory Note has a maturity date of November 10, 2027, allows for prepayments and requires mandatory prepayment in the event of sale, public offering or liquidation. As of July 2, 2023, the Promissory Note had an outstanding balance of $20,498,662, including $1,206,679 in accreted interest.

Note F – Exit Activities and Operating Lease Obligations

The Company periodically evaluates the performance of its operating restaurants. The costs incurred to close the restaurants in fiscal 2023 primarily relate to demarking the restaurants, removing equipment and lease termination and expenses as incurred. At July 2, 2023, the balance amounted to approximately $542,000 and is included in lease exit obligation on the accompanying condensed consolidated balance sheet. Closed restaurant operating expenses, net of sublease income, totaling $42,948 for the year ended July 2, 2023 are included as restaurant exit cost in the accompanying condensed consolidated statement of operations.

Note G – Operating Leases

The Company recognized lease expense of approximately $6,000,000 million for the six months ended July 2, 2023.

Operating lease right-of-use and operating lease liabilities relating to operating leases are as follows:

	Six Months Ended
	July 2, 2023
ROU Assets
Property	$	50,318,314
Equipment		291,814
Total		50,610,128
Accumulated amortization		(13,129,095	)
ROU assets, net	$	37,481,033

Barbeque Integrated, Inc. and Subsidiaries

Notes to condensed consolidated interim financial statements - continued

	Six Months Ended
	July 2, 2023
Operating Lease Liability
Property	$	49,989,964
Equipment		105,465
Total operating leases		50,095,429
Current portion of operating leases, property		(12,477,832	)
Current portion of operating leases, equipment		(65,619	)
Total current portion		(12,543,451	)
Long-term portion	$	37,551,978

Weight average remaining term in years
Operating leases, property		4.0
Operating leases, equipment		1.5
Weight average discount rate
Operating leases, property		5.25	%
Operating leases, equipment		6.02	%

Maturities of the operating lease liabilities is as follows at July 2, 2023:

Fiscal year:	Amount
Remainder 2023	$	6,513,650
2024		12,578,899
2025		11,367,215
2026		10,044,631
2027		9,569,944
Thereafter		7,699,353
Total lease payments		57,773,692
Less imputed interest		(7,678,263	)
Present value of lease liabilities		50,095,429
Less current portion		(12,543,451	)
Long-term portion of lease liabilities	$	37,551,978

Note H – Concentrations

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”). Balances may, at times, exceed FDIC insurance limits. The Company has agreements with one primary distributor for the delivery of food items and supplies which are purchased from multiple vendors but warehoused at the distributor’s facilities. This distributor provided for approximately 89.3% of food shipments (approximately $21.6 million) during the six months ended July 2, 2023. The Company does not anticipate any interruption in deliveries from this distributor. In the event deliveries were disrupted for any reason, management believes alternative sources for shipment of purchases are available. Management believes numerous alternative suppliers exist and no disruption is anticipated.

Barbeque Integrated, Inc. and Subsidiaries

Notes to condensed consolidated interim financial statements - continued

Note I – Income Taxes

The Company’s benefit for income taxes:

	Six Months Ended
	July 2, 2023
Benefit for Income Taxes	$	(177,502	)
Effective tax rate		-169	%

The difference between the statutory tax rate of 21% and the effective tax rate of -169% in the six months ended July 2, 2023, was primarily due to decreases in the valuation allowance, nondeductible expenses and the impact of state income taxes.

Note J –Contingencies

If the assessment of a contingency indicates that it is probable that a loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated interim financial statements. If the assessment indicates that a loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees or may materially adversely affect the financial position of the Company, in which case the nature of the guarantee or other matter would be disclosed. The Company does not believe any reserves need to be established for any of the periods presented.

Note K – Related Party Transactions

On December 31, 2007, the Company entered into a management services agreement (“Services Agreement”) with Sun Capital Partners Management V, LLC (“Sun”), a related party. The management fee and other reimbursable expenses paid to Sun during the six months ended July, 2, 2023, are not material and included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

Note L – Subsequent Events

Management has evaluated subsequent events for potential disclosure in or adjustment to the condensed consolidated interim financial statements through October 27, 2023, the date that the accompanying condensed consolidated interim financial statements were available to be issued.

On July 16, 2023, the Company closed one of its locations due to an expiring lease agreement. Expenses relating to this closure amounted to approximately $184,000 through October 27, 2023.

On September 5, 2023, the Company received an advance of $1,000,000 through its Promissory Note (Note D).

On September 25, 2023, the Company sold all the outstanding equity interests to FAT Brands Inc. (the “Buyer”) for a purchase price of $30,000,000, subject to certain adjustments, which was paid by the Buyer in cash at closing. The parties agreed following the closing to cooperate to finalize certain customary adjustments to the purchase price with respect to working capital. As a part of the Company sale, the Company repaid the outstanding balance due through its Related Party Promissory Note.

Exhibit 99.3

Unaudited Pro Forma Condensed Combined Financial Statements

On September 25, 2023, FAT Brands, Inc. (“the Company”) completed the acquisition of Barbeque Integrated, Inc. and Subsidiaries (“BBQI”) for a total purchase price of $31.8 million in cash (the “BBQI Acquisition”).

The following unaudited pro forma condensed combined balance sheet as of June 25, 2023 gives effect to the BBQI Acquisition as if it had occurred on June 25, 2023, and the following unaudited pro forma condensed combined statements of operations for the twenty-six weeks ended June 25, 2023 and for the year ended December 25, 2022 give effect to the BBQI Acquisition as if it had occurred on December 27, 2021 (the “Pro Forma Financial Statements”). The Pro Forma Financial Statements are based on historical financial information of the entities, as adjusted to give effect to the Acquisition. The Pro Forma Financial Statements have been prepared in accordance with Article 11 of Regulation S-X.

The following Pro Forma Financial Statements do not reflect the financial condition at the date or results of operations of the Company for the periods indicated. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information, and in many cases are based on estimates and preliminary information. The assumptions underlying the pro forma adjustments are described in the accompany notes to the unaudited pro forma combined financial statements. However, the Pro Forma Financial Statements may not be indicative of our future performance and do not necessarily reflect what our financial condition and results of operations would have been had the acquisition to which the pro forma adjustments relate occurred on the dates indicated above.

Unaudited Pro Forma Combined Balance Sheet

As of June 25, 2023

(in thousands)

	Historical Results
	Fat Brands, Inc.			BBQI			BBQI Transaction Accounting Adjustments (Note 4)				Pro Forma

ASSETS
Current assets:
Cash	$	30,569		$	-		$	-			$	30,569
Cash and cash equivalents		-			3,645			(3,645	)	(a)		-
Restricted cash		26,564			-			-				26,564
Accounts Receivable, net of allowances		29,006			1,070			1,973		(a)		32,049
Inventory		6,254			2,656			-				8,910
Assets classified as held for sale		3,887			-			-				3,887
Prepaids and other current assets		-			2,548			(2,548	)	(a)		-
Other current assets		8,004			-			2,548		(a)		10,552
Total current assets		104,284			9,919			(1,672	)			112,531
Non-current restricted cash		14,743			-			-				14,743
Other intangible assets, net		617,755			207			(207	)	(b)		617,755
Amortizable intangible assets, net		-			-			8,800		(b)		8,800
Goodwill		293,282			-			-				293,282
Operating lease right of use assets		101,587			37,481			72,127		(b)(c)		211,195
Property and equipment, net		79,577			26,831			550		(b)		106,958
Other assets		4,613			564			-				5,177
Total assets	$	1,215,841		$	75,002		$	79,598			$	1,370,441
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,303		$	4,768		$	-			$	21,071
Accrued expenses and other liabilities		51,156			5,142			-				56,298
Accrued interest payable		16,722			-			-				16,722
Accrued Advertising		14,032			-			-				14,032
Deferred income, current portion		1,862			2,568			238		(b)		4,668
Dividend payable on preferred shares		1,278			-			-				1,278
Liabilities related to assets classified as held for sale		3,479			-			-				3,479
Operating lease liability, current portion		14,904			12,543			(8,680	)	(c)		18,767
Redeemable preferred stock		91,836			-			-				91,836
Long-term debt, current portion		35,848			-			-				35,848
Acquisition purchase price payable		4,000			-			-				4,000
Total current liabilities		251,420			25,021			(8,442	)			267,999
Deferred income, net of current portion		22,529			-			-				22,529
Long-term debt, net of current portion		1,018,494			-			31,846		(d)		1,050,340
Related party note payable		-			20,499			(20,499	)	(e)		-
Operating lease liability, net of current portion		95,815			37,552			68,013		(c)		201,380
Deferred income tax liabilities, net		29,147			69			-				29,216
Other liabilities		1,631			541			-				2,172
Total liabilities		1,419,036			83,682			70,918				1,573,636

Stockholders’ equity:
Preferred stock		43,566			-			-				43,566
Common stock		(28,877	)		-			-				(28,877	)
Accumulated deficit		(217,884	)		(32,102	)		32,102				(217,884	)
Additional paid in capital		-			23,422			(23,422	)			-
Total stockholders’ equity		(203,195	)		(8,680	)		8,680				(203,195	)
Total liabilities and stockholders’ equity	$	1,215,841		$	75,002		$	79,598			$	1,370,441

Unaudited Pro Forma Combined Statement of Operations

For the Six Months Ended June 25, 2023

(in thousands, except share and per share amounts)

	Historical Results
	Fat Brands, Inc.			BBQI			BBQI Transaction Accounting Adjustments (Note 4)				Pro Forma

Revenues
Royalties	$	45,236		$	-		$	-			$	45,236
Restaurant sales		125,379			92,286			-				217,665
Advertising fees		19,019			-			-				19,019
Factory revenues		18,851			-			-				18,851
Franchise fees		1,565			-			-				1,565
Other revenue		2,405			-			-				2,405
Total revenues		212,455			92,286			-				304,741
Costs and expenses
General and administrative expense		38,362			7,532			-				45,894
Cost of restaurant and factory revenues		118,589			-			80,507		(aa)		199,096
Food and beverage costs		-			25,557			(25,557	)	(aa)		-
Labor and benefits		-			27,573			(27,573	)	(aa)		-
Rent expense		-			6,026			(6,026	)	(aa)		-
Restaurant operating expenses		-			21,308			(21,308	)	(aa)		-
Restaurant exit costs		-			43			(43	)	(aa)		-
Depreciation and amortization		14,177			3,159			422		(bb)		17,758
Refranchising (gain) loss		338			-			-				338
Impairment of goodwill and other intangible assets		-			-			-				-
Advertising expense		22,137			-			-				22,137
Total other income (expense)		193,603			91,198			422				285,223
Income (Loss) from operations		18,852			1,088			(422	)			19,518
Other income (expense)
Interest expense, net		(45,098	)		(996	)		(278	)	(cc)		(46,372	)
Interest expense related to preferred shares		(9,354	)		-			-				(9,354	)
Other income (expense), net		265			20			-				285
Total other income (expense)		(54,187	)		(976	)		(278	)			(55,441	)
(Loss) income before income tax expense		(35,335	)		112			(700	)			(35,923	)
Income tax provision (benefit)		3,882			(178	)		(182	)	(dd)		3,522
Net loss		(39,217	)		290			(518	)			(39,445	)

Net loss		(39,217	)		290			(518	)			(39,445	)
Dividends on preferred shares		(3,381	)		-			-				(3,381	)
		(42,598	)		290			(518	)			(42,826	)

Basic and diluted loss per common share	$	(2.58	)	$	-		$	-			$	(2.59	)
Basic and diluted weighted average shares outstanding		16,521,590			-			-				16,521,590

Unaudited Pro Forma Combined Condensed Statement of Operations

For the Year Ended December 25, 2022

(in thousands, except share and per share amounts)

	Historical Results
	Fat Brands, Inc.			BBQI			BBQI Transaction Accounting Adjustments (Note 4)				Pro Forma

Revenues
Royalties	$	87,921		$	-		$	-			$	87,921
Restaurant sales		241,001			184,644			-				425,645
Advertising fees		37,997			-			-				37,997
Factory revenues		33,504			-			-				33,504
Franchise fees		3,706			-			-				3,706
Other revenue		3,095			-			-				3,095
Total revenues		407,224			184,644			-				591,868
Costs and expenses
General and Adminstrative expense		113,313			13,780			-				127,093
Cost of restaurant and factory revenues		221,627			-			165,045		(aa)		386,672
Food and beverage costs		-			54,215			(54,215	)	(aa)		-
Labor and benefits		-			55,431			(55,431	)	(aa)		-
Rent expense		-			12,327			(12,327	)	(aa)		-
Restaurant operating expenses		-			43,042			(43,042	)	(aa)		-
Restaurant exit costs		-			30			(30	)	(aa)		-
Depreciation and amortization		27,015			6,639			83		(bb)		33,737
Impairment of goodwill and other intangible assets		14,000			1,332			-				15,332
Refranchising (gain) loss		4,178			-			-				4,178
Advertising expense		44,612			-			-				44,612
Acquisition costs		383			-			-				383
Total costs and expenses		425,128			186,796			83				612,007
Income (Loss) from operations		(17,904	)		(2,152	)		(83	)			(20,139	)
Other income (expense)
Interest expense, net		(78,477	)		(871	)		(1,677	)	(cc)		(81,025	)
Interest expense related to preferred shares		(16,372	)		-			-				(16,372	)
Other income (expense), net		5,375			(302	)		-				5,073
Total other income (expense)		(89,474	)		(1,173	)		(1,677	)			(92,324	)
Income (Loss) before income tax expense		(107,378	)		(3,325	)		(1,760	)			(112,463	)
Income tax provision (benefit)		18,810			66			(458	)	(dd)		18,418
Net loss	$	(126,188	)	$	(3,391	)	$	(1,302	)		$	(130,881	)

Net loss		(126,188	)		(3,391	)		(1,302	)			(130,881	)
Dividends on preferred shares		(6,636	)		-			-				(6,636	)
		(132,824	)		(3,391	)		(1,302	)			(137,517	)

Basic and diluted loss per common share	$	(8.06	)	$	-		$	-			$	(8.35	)
Basic and diluted weighted average shares outstanding		16,476,090			-			-				16,476,090

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

NOTE 1 – BASIS OF PRESENTATION

The Pro Forma Financial Statements are based on historical financial statements of the entities, as adjusted to give effect to the BBQI Acquisition. The pro forma condensed combined balance sheet as of June 25, 2023 gives effect to the BBQI Acquisition as if it had occurred on June 25, 2023. The pro forma condensed combined statements of operations for the twenty-six weeks ended June 25, 2023 and for the year ended December 25, 2022 give effect to the BBQI Acquisition as if it had occurred on December 27, 2021 (the beginning of the Company’s 2022 fiscal year). In addition to the historical financial statements included as exhibits to this Form 8-K/A, the Pro Forma Financial Statements should be read in conjunction with the following information or documents filed with the U.S. Securities and Exchange Commission (the “SEC”): the Company’s Form 10-K as of December 25, 2022 filed with the SEC on February 24, 2023, the Form 10-Q as of June 25, 2023 filed with the SEC on August 4, 2023 and the Form 8-K filed with the SEC on September 26, 2023.

NOTE 2 – PRELIMINARY PURCHASE PRICE ALLOCATION

The Pro Forma Financial Statements include various assumptions, including those related to the preliminary purchase price allocations of the assets acquired and liabilities assumed of BBQI on preliminary estimates of fair value by management and third-party valuation experts. The final purchase price allocations may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities as well as final post-closing adjustments, if any. Accordingly, the pro forma adjustments are preliminary and may be subject to change.

The preliminary assessment of the fair value of the net assets and liabilities acquired by the Company through the BBQI Acquisition was estimated at $31.8 million. The preliminary allocation of the consideration to the net tangible and intangible assets acquired is presented in the table below (in millions):

Accounts receivable	$	3.0
Inventory		2.7
Prepaids and other current assets		2.5
Other intangible assets, net		8.8
Operating lease right of use assets		109.4
Other assets		0.6
Property and equipment, net		27.4
Below market leases		0.2
Accounts payable		(4.8	)
Accrued expenses and other liabilities		(5.1	)
Deferred income – current		(2.8	)
Operating lease liability, current portion		(3.9	)
Operating lease liability, net of current portion		(105.6	)
Deferred income tax liabilities, net		(0.1	)
Other liabilities		(0.5	)
Total net identifiable assets	$	31.8

NOTE 3 – IDENTIFIABLE INTANGIBLE ASSETS

Our preliminary valuation estimates of the identifiable intangible assets acquired in connection with the BBQI Acquisition are based on initial valuations performed by management and third-party experts. However, these estimates are preliminary, as we have not completed our analysis of all the facts surrounding the business acquired and therefore have not finalized the accounting for these transactions. Our preliminary estimate of identifiable intangible assets total $8.8 million in trademarks.

NOTE 4 – PRO FORMA ADJUSTMENTS

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the Pro Forma Financial Statements:

Balance Sheet Pro Forma Adjustments

	(a)	Represents reclassifications that have been made to the historical presentation to conform to the financial statement presentation of the Company.

	(b)	Reflects the adjustment of historical tangible and intangible assets acquired by the Company to their estimated fair values. The estimates of fair value may differ from amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial statements.

	(c)	Reflects the adjustment of historical assets and liabilities for the rights and obligations created by leases with a term of more than twelve months to the present value as of the acquisition date, pursuant to ASU 2016-02, Leases (Topic 842), using the Company’s incremental borrowing rate of 8.4%. BBQI has certain operating leases for company-owned restaurant properties and for a corporate office.

	(d)	The increase to debt reflects the sale of $31.8 million aggregate principal amount of new fixed rate asset backed notes bearing interest at 8.00%.

	(e)	The decrease to related party note payable reflects the extinguishment of BBQI’s outstanding debt upon consummation of the acquisition.

Statement of Operations Pro Forma Adjustments

	(aa)	Represents reclassifications that have been made to the historical presentation of BBQI to conform to the financial presentation of the Company.
	(bb)	Represents the adjustment to reflect the amortization related to amortizing intangible assets (see (b) above).

	(cc)	Represents the net increase in interest expense resulting from the issuance of new fixed rate debt (see (d) above), partially offset by the decrease in interest expense resulting from the extinguishment of BBQI’s outstanding debt upon consummation of the acquisition (see (e) above).

	(dd)	Represents the income tax expense effect based on a statutory income tax rate of 26%.

Cover	Sep. 25, 2023
Document Type	8-K/A
Amendment Flag	true
Amendment Description	Amendment No. 1
Document Period End Date	Sep. 25, 2023
Entity File Number	001-38250
Entity Registrant Name	FAT Brands Inc.
Entity Central Index Key	0001705012
Entity Tax Identification Number	82-1302696
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	9720 Wilshire Blvd.
Entity Address, Address Line Two	Suite 500
Entity Address, City or Town	Beverly Hills
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	90212
City Area Code	(310)
Local Phone Number	319-1850
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
Class A Common Stock
Title of 12(b) Security	Class A Common Stock
Trading Symbol	FAT
Security Exchange Name	NASDAQ
Class B Common Stock
Title of 12(b) Security	Class B Common Stock
Trading Symbol	FATBB
Security Exchange Name	NASDAQ
Series B Cumulative Preferred Stock
Title of 12(b) Security	Series B Cumulative Preferred Stock
Trading Symbol	FATBP
Security Exchange Name	NASDAQ
Warrants to purchase Common Stock
Title of 12(b) Security	Warrants to purchase Common Stock
Trading Symbol	FATBW
Security Exchange Name	NASDAQ

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FATBP FAT Brands Inc