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FAT Brands Inc. Announces Fiscal Second Quarter 2018 Financial Results

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Conference call and webcast will be held at 5:00 p.m. ET today

FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ:FAT)
("FAT Brands" or the "Company") today announced financial results for
the 13-week period ended July 1, 2018.

Andy Wiederhorn, President and CEO of FAT Brands, commented, "We're
pleased to report second quarter results which include positive
same-store sales growth across all of our brands. Our flagship Fatburger
brand continued to achieve particularly impressive results, with
same-store sales growth of 9.5% inclusive of 4.2% transaction growth.
Strong Fatburger results continue to be driven by momentum in delivery,
as well as by increased traction of the plant-based Impossible Burger.
We also saw positive trends in our casual dining brands, supported by
the tests of a new media campaign, to-go packaging, and third party
delivery."

"Over the last few months we secured significant financing, which
enabled the closing of our previously announced acquisition of Hurricane
Grill & Wings, a brand best known for its jumbo fresh wings. The
integration of the Hurricane restaurants onto our platform has been
smooth, and we now expect to achieve an annualized revenue run-rate of
$19-20 million and an annualized EBITDA run-rate of $10-11 million,
inclusive of synergies beginning in the fourth quarter of 2018. The
financing we secured provides dry powder for future accretive
acquisitions; our pipeline of franchise brands is robust, and we are
actively working to complete additional transactions."

The Company was formed as a Delaware corporation on March 21, 2017 as a
wholly-owned subsidiary of Fog Cutter Capital Group Inc. ("FCCG"). The
Company was formed for the purpose of completing a public offering and
related transactions, and to acquire and continue certain businesses
previously conducted by subsidiaries of FCCG. These transactions
occurred on October 20, 2017. Because this is our initial year of
operation, comparative information is not available for the second
quarter of 2017.

Fiscal Second Quarter 2018 Highlights

  • Total revenues of $3.9 million(1)
  • EBITDA of $825,000
  • Net income of $373,000, or $0.04 per share
       

(1)

    In the first quarter of 2018, the Company adopted Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers
(Topic 606), which changed the timing of recognition of franchise
fees, including development fees, territory fees, renewal and
transfer fees. Adoption of ASU 2014-09 also changed the reporting of
advertising fund contributions and related expenditures. Please see
the "Adoption of New Accounting Guidance" section below for
additional information.
 

Fiscal Second Quarter 2018 Segment Performance

  • Fatburger & Buffalo's Express
    • Same-store sales growth in core domestic market of 8.9%
    • System-wide same-store sales growth of 9.5%
    • Total revenues of $2.0 million
    • EBITDA of $887,000
    • Net income of $771,000
    • 4 new store openings
  • Buffalo's Cafe
    • System-wide same-store sales growth of 10.2%
    • Total revenue of $511,000
    • EBITDA of $165,000
    • Net income of $237,000
  • Ponderosa & Bonanza Steakhouse
    • System-wide same-store sales growth of 0.9%
    • Total revenue of $1.4 million
    • EBITDA of $304,000
    • Net income of $247,000

Financing Events in the Quarter

On April 27, 2018, FAT Brands established a $5 million credit facility
with TCA Global Credit Master Fund, LP ("TCA"). A total of $2 million
was funded by TCA as part of the initial closing on April 27, 2018, and
the proceeds were used for working capital.

On June 7, 2018, FAT Brands completed $8 million in Series A preferred
stock financing. The proceeds are being used for acquisition of new
restaurant brands, the repayment of indebtedness, and working capital.

On June 27, 2018, FAT Brands entered into a Note Exchange Agreement
under which it agreed with FCCG to exchange most of the remaining
balance of the Company's outstanding Promissory note issued to FCCG on
October 20, 2017, in the original principal amount of $30 million (the
"Note"). At the time of the exchange, the Note had an estimated
outstanding balance of principal plus accrued interest of $10,222,053
(the "Note Balance"). FCCG agreed to cancel the Note, in exchange for
shares of capital stock of the Company in the following amounts:

  • $2,000,000 of the Note Balance will be exchanged for 20,000 shares of Series A Fixed Rate Cumulative Preferred Stock of the Company at $100 per
    share; and
  • The remaining Note Balance of $7,272,053 will be exchanged for 989,395 shares of Common Stock of the Company, representing an exchange price of
    $7.35 per share, which was the closing price of the Common Stock on
    June 26, 2018.

Subsequent Events

On July 3, 2018, FAT Brands completed the previously announced
acquisition of Hurricane AMT, LLC ("Hurricane"), the franchisor of
Hurricane Grill & Wings and Hurricane BTW restaurants, for a purchase
price of $12,500,000.

Also on July 3, 2018, the Company entered into a new Loan and Security
Agreement with FB Lending, LLC, whereby the Company borrowed $16.0
million in a term loan. A portion of the net proceeds were used to fund
the Hurricane acquisition, as well as to repay borrowings of $2.0
million plus interest and fees under the Company's existing loan
facility with TCA. The Company intends to use the remaining proceeds for
additional acquisitions and general working capital purposes.

Quarterly Cash Dividend

The Company's Board of Directors approved the payment of a quarterly
cash dividend to shareholders of $0.12 per share. The dividend was paid
on July 16, 2018 to shareholders of record as of the close of business
on July 6, 2018.

Key Financial Definitions

New store openings - The number of new store openings reflects
the number of stores opened during a particular reporting period. The
total number of new stores per reporting period and the timing of stores
openings has, and will continue to have, an impact on our results.

Same-store sales growth – Same-store sales growth reflects the
change in year-over-year sales for the comparable store base, which we
define as the number of stores open for at least one full fiscal year.
Given our focused marketing efforts and public excitement surrounding
each opening, new stores often experience an initial start-up period
with considerably higher than average sales volumes, which subsequently
decrease to stabilized levels after three to six months. Thus, we do not
include stores in the comparable base until they have been open for at
least one full fiscal year. We expect that this trend will continue for
the foreseeable future as we continue to open and expand into new
markets.

Conference Call and Webcast

FAT Brands will host a conference call and webcast to discuss its fiscal
first quarter 2018 financial results today at 5:00 PM ET. Hosting the
call and webcast will be Andy Wiederhorn, President and Chief Executive
Officer; and Ron Roe, Chief Financial Officer.

Interested parties may listen to the conference call via telephone by
dialing 201-493-6725. A replay will be available after the call until
Tuesday, August 14, 2018, and can be accessed by dialing 412-317-6671.
The passcode is 13682184.

The webcast will be available at www.fatbrands.com
under the "invest" section, and will be archived on the site shortly
after the call has concluded.

About FAT (Fresh. Authentic. Tasty.) Brands

FAT Brands (NASDAQ:FAT) is a leading global franchising company that
strategically acquires, markets and develops fast casual and casual
dining restaurant concepts around the world. The Company currently owns
six restaurant brands, Fatburger, Buffalo's Cafe, Buffalo's Express,
Hurricane Grill & Wings, and Ponderosa and Bonanza Steakhouses, that
have over 300 locations open and more than 300 under development in 32
countries.

For more information, please visit www.fatbrands.com.

Forward Looking Statements

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including statements relating to the future financial and operating
results of the Company and our ability to pay a cash dividend to our
common stockholders. Forward-looking statements generally use words such
as "expect," "foresee," "anticipate," "believe," "project," "should,"
"estimate," "will," "plans," "forecast," and similar expressions, and
reflect our expectations concerning the future. It is possible that our
future performance may differ materially from current expectations
expressed in these forward-looking statements. We refer you to the
documents we file from time to time with the Securities and Exchange
Commission, such as our recent Offering Statement on Form 1-A and our
reports on Form 10-K, Form 10-Q and Form 8-K, for a discussion of these
and other risks and uncertainties that could cause our actual results to
differ materially from our current expectations and from the
forward-looking statements contained in this press release. We undertake
no obligation to update any forward-looking statement to reflect events
or circumstances occurring after the date of this press release.

Adoption of New Accounting Guidance

The Company adopted ASU 2014-09 on January 1, 2018 using the modified
retrospective method, in which the cumulative effect of applying the
standard is recognized at the date of initial application. Amounts
presented for the twenty-six weeks ended July 1, 2018 have been adjusted
to reflect the adoption of ASU 2014-09, resulting in an increase in
revenues of $1,675,000.

Non-GAAP Measure

This press release includes the non-GAAP financial measure of EBITDA.

EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. We use the term EBITDA, as opposed to income from
operations, as it is widely used by analysts, investors and other
interested parties to evaluate companies in our industry. We believe
that EBITDA is an appropriate measure of operating performance because
it eliminates the impact of expenses that do not relate to business
performance. EBITDA is not a measure of our financial performance or
liquidity that is determined in accordance with generally accepted
accounting principles ("GAAP"), and should not be considered as an
alternative to net income (loss) as a measure of financial performance
or cash flows from operations as measures of liquidity, or any other
performance measure derived in accordance with GAAP.

A reconciliation of net income to EBITDA is set forth in the tables
below.

         
FAT Brands Statement of Operations Data
 
 
(In thousands)
13 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo's Ponderosa Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ - $ 1,343 $ 353 $ 1,164 $ 2,860
Franchise fees - 286 4 9 299
Store opening fees - 105 - - 105
Advertising fees - 294 154 182 630
Management fee   -   14   -   -   14
Total revenues - 2,042 511 1,355 3,908
 
General and administrative expenses   531   1,153   346   1,051   3,081
 
Income (loss) from operations   (531)   889   165   304   827
 
Other income (expense)
Interest income (expense) (548) 85 159 4 (300)
Depreciation and amortization 4 (9) (2) (33) (40)
Other expense   -   (2)   -   -   (2)
Other income (expense)   (544)   74   157   (29)   (342)
 
Income (loss) before income tax expense (benefit) (1,075) 963 322 275 485
 
Income tax expense (benefit)   (193)   192   85   28   112
 
Net income (loss)   (882)   771   237   247   373
Basic and diluted EPS   ($0.09) $ 0.08 $ 0.02 $ 0.02 $ 0.04
 
         
FAT Brands Statement of Operations Data
 
 
(In thousands)
26 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo's Ponderosa Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ - $ 2,631 $ 666 $ 2,135 $ 5,432
Franchise fees - 669 9 20 698
Store opening fees - 105 - - 105
Advertising fees - 611 293 322 1,226
Management fee   -   32   -   -   32
Total revenues - 4,048 968 2,477 7,493
 
General and administrative expenses   755   2,307   700   1,963   5,725
 
Income (loss) from operations   (755)   1,741   268   514   1,768
 
Other income (expense)
Interest income (expense) (994) 164 307 9 (514)
Depreciation and amortization (1) (9) (2) (61) (73)
Other expense   0   (3)   -   -   (3)
Other income (expense)   (995)   152   305   (52)   (590)
 
Income (loss) before income tax expense (benefit) (1,750) 1,893 573 462 1,178
 
Income tax expense (benefit)   (326)   417   156   49   296
 
Net income (loss)   (1,424)   1,476   417   413   882
Basic and diluted EPS   ($0.14) $ 0.15 $ 0.04 $ 0.04 $ 0.09
 
           
Consolidated Balance Sheet for FAT Brands, Inc. as of July 1, 2018
 
 
(In thousands)
July 1, 2018
FAT Brands FBNA BFCI Ponderosa Elimination Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Consolidated balance sheet data:
 
Cash $ 955 $ - $ - $ - $ - $ 955
Total assets $ 11,154 $ 13,097 $ 7,334 $ 11,442 $ (10,550) $ 32,477
Total liabilities $ 15,645 $ 8,798 $ 994 $ 453 $ - $ 25,890
Total stockholders' equity (deficit) $ (4,491) $ 4,299 $ 6,340 $ 10,989 $ (10,550) $ 6,587
 
         
EBITDA Reconciliation
 
26 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo's Ponderosa Consolidated
 
(in thousands)
 
Net income (loss) $ (1,424) $ 1,476 $ 417 $ 413 $ 882
Depreciation and amortization expense 1 9 2 61 73
Interest (income) expense 994 (164) (307) (9) 514
Income tax expense (benefit)   (326)   417   156   49   296
EBITDA $ (755) $ 1,738 $ 268 $ 514 $ 1,765
 
 
13 weeks ended July 1, 2018
FAT Brands Fatburger Buffalo's Ponderosa Consolidated
 
(in thousands)
 
Net income (loss) $ (882) $ 771 $ 237 $ 247 $ 373
Depreciation and amortization expense (4) 9 2 33 40
Interest (income) expense 548 (85) (159) (4) 300
Income tax expense (benefit)   (193)   192   85   28   112
EBITDA $ (531) $ 887 $ 165 $ 304 $ 825
 

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