FAT Brands(FATBB) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) Financials reflect acquisition-driven changes, with strong Q2 revenue growth but an H1 2021 net loss Condensed Consolidated Balance Sheets Total assets rose to $169.2 million from a cash increase, while higher liabilities widened the stockholders' deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 27, 2021 | December 27, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $48,124 | $3,944 | | Total current assets | $68,241 | $24,423 | | Total assets | $169,168 | $121,144 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $53,150 | $73,177 | | Long-term debt, net of current portion | $146,140 | $73,852 | | Total liabilities | $214,323 | $163,027 | | Total stockholders' deficit | ($45,155) | ($41,883) | Condensed Consolidated Statements of Operations Q2 revenue grew 166.6%, but a significant debt extinguishment loss drove a net loss of $5.9 million Statement of Operations Summary (in thousands) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Royalties | $6,161 | $2,213 | $11,057 | $5,522 | | Total Revenue | $8,282 | $3,107 | $14,931 | $7,530 | | Income (Loss) from Operations | $2,044 | ($5,790) | $2,148 | ($6,368) | | Net Loss on Extinguishment of Debt | ($6,405) | - | ($6,405) | - | | Net Loss | ($5,931) | ($4,251) | ($8,363) | ($6,621) | | Basic and Diluted Loss per Share | ($0.48) | ($0.36) | ($0.69) | ($0.56) | - The company declared a cash dividend of $0.26 per common share in the first half of 2021, whereas no dividend was declared in the same period of 2020[15] Condensed Consolidated Statements of Cash Flows Financing activities provided $51.5 million in H1 2021, boosting the end-of-period cash balance to $54.0 million Cash Flow Summary for the Twenty-six Weeks Ended (in thousands) | Cash Flow Activity | June 27, 2021 | June 28, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,932) | ($3,994) | | Net cash provided by (used in) investing activities | $221 | ($6,326) | | Net cash provided by financing activities | $51,520 | $13,783 | | Net increase in cash and restricted cash | $46,809 | $3,463 | - Financing activities in H1 2021 were dominated by proceeds from borrowings of $140.8 million and repayments of $92.6 million, along with an $8.3 million preferred share issuance[28] Notes to Condensed Consolidated Financial Statements (Unaudited) Notes detail key acquisitions, a $144.5 million securitization, and significant legal proceedings - The company owns and franchises nine restaurant brands with approximately 700 locations as of June 27, 2021[31] - In April 2021, the company completed a $144.5 million securitization offering, using proceeds to repay prior notes, resulting in a $7.8 million net loss on debt extinguishment[89][93] - In June 2021, a public offering of Series B Preferred Stock raised net proceeds of $8.3 million[115] - Subsequent to the quarter, the company acquired Global Franchise Group (GFG) for $442.5 million, financed through cash, stock, and a new securitization[156][157] - The company is a defendant in a derivative lawsuit filed in June 2021 related to the merger with Fog Cutter Capital Group, Inc[148] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes H1 2021 revenue growth to acquisitions and pandemic recovery, with liquidity bolstered by recent financing Results of Operations Comparison (H1 2021 vs H1 2020, in thousands) | Metric | H1 2021 | H1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $14,931 | $7,530 | +98.3% | | General & Administrative Expense | $10,408 | $7,636 | +36.3% | | Income (Loss) from Operations | $2,148 | ($6,368) | N/A | | Other Expense, net | ($12,632) | ($1,639) | +670.7% | | Net Loss | ($8,363) | ($6,621) | +26.3% | - The increase in 'Other Expense' was primarily driven by a $6.4 million net loss on the extinguishment of debt and $5.4 million in net interest expense in H1 2021[175] - The company's liquidity was significantly bolstered by the April 2021 securitization offering, which provided net proceeds of approximately $57 million[188] - The company's growth strategy focuses on an asset-light franchisor model, expanding existing brands, and acquiring new concepts[163] Quantitative and Qualitative Disclosures About Market Risk This section is not required for smaller reporting companies - The company has indicated that Quantitative and Qualitative Disclosures About Market Risk are not required[206] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 27, 2021, due to identified deficiencies - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 27, 2021[207] - Identified deficiencies relate to the segregation of duties and the financial close process, with remediation efforts ongoing[207][209] PART II. OTHER INFORMATION Legal Proceedings The company is involved in a derivative action, an environmental lawsuit, and an unpaid settlement - A derivative lawsuit filed on June 10, 2021, alleges breach of fiduciary duty related to the merger with Fog Cutter Capital Group, Inc[212] - A subsidiary is involved in a lawsuit regarding alleged environmental contamination, with plaintiffs seeking damages between $12 million and $22 million[213] - The company has an outstanding settlement balance of $0.5 million related to a lawsuit against a subsidiary[215] Risk Factors No material changes to risk factors have occurred since the last annual report filing - The company states there have been no material changes in risk factors from those discussed in its Annual Report on Form 10-K[217] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 62,500 unregistered shares of common stock as partial payment for an acquisition - The company agreed to issue 62,500 unregistered shares of common stock on June 21, 2021, to partially satisfy an acquisition purchase price[218] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults were reported during the period[219] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company's operations[220] Other Information The company reported no other information for this item - No other material information was reported for the period[221] Exhibits The report lists key filed exhibits, including acquisition agreements, debt indentures, and officer certifications - Key exhibits include the Stock Purchase Agreement for Global Franchise Group, the amended Base Indenture for the 2021 securitization, and officer certifications[223]