OFFERING CIRCULAR SUMMARY

 

This summary highlights selected information contained elsewhere in this Offering Circular. This summary does not contain all of the information that you should consider before deciding to invest in our Common Stock. You should read the entire Offering Circular carefully, including the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our combined financial statements and the related notes thereto included elsewhere in this Offering Circular, before making an investment decision.

 

In this Offering Circular, unless the context requires otherwise, references to “FAT Brands,” the “company,” “we,” “our” or “us” refer collectively to, following consummation of the Reorganization Transactions, including this Offering, FAT Brands Inc. and, unless otherwise stated, all of its subsidiaries.

 

Our Company

 

FAT Brands is a leading multi-brand restaurant franchising company that develops, markets, and acquires predominantly fast casual restaurant concepts around the world. As a franchisor, we generally do not own or operate restaurant locations, but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties. This asset light franchisor model provides the opportunity for strong profit margins and an attractive free cash flow profile while minimizing restaurant operating company risk, such as long-term real estate commitments or capital investments. Our scalable management platform enables us to add new stores and restaurant concepts to our portfolio with minimal incremental corporate overhead cost, while taking advantage of significant corporate overhead synergies. The acquisition of additional brands and restaurant concepts as well as expansion of our existing brands are key elements of our growth strategy.

 

We currently operate the Fatburger, Buffalo’s Cafe and Buffalo’s Express restaurant concepts, with 176 total locations across seven states and 18 countries as of June 25, 2017. While our existing footprint covers 18 countries in which we have franchised restaurants open and operational as of June 25, 2017, our overall footprint (including development agreements for proposed stores in new markets and nine countries where our brands previously had a presence that we intend to resell to new franchisees) covers 32 countries. For each of our current restaurant brands and those that we will seek to acquire, the ability to expand the overall concept footprint, both domestically and internationally, is of critical importance and a primary acquisition evaluation criterion. We believe that our restaurant concepts have meaningful growth potential and appeal to a broad base of consumers globally.

 

Fatburger. Founded in Los Angeles, California in 1947, Fatburger (The Last Great Hamburger Stand^TM) has, throughout its history, maintained its reputation as an iconic, all-American, Hollywood favorite hamburger restaurant serving a variety of freshly made-to-order, customizable, big, juicy, and tasty Fatburgers, Turkeyburgers, Chicken Sandwiches, Veggieburgers, French fries, onion rings, soft-drinks and milkshakes. With a legacy spanning over 70 years, Fatburger’s dedication to superior quality inspires robust loyalty amongst its customer base and has long appealed to American cultural and social leaders. We have counted many celebrities and athletes as past franchisees and customers, and we believe this prestige has been a principal driver of the brand’s strong growth. Fatburger offers a premier dining experience, demonstrating the same dedication to serving gourmet, homemade, custom-built burgers as it has since 1947. As of June 25, 2017, there were 157 franchised and sub-franchised Fatburger locations across five states and 18 countries. Fatburger is one of the fastest growing hamburger restaurant franchises, with 8.2% new store growth in 2016.

 

Buffalo’s Cafe. Established in Roswell, Georgia in 1985, Buffalo’s Cafe (Where Everyone is Family^TM) is a family-themed casual dining concept known for its chicken wings and 13 distinctive homemade wing sauces, burgers, wraps, steaks, salads, and other classic American cuisine. Featuring a full bar and table service, Buffalo’s Cafe offers a distinctive dining experience affording friends and family the flexibility to share an intimate dinner together or to casually watch sporting events while enjoying extensive menu offerings. After acquiring the Buffalo’s Cafe brand in 2011, we developed and launched Buffalo’s Express, a fast-casual, smaller footprint variant of Buffalo’s Cafe offering a limited version of the full menu with an emphasis on chicken wings, wraps and salads. Current Buffalo’s Express outlets are co-branded with Fatburger locations, providing our franchisees with complementary concepts that share kitchen space and result in a higher average check (compared to stand-alone Fatburger locations). As of June 25, 2017, there were 19 franchised Buffalo’s Cafe and 68 co-branded Fatburger / Buffalo’s Express locations globally. Buffalo’s Cafe achieved 10.0% new store growth in 2016.

 

 

Ponderosa & Bonanza Steakhouse. In March 2017, our parent company, Fog Cutter Capital Group, Inc., entered into a definitive agreement to acquire the franchisor of the Ponderosa Steakhouse (which we refer to as “Ponderosa”) and Bonanza Steakhouse (which we refer to as “Bonanza”) restaurants, and intends to complete the acquisitions and contribute Ponderosa and Bonanza to us, including one company-owned restaurant, concurrently with the consummation of this Offering. Ponderosa and Bonanza offer the quintessential American steakhouse experience, for which there is strong and growing demand in international markets, particularly in Asia, the Middle East, Europe and Central America. Ponderosa and Bonanza were established in 1965 and 1963, respectively, and as of June 25, 2017, there were 100 Ponderosa and 20 Bonanza restaurants operating under franchise and sub-franchise agreements in 19 states in the United States, Canada, Puerto Rico, the United Arab Emirates, Egypt, Qatar, Taiwan, and one company-owned Ponderosa restaurant in the United States. The acquisition and contribution to us of Ponderosa and Bonanza is not a condition to completing this Offering.

 

Beyond our current brand portfolio and the Ponderosa and Bonanza acquisitions, we intend to acquire restaurant concepts that will allow us to offer additional food categories and expand our geographic footprint. In evaluating potential acquisitions, we specifically seek concepts with the following characteristics:

 

	●	established, widely-recognized brands;
	●	steady cash flows;
	●	track records of long-term, sustainable operating performance;
	●	good relationships with franchisees;
	●	sustainable operating performance;
	●	geographic diversification; and
	●	growth potential, both geographically and through co-branding initiatives across our portfolio.

 

We approach acquisitions from a value perspective, targeting valuations of approximately 6.0x-8.0x 12-month leading cash flow to ensure that acquisitions are immediately accretive to our earnings. Leveraging our scalable management platform, we expect to achieve cost synergies post-acquisition by reducing the corporate overhead of the acquired company – most notably in the legal, accounting and finance functions. Adjusted for these cost synergies, we believe that we will have the opportunity to acquire complementary restaurant brands at a valuation multiple materially below 6.0x-8.0x 12-month leading cash flow. We also plan to grow the top line revenues of newly acquired brands through support from our management and systems platform, including public relations, marketing and advertising, supply chain assistance, site selection analysis, staff training and operational oversight and support.

 

Including Ponderosa and Bonanza, our experienced and diversified franchisee base consisted of 149 franchisees as of June 25, 2017, 116 of which are located in North America and 47 of which operate multiple locations. With the completion of the Ponderosa and Bonanza acquisitions, our franchisees operated more than 300 restaurants as of December 26, 2016 (239 of which were located in North America), with system-wide store level sales in excess of $300 million in 2016. Including Ponderosa and Bonanza, as of June 25, 2017, we had a total of 316 new unit development commitments (140 located in North America), 43 of which have been developed and opened, and 273 of which remain to be completed (126 in North America). For further details concerning our existing unit development pipeline for Fatburger and Buffalo’s, see the table under “Development Agreements” on page 88 of this Offering Circular.

 

Since converting to a franchisor model in 2011, we have improved store-level operations and maintained positive same-store sales growth in our traditional domestic market over each of the last five years while operating less than 1% of total units. Over the same time period, our concepts have also experienced significant growth in total number of locations. As a result, between 2012 and 2016, unadjusted for the acquisition of Ponderosa and Bonanza, the company achieved compound annual growth rates in net revenue, net income, and EBITDA of 9.9%, 40.0% and 35.3%, respectively, reflecting consistent yearly growth over this period. By providing multiple support services that promote the financial and operational health of our franchisees – our direct customers – we believe that we will continue to enable our franchisees to increase their same-store sales and grow their store counts, thereby driving our sustained strong financial performance. For a discussion of how we calculate same-store sales growth, please refer to “Selected Historical Combined Financial and Other Data of Fatburger North America, Inc. and Buffalo’s Franchise Concepts, Inc. and Subsidiary” beginning on page 41 of this Offering Circular.

 

The FAT Brands Difference – Fresh. Authentic. Tasty.

 

Our name represents the values that we embrace as a company and the food that we provide to customers – Fresh. Authentic. Tasty (which we refer to as “FAT”). The success of our franchisor model is tied to consistent delivery by our restaurant operators of freshly prepared, made-to-order food that our customers desire. With the input of our customers and franchisees, we continually strive to keep a fresh perspective on our brands by enhancing our existing menu offerings and introducing appealing new menu items. When enhancing our offerings, we ensure that any changes are consistent with the core identity and attributes of our brands, although we do not intend to adapt our brands to be all things to all people. In conjunction with our restaurant operators (which means the individuals who manage and/or own our franchised restaurants), we are committed to delivering authentic, consistent brand experiences that have strong brand identity with customers. Ultimately, we understand that we are only as good as the last meal served, and we are dedicated to having our franchisees consistently deliver tasty, high-quality food and positive guest experiences in their restaurants.

 

 

In pursuing acquisitions and entering new restaurant segments, we are committed to instilling our FAT Brands values into new restaurant concepts. As our restaurant portfolio continues to grow, we believe that both our franchisees and diners will recognize and value this ongoing commitment as they enjoy a wider concept offering.

 

Competitive Strengths

 

We believe that our competitive strengths include:

 

	●	Management Platform Built for Growth. We have developed a robust and comprehensive management and systems platform that supports the expansion of our existing brands while enabling the accretive and efficient acquisition and integration of additional restaurant concepts. We dedicate our considerable resources and industry knowledge to promote the success of our franchisees, offering them multiple support services such as public relations, marketing and advertising, supply chain assistance, site selection analysis, staff training and operational oversight and support. Furthermore, our platform is scalable and adaptable, allowing us to incorporate new concepts into the FAT Brands family with minimal incremental corporate costs. For example, following our acquisition of the Buffalo’s Cafe brand in 2011, we leveraged our platform to refresh the brand, expand the concept into the fast casual segment (through the Buffalo’s Express concept), and grew the brand appeal to a broader base of franchisees. As a result, as of June 25, 2017, we had grown the number of co-branded Buffalo’s Express stores from launch to 68 locations through 22 Buffalo’s Express franchisees. As such, we intend to grow our existing brands as well as make strategic and opportunistic acquisitions that complement our existing portfolio of concepts providing an entrance into targeted restaurant segments. We believe that our platform is a key differentiator in pursuing this strategy.
	●	Capital Light Business Model Driving High Free Cash Flow Conversion. We maintain an asset light business model requiring minimal capital expenditures by franchising our restaurant concepts to our owner / operators. The multi-brand franchisor model also enables us to efficiently scale the number of restaurant locations with very limited incremental corporate overhead and minimal exposure to store-level risk, such as long-term real estate commitments and increases in employee wage costs. Our multi-brand approach also gives us the organizational depth to provide a host of services to our franchisees, which we believe enhances their financial and operational performance. As a result, new store growth and accelerating financial performance of the FAT Brands network drive increases in our franchise fee and royalty revenue streams while expanding profit and free cash flow margins. From 2012 to 2016, our EBITDA margin expanded from 27.2% to 64.3%.
	●	Strong Brands Aligned with FAT Brands Vision. We have an enviable track record of delivering Fresh, Authentic, and Tasty meals across our franchise system. Our current Fatburger and Buffalo’s concepts have built distinctive brand identities within their respective segments, providing made-to-order, high-quality food at competitive prices. The Ponderosa and Bonanza brands, which we will acquire upon consummation of this Offering, deliver an authentic American steakhouse experience with which customers identify. By maintaining alignment with the FAT Brands vision across an expanding platform, we believe that our concepts will appeal to a broad base of domestic and global consumers.
	●	Experienced and Diverse Global Franchisee Network. As of June 25, 2017 and including Ponderosa and Bonanza, our franchise base consisted of 149 franchisees, 47 of whom operate multiple locations. With the completion of the Ponderosa and Bonanza acquisitions, our franchisees will operate more than 300 restaurants, with system-wide sales in excess of $300 million. Based on existing new restaurant commitments of over 300 locations across our brands, we anticipate that our current franchisees will open more than 30 new restaurants annually for at least the next four years. The acquisition of additional restaurant franchisors will also increase the number of restaurants operated by our existing franchisee network. Additionally, our franchise development team has built an attractive pipeline of new potential franchisees, with many experienced restaurant operators and new entrepreneurs eager to join the FAT Brands family.

 

 

	●	Ability to Cross-Sell Existing Franchisees Concepts from the FAT Brands Portfolio. Our ability to easily, and efficiently, cross-sell our existing franchisees new brands from our FAT Brands portfolio affords us the ability to grow more quickly and satisfy our existing franchisees’ demands to expand their organizations. By having the ability to offer our franchisees a variety of concepts (i.e., a fast-casual better-burger concept, a fast-casual chicken wing concept, a casual dining concept and steakhouse concepts) from the FAT Brands portfolio, our existing franchisees are able to acquire the rights to, and develop, their respective markets with a well-rounded portfolio of FAT Brands concept offerings affording them the ability to strategically satisfy their respective market demands by developing our various concepts where opportunities are available.
	●	Seasoned and Passionate Management Team. Our management team and employees are critical to our success. Our senior leadership team has more than 200 years of combined experience in the restaurant industry, and many have been a part of our team since the acquisition of the Fatburger brand in 2003. We believe that our management team has the track record and vision to leverage the FAT Brands platform to achieve significant future growth. In addition, through their holdings in FCCG, our senior executives will own a significant equity interest in the company following the consummation of this Offering, ensuring long-term commitment and alignment with our public shareholders. Our management team is complemented by an accomplished Board of Directors.

 

Growth Strategy

 

The principal elements of our growth strategy include:

 

	●	Opportunistically Acquire New Brands. Our management platform was developed to cost-effectively and seamlessly scale with new restaurant concept acquisitions. In connection with the Buffalo’s Cafe acquisition, we have also garnered expertise and developed a track record of efficiently on-boarding new brands at minimal incremental corporate cost. The anticipated acquisition of the Ponderosa and Bonanza brands is a continuation of this growth strategy, which will remain a critical facet of our future plan. In particular, we have identified food categories that appeal to a broad international base of customers, targeting the chicken, pizza, coffee, sandwich and dessert segments for future growth. We have developed a strong and actionable pipeline of potential acquisition opportunities to achieve our objectives. We seek concepts with established, widely-recognized brands; steady cash flows; track records of long-term, good relationships with franchisees; sustainable operating performance; geographic diversification; and growth potential, both geographically and through co-branding initiatives across our portfolio. We approach acquisitions from a value perspective, targeting modest multiples of franchise-level cash flow valuations to ensure that acquisitions are immediately accretive to our earnings prior to anticipated synergies.   In addition to our pending acquisition of Ponderosa and Bonanza, as of the date of this Offering Circular we have entered into a letter of intent to acquire an additional restaurant concept with approximately 60 franchised stores for approximately $11,000,000, and are in discussions to acquire another restaurant concept with approximately 50 stores for a purchase price in the range of $26-30 million. We intend to finance future acquisitions through a combination of borrowings under a proposed new credit facility and by issuing new equity securities, including preferred stock if available on terms satisfactory to us. There can be no assurance that we will enter definitive agreements based on such letter of intent or discussions, consummate such acquisitions or acquire any additional restaurant brands, or obtain financing for such acquisitions on acceptable terms, if at all. Furthermore, our acquisitions are subject to a number of risks and uncertainties, including as to when, whether and to what extent the anticipated benefits and cost savings of a particular acquisition will be realized. See “Risk Factors.”
	●	Accelerate 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. For each of the last five years, we have achieved positive annual same-store sales growth in our traditional domestic market, which represented approximately 69% of our royalty revenue in 2016. To maintain this performance, we have embraced a multi-faceted same-store sales growth strategy. We utilize customer feedback and closely analyze sales data to introduce, test and perfect existing and new menu items. In addition, we regularly utilize public relations and experiential marketing, which we leverage via social media and targeted digital advertising to expand the reach of our brands and to drive traffic to our stores. Furthermore, we have embraced emerging technology to develop our own brand-specific mobile applications, allowing guests to find restaurants, order online, earn rewards and join our e-marketing providers. We have also partnered with third-party delivery service providers, including UberEATS, Grub Hub, Amazon Restaurants and Postmates, which provide online and app-based delivery services and constitute a new sales channel for our existing locations. Finally, many of our franchisees are pursuing a robust capital expenditure program to remodel legacy restaurants and to opportunistically co-brand them with our Buffalo’s Express and / or Fat Bar concepts (serving beer, wine, spirits and cocktails).

 

 

	●	Drive Store Growth through Co-Branding. We franchise co-branded Fatburger / Buffalo’s Express locations, giving franchisees the flexibility of offering multiple concepts, while sharing kitchen space, resulting in a higher average check (compared to stand-alone Fatburger locations). Franchisees benefit by serving a broader customer base, and we estimate that co-branding results in a 20%-30% increase in average unit volume compared to stand-alone locations with minimal incremental cost to franchisees. Our acquisition strategy reinforces the importance of co-branding, as we expect to offer each of the complementary brands that we acquire to our existing franchisees on a co-branded basis.
	●	Extend Brands into New Segments. We have a strong track record of extending our brands into new segments, and we believe that we have a significant opportunity to capture new markets by strategically adapting our concepts while reinforcing the brand identity. In addition to dramatically expanding the traditional Buffalo’s Cafe customer base through Fatburger / Buffalo’s Express co-branding, we have also begun evaluating opportunities to leverage the Buffalo’s brand by promoting Buffalo’s Express on a stand-alone basis. Furthermore, we also recently began the roll-out of Fat Bars (serving beer, wine, spirits and cocktails), which we are opportunistically introducing to select existing Fatburger locations on a modular basis. Similarly, post-acquisition, we plan to create smaller-scale, fast casual Ponderosa and Bonanza concepts, to drive new store growth, particularly internationally.
	●	Continue Expanding FAT Brands Internationally. We have a significant global presence, with international franchised stores in Bahrain, Canada, China, Egypt, Fiji, India, Indonesia, Iraq, Kuwait, Malaysia, Oman, Pakistan, Panama, Philippines, Qatar, Saudi Arabia, Taiwan, Tunisia, the United Arab Emirates, and the United Kingdom. We have also recently selected a local franchisee in Japan, where we expect to open new stores in the near future. We believe that the appeal of our Fresh, Authentic, and Tasty concepts is global, and we are targeting further penetration of Middle Eastern and Asian markets, particularly through leveraging the Buffalo’s and Ponderosa brands.
	●	Enhance Footprint in Existing Markets through Current Franchisee Networks. Including Ponderosa and Bonanza, we had 149 franchisees who collectively operated more than 300 restaurants as of June 25, 2017. As noted, our existing franchisees have made new store commitments of over 300 locations across our brands, and we anticipate that our current franchisees will open more than 30 new stores annually for at least the next four years. Beyond these existing commitments, we have found that many of our franchisees have grown their businesses over time, increasing the number of stores operated in their organizations and expanding their concept offerings across the FAT Brands portfolio of concepts.
	●	Attract New Franchisees in Existing and Unpenetrated Markets. In addition to the large pipeline of new store commitments from current franchisees, we believe the existing markets for Fatburger, Buffalo’s Cafe, Buffalo’s Express, and Ponderosa and Bonanza locations are far from saturated and can support a significant increase in units. Furthermore, new franchisee relationships represent the optimal way for our brands to penetrate geographic markets where we do not currently operate. In many cases, prospective franchisees have experience in and knowledge of markets where we are not currently active, facilitating a smoother brand introduction than we or our existing franchisees could achieve independently. We generate franchisee leads through various channels, including franchisee referrals, traditional and non-traditional franchise brokers and broker networks, franchise development advertising, and franchise trade shows and conventions.

 

 

Summary Risk Factors

 

We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider the risks discussed in the section entitled “Risk Factors,” including the following risks, before investing in our Common Stock:

 

	●	Our operating results and growth strategies are closely tied to the success and cooperation of our franchisees, and we have experienced volatility in unit economics of our franchisees in recent years.
	●	Our franchisees could take actions that could harm our business, and may not accurately report sales which drives our royalties.
	●	We may not open new domestic and international franchisee-owned restaurants on a timely basis.
	●	We may not successfully identify, recruit and contract with a sufficient number of qualified franchisees.
	●	We may not achieve our target development goals, aggressive development could cannibalize existing sales and new restaurants and acquisitions of new brands may not be successful or profitable.
	●	Our growth and financial results depend in part on the pending acquisition of Ponderosa and Bonanza, for which we lack history of operations under our ownership, and successfully identifying, closing and integrating future acquisitions of other brands.
	●	Food safety and foodborne illness concerns may have an adverse effect on our business.
	●	Our business may be adversely impacted by changes in consumer discretionary spending and general economic conditions in our franchisee markets.
	●	Our international operations subject us to operating and geographic risks and foreign currency risks that could negatively affect our business and financial results.
	●	We depend on key executive management.
	●	We expect that FCCG will remain a significant stockholder, whose interests may differ from those of our public stockholders.
	●	Given our expected market capitalization, there may be limited trading liquidity in our Common Stock.

 

Our Corporate Information

 

FAT Brands Inc., the issuer of the Common Stock in this Offering, was incorporated as a Delaware corporation on March 21, 2017. Our corporate headquarters are located at 9720 Wilshire Blvd., Suite 500, Beverly Hills, California 90212. Our main telephone number is (310) 402-0600. Our principal Internet website address is www.fatbrands.com. The information on our website is not incorporated by reference into, or a part of, this Offering Circular.

 

 

Implications of Being an Emerging Growth Company

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include the following:

 

	●	we are required to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;
	●	we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (which we refer to as the “Sarbanes-Oxley Act”);
	●	we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (which we refer to as the “PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
	●	we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes;” and
	●	we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

 

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the consummation of this Offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period (as such amounts may be adjusted from time-to-time). We may choose to take advantage of some but not all of these reduced burdens. We have elected to adopt the reduced disclosure with respect to financial statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure. As a result of this election, the information that we provide stockholders may be different than you might get from other public companies in which you hold equity.

 

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period is irrevocable.

 

 

The Offering

 

Issuer in this Offering	FAT Brands Inc.
Securities offered	Common Stock
Common Stock to be outstanding before this Offering	8,000,000 shares (1)
Common Stock to be outstanding after this Offering	10,000,000 shares, assuming the maximum amount of shares are sold (1)
Price per share	$12.00
Maximum Offering amount	2,000,000 shares at $12.00 per share, or $24,000,000. There is no minimum number of shares that must be sold by in the Offering.
Proposed NASDAQ listing	We have applied to list our Common Stock on the Nasdaq Capital Market under the symbol “FAT.” Our Common Stock will not commence trading on NASDAQ until all of the following conditions are met: (i) the Offering is completed; and (ii) we have filed a post-qualification amendment to the Offering Statement and a registration statement on Form 8-A (“Form 8-A”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such post-qualification amendment is qualified by the SEC and the Form 8-A has become effective. Pursuant to applicable rules under Regulation A, the Form 8-A will not become effective until the SEC qualifies the post-qualification amendment. We intend to file the post-qualification amendment and request its qualification immediately prior to the termination of the Offering in order that the Form 8-A may become effective as soon as practicable. Even if we meet the minimum requirements for listing on NASDAQ, we may wait before terminating the Offering and commencing the trading of our Common Stock on NASDAQ in order to raise additional proceeds. As a result, you may experience a delay between the closing of your purchase of shares of our Common Stock and the commencement of exchange trading of our Common Stock on NASDAQ.
Use of proceeds	We estimate that the net proceeds to us from this Offering, after deducting Selling Agent fees and estimated offering expenses, will be approximately $21,200,000, assuming the maximum amount of shares are sold.   We intend to use the net proceeds that we receive from this Offering as follows: (i) $10,550,000 to fund the acquisition of Ponderosa Franchising Company and Bonanza Restaurant Company, and (ii) $9,500,000 to repay a portion of the Related Party Debt owed to FCCG, which will use this payment to repay indebtedness that it previously incurred in acquiring Buffalo’s Franchise Concepts, Inc.. See “Use of Proceeds.” These amounts assume that at least $20,050,000 in net proceeds is raised in the Offering. If less than this amount is raised in the Offering, the repayment of Related Party Debt will be reduced first, and FCCG will repay the balance of its third party indebtedness from other sources. If less than $10,550,000 in net proceeds is raised in the Offering, we will first use the amount raised to fund purchase of Homestyle Dining LLC, and FCCG will fund the balance from other sources and contribute Ponderosa and Bonanza to us. We will use any net proceeds in excess of $20,050,000 for our general corporate purposes.

 

 

Controlled company	Following this Offering we will be a “controlled company” within the meaning of the corporate governance rules of NASDAQ. However we do not intend to rely on these exemptions and intend to have the same requisite independent directors and board committee structure as non-controlled companies. See “Management—Corporate Governance.”   For a discussion of a Voting Agreement and additional voting arrangements that we will implement upon consummation of this Offering, please see “Management—Corporate Governance—Voting Arrangements with FCCG.”
Dividend policy	We intend to distribute as dividends to holders of our Common Stock, on a quarterly basis, substantially all of our distributable earnings, net of applicable corporate taxes and amounts payable under the Tax Sharing Agreement, in excess of amounts determined by our Board of Directors to be necessary or appropriate to be retained in the Company to provide for the conduct of our businesses, to make appropriate investments in our businesses, and to comply with the terms of debt instruments that we may enter into, other agreements and applicable law. Our targeted quarterly dividend will be 4.0% of the price per share in this Offering, or $0.48 per share annually ($0.12 per share quarterly), which amount may be raised or lowered in the future without advance notice. See “Dividend Policy.”
Tax Sharing Agreement	We will enter into a Tax Sharing Agreement with FCCG that provides that FCCG will file consolidated federal, California and Oregon (and possibly other jurisdictions where revenue is generated, at FCCG’s election) income tax returns with us and our subsidiaries. We will pay to FCCG the amount that our tax liability would have been had we filed a separate return and not been consolidated with FCCG. To the extent our required payment exceeds our share of the actual consolidated income tax liability (which may occur, for example, due to the application of FCCG’s net operating loss carryforwards), we will be permitted, in the discretion of a committee of our Board of Directors comprised solely of disinterested directors (directors not affiliated with or interested in FCCG), to pay such excess to FCCG by issuing an equivalent amount of our Common Stock in lieu of cash, valued at the fair market value of our Common Stock at the time of such payment. In addition, our inter-company credit of approximately $11,906,000 due from FCCG will be applied first to reduce such excess income tax payment obligation to FCCG under the Tax Sharing Agreement. See “Certain Relationships and Related Party Transactions—Tax Sharing Agreement.”
Risk factors	Investing in shares of our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 14 of this Offering Circular for a discussion of factors you should carefully consider before investing in shares of our Common Stock.
Proposed NASDAQ symbol	We have applied to list the shares of our Common Stock on the Nasdaq Capital Market under the symbol “FAT.”

 

(1) Excludes:

 

	●	1,000,000 shares available for future issuance under our 2017 Omnibus Equity Incentive Plan, and stock options to purchase 367,500 shares which we expect to issue under the Plan to directors and employees upon consummation of this Offering.
	●	up to 80,000 shares issuable upon exercise of the warrants to be issued to the Selling Agent in connection with this Offering, exercisable at $15.00 per share.

 

 

Summary Historical and Pro Forma Consolidated Financial Data

 

The following tables present the summary historical financial data for Fatburger North America, Inc. and Buffalo’s Franchise Concepts, Inc. Fatburger North America, Inc. and Buffalo’s Franchise Concepts, Inc. were historically under common control of FCCG and are the predecessors of the issuer, FAT Brands Inc., for financial reporting purposes.

 

The summary statement of operations data for each of the 26 weeks ended June 25, 2017 and June 26, 2016, and the summary balance sheet data as of June 25, 2017 are derived from the unaudited financial statements of Fatburger North America, Inc. and the unaudited consolidated financial statements of Buffalo’s Franchise Concepts, Inc. contained herein. The summary statement of operations data for each of the years in the two-year period ended December 25, 2016 and December 27, 2015, and the summary balance sheet data as of December 25, 2016 and December 27, 2015 are derived from the audited financial statements of Fatburger North America, Inc. and the audited consolidated financial statements of Buffalo’s Franchise Concepts, Inc. contained herein. The historical financial data of Fatburger North America, Inc. and Buffalo’s Franchise Concepts, Inc. have been consolidated on a pro forma basis through mathematical addition to show how FAT Brands Inc. would have performed as an operating entity for the periods presented. In the opinion of our management, such financial data reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation financial position and results of operations for those periods.

 

The summary unaudited pro forma financial data for the fiscal year ended December 25, 2016 gives effect to (i) the Reorganization Transactions, (ii) the Ponderosa Acquisition (defined below in “The Reorganization Transactions”), and (iii) the consummation of this Offering as if all such transactions had occurred on December 25, 2016. The unaudited pro forma consolidated financial information includes various estimates which are subject to material change and may not be indicative of what our operations or financial position would have been had this Offering and related transactions taken place on the dates indicated, or that may be expected to occur in the future. See “Unaudited Pro Forma Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the summary unaudited pro forma consolidated financial data.

 

The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. The information set forth below should be read together with the “Selected Historical Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the accompanying notes appearing elsewhere in this Offering Circular.

 

 

(In thousands, except net income per share data)

 

		26 weeks ended June 25, 2017												26 weeks ended June 26, 2016
		FBNA				BFCI				Combined				FBNA				BFCI				Combined
		(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)
Statement of operations data:
Revenues
Royalties		$	2,375			$	612			$	2,987			$	2,379			$	693			$	3,072
Franchise fees			1,154				105				1,259				1,675				255				1,930
Management fee			30				-				30				44				-				44
Total revenues			3,559				717				4,276				4,098				948				5,046
Selling, general and administrative expenses			1,300				316				1,616				1,610				366				1,976
Income from operations			2,259				401				2,660				2,488				582				3,070
Other income (expense)			4				-				4				(35	)			36				1
Income before income tax expense			2,263				401				2,664				2,453				618				3,071
Income tax expense			820				135				955				940				203				1,143
Net income		$	1,443			$	266			$	1,709			$	1,513			$	415			$	1,928
EBITDA (1)		$	2,263			$	401			$	2,664			$	2,453			$	618			$	3,071
Pro forma net income per share data (unaudited) (2)
Pro forma weighted average shares of Common Stock outstanding:
Basic			10,000				10,000				10,000				10,000				10,000				10,000
Diluted			10,000				10,000				10,000				10,000				10,000				10,000
Pro forma net income available to Common Stock per share:
Basic		$	0.14			$	0.03			$	0.17			$	0.15			$	0.04			$	0.19
Diluted		$	0.14			$	0.03			$	0.17			$	0.15			$	0.04			$	0.19

 

(1) 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 below:

 

		26 weeks ended June 25, 2017												26 weeks ended June 26, 2016
		FBNA				BFCI				Combined				FBNA				BFCI				Combined
		(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)
(In thousands)
Net income		$	1,443			$	266			$	1,709			$	1,513			$	415			$	1,928
Depreciation expense			-				-				-				-				-				-
Interest income (expense)			-				-				-				-				-				-
Income tax expense			820				135				955				940				203				1,143
EBITDA		$	2,263			$	401			$	2,664			$	2,453			$	618			$	3,071

 

(2) The unaudited pro forma net income data give effect to the Reorganization Transactions, the Ponderosa Acquisition, and the sale of shares of our Common Stock by us in this Offering at the initial public offering price of $12.00 per share and the use of proceeds contemplated hereby. For a detailed presentation of the unaudited pro forma information, including a description of the transactions and assumptions underlying the pro forma adjustments giving rise to these results, see the section entitled “Unaudited Pro Forma Consolidated Financial Information” included elsewhere in this Offering Circular.

 

(In thousands)

 

		June 25, 2017
		FBNA				BFCI				Combined
		(unaudited)				(unaudited)				(unaudited)
Combined balance sheet data:
Cash		$	-			$	-			$	-
Total assets		$	14,048			$	8,275			$	22,323
Total liabilities		$	5,778			$	1,122			$	6,900
Total stockholders’ equity		$	8,270			$	7,153			$	15,423

 

 

(In thousands, except net income per share data)

 

		Fiscal year ended December 25, 2016												Fiscal year ended December 27, 2015												Fiscal year ended December 28, 2014
		FBNA				BFCI				Combined				FBNA				BFCI				Combined				FBNA				BFCI				Combined
										(unaudited)												(unaudited)												(unaudited)
Statement of operations data:
Revenues
Royalties		$	4,632			$	1,349			$	5,981			$	5,144			$	1,317			$	6,461			$	5,350			$	1,271			$	6,621
Franchise fees			3,750				255				4,005				2,306				706				3,012				2,353				115				2,468
Management fee			75				—				75				83				—				83				24				—				24
Total revenues			8,457				1,604				10,061				7,533				2,023				9,556				7,727				1,386				9,113
Selling, general and administrative expenses			2,932				663				3,595				2,590				732				3,322				2,646				834				3,480
Income from operations			5,525				941				6,466				4,943				1,291				6,234				5,081				552				5,633
Other income (expense)
Interest expense			—				—				—				—				—				—				—				(5	)			(5	)
Other income			—				36				36				—				85				85				—				61				61
Total other income			—				36				36				—				85				85				—				56				56
Income before income tax expense			5,525				977				6,502				4,943				1,376				6,319				5,081				608				5,689
Income tax expense (benefit)			1,979				319				2,298				2,283				528				2,811				2,145				(15	)			2,130
Net income		$	3,546			$	658			$	4,204			$	2,660			$	848			$	3,508			$	2,936			$	623			$	3,559
EBITDA (1)		$	5,525			$	977			$	6,502			$	4,943			$	1,376			$	6,319			$	5,081			$	613			$	5,694
Pro forma net income per share data (unaudited) (2)
Pro forma weighted average shares of Common Stock outstanding:
Basic			10,000				10,000				10,000				10,000				10,000				10,000				10,000				10,000				10,000
Diluted			10,000				10,000				10,000				10,000				10,000				10,000				10,000				10,000				10,000
Pro forma net income available to Common Stock per share:
Basic		$	0.35			$	0.07			$	0.42			$	0.27			$	0.08			$	0.35			$	0.29			$	0.06			$	0.35
Diluted		$	0.35			$	0.07			$	0.42			$	0.27			$	0.08			$	0.35			$	0.29			$	0.06			$	0.35

 

(1) 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 GAAP measure of our financial performance or liquidity 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 below:

 

		Fiscal year ended December 25, 2016												Fiscal year ended December 27, 2015
		FBNA				BFCI				Combined				FBNA				BFCI				Combined
(In thousands)
Net income		$	3,546			$	658			$	4,204			$	2,660			$	848			$	3,508
Depreciation expense			-
Interest income (expense)			-
Income tax expense			1,979				319				2,298				2,283				528				2,811
EBITDA		$	5,525			$	977			$	6,502			$	4,943			$	1,376			$	6,319

 

(2) The unaudited pro forma net income data give effect to the Reorganization Transactions, the Ponderosa Acquisition, and the sale of shares of our Common Stock by us in this Offering at the initial public offering price of $ per share and the use of proceeds contemplated hereby. For a detailed presentation of the unaudited pro forma information, including a description of the transactions and assumptions underlying the pro forma adjustments giving rise to these results, see the section entitled “Unaudited Pro Forma Consolidated Financial Information” included elsewhere in this Offering Circular.

 

(In thousands)

 

		Fiscal year ended December 25, 2016												Fiscal year ended December 27, 2015												Fiscal year ended December 28, 2014
		FBNA				BFCI				Combined				FBNA				BFCI				Combined				FBNA				BFCI				Combined
										(unaudited)												(unaudited)												(unaudited)
Combined balance sheet data:
Cash		$	-			$	-			$	-			$	211			$	41			$	252			$	-			$	-			$	-
Total assets			14,189				8,179				22,368				15,205				7,771				22,976				19,032				8,041				27,073
Total liabilities			6,362				1,192				7,554				9,225				1,242				10,467				8,711				1,961				10,672
Total stockholders’ equity			7,827				6,987				14,814				5,981				6,529				12,510				10,321				6,080				16,401