Fog Cutter Capital (FCCG) research, news, and more from GeoInvesting

Company description

Thu, 28 Sep 2017 15:28:36 GMT

Fog Cutter Capital Group Inc. structures, manages and invests in a diverse range of equity, corporate debt and real estate. The Company provides capital to businesses engaged in restructuring, recapitalization, management buy-outs and commercial real estate. The Company focuses on diversified investing, structuring and managing a range of finance-related assets. The Company helps companies restructure their balance sheets by providing them with debt or equity capital in order to work out their financial issues with lenders. The Company also helps companies that need liquidity and want to dispose of non-core assets. The Company invests in loans secured by real estate or other assets in the United States and Europe. The Company can also assist in providing mezzanine type lending. The Company invests in commercial and multi-family real estate located in the United States and the United Kingdom, such as residential, retail, commercial or industrial property.

Research

Mon, 24 Jun 2019 15:58:36 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($0.98; $7.7M market cap) is the publicly traded parent company of FAT Brands(NASDAQ:FAT). In November of 2017, we first noted that FCCG and FAT were considering a potential merger in order to simplify FAT’s profile as a public company and potentially take advantage of FCCG’s net operating loss carryforwards. At the time of our original note, FCCG owned 80% of FAT which completed its Reg A+ IPO in October 2017 at $12 per share, implying that FCCG could be worth $8.20.

With shares of FAT continuing to decline and the merger still a work in progress, we have decided to move on from our FCCG position. The merger was originally slated to close in 2018 and has now been pushed back to some time in 2019.

Shares of FCCG had a wild ride during our coverage period, with the stock trading at around $1 at our first mention, to shares reaching $3.38 in early October 2018.

Although FCCG shares did rise, they never fully closed the valuation gap based on its ownership interest in FAT. Due to dividends it has received in FAT stock, FCCG now currently owns 82% of FAT (implying a current fair value of $3.30 per share based on FAT current’s price of $4.02).

One of our original concerns was that FAT had and continues to have a weak financial position mired in debt. At this point, even if a deal gets done, it’s uncertain what the price of FAT will be at such time.

On a positive note, FAT pays dividends, payable in FAT common stock. So, since FCCG ( mainly owned by entities of Andrew Wiederhorn, the CEO and Chairman of FCCG and FAT) is the largest shareholder of FAT, there is a big incentive for Andy to maximize FCCG ownership interest in FAT. However, we are clearly concerned in Andy's ability to successfully navigate FAT’s balance sheet, given his questionable history, which includes FAT’s past chapter 11 bankruptcy under his leadership.

Research

Mon, 19 Nov 2018 15:23:09 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($2.15; $17.1M market cap) is the publicly traded parent company of FAT Brands(NASDAQ:FAT). In November of 2017, we first noted that FCCG and FAT were considering a potential merger in order to realize more shareholder value and potentially take advantage of FCCG’s net operating loss carryforwards. In May of 2018, we conveyed to our members that FCCG was looking to consummate a merger that would be in the best interest of both companies.

In case you haven't seen it, below is an update on the merger from the Q&A of its Q3 2018 conference call held on November 11, 2018:

Unidentified Analyst

Pretty good, Andy. Couple of quick questions. Number one, I know you had mentioned that the FCCG and the FAT Brands would ultimately merge at some point in time. I was just wondering how that is progressing?

Andy Wiederhorn

We're working on it. I know I said that last quarter also but we actually are working on it very hard that it's very complicated because that Fog Cutter has a big tax loss that we want to incorporate into FAT Brands and be careful that – in doing that, we don't somehow trap that loss and do something that messes it up. And it requires a lot of SEC analysis as to how to do it properly.

So we've been working on that a lot this quarter. I think we figured out finally the details of the structure and we're waiting on – its sort of a three-pronged approach of securities, lawyers, accountants and tax advisors who are all separate to make sure everyone's on the same page and then make sure that, it fits within the SEC guidelines as to how to get it done as quickly as possible.

It's among the top three things, I'm working on one being the refinancing, the lower cost of capital, the second being some significant acquisitions to boost our EBITDA and get out of microcap land. And third is to complete the merger. And so all those things are immediate goals for us, we hope to deliver on very soon.

In its Q2 conference call, management stated it hoped to be in position to hold a shareholder vote regarding the merger in Q4. While it seems a bit less definitive now, it is still a top priority for management, but it appears as though the timetable has been pushed back.

Execution risk still remains. Even though shares carry a hefty dividend of 7.6%, FAT is highly leveraged and is already looking to refinance its debt, after only recently having received debt capital. The Company also wants to continue to scoop up more entities before fully integrating its recent acquisitions’ operations.

Research

Wed, 29 Aug 2018 14:33:56 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($2.70; $21.4M market cap) is the publicly traded parent company of FAT Brands (NASDAQ:FAT). On August 27, 2018 a new 13G/A filing showed that FCCG now owns 9.3 million shares, or 82%, of FAT. Previous filings had showed that FCCG owned 8 million shares, or 80%, of FAT. We believe the increase in shares is likely from the dividend that FAT issued to FCCG shareholders as well as shares issued to FCCG from FAT to settle $18 million worth of past debt obligations.

Back in November of 2017 we first noted that FCCG and FAT were considering a potential merger in order to realize more shareholder value and potentially take advantage of FCCG’s net operating loss carryforwards. In May of this year, we conveyed to our members that FCCG was looking to consummate a merger that would be in the best interest of both companies:

"The main takeaway from the article is that it seems Mr. Wiederhorn is looking to merge the two companies and looking out for the best interest of shareholders of both companies. FAT’s last conference call did indicate that a merger between FCCG and FAT may be on the horizon. From an economic perspective, a merger of the two companies would allow FAT to fully take advantage of the large net operating losses (NOLs) that FCCG has accumulated over the years."

A potential merger between the two entities has not been mentioned in company press releases or discussed publicly to any lengthy degree. Today we believe we have even further information arbitrage on this potential merger that we believe could help FCCG realize further value.

From the company’s recent Q2 conference call:

“Sure. I can't comment too much on Fog Cutter because it's not reporting to our company, but FAT Brands is in talks with Fog Cutter to work on this anticipated merger. I expect that it's something that we can bring to the shareholders in the fourth quarter. There are some complexities both stock exchange and tax related issues that we're trying to iron out, but both boards are actively working on it and I expect that we’ll make progress before the end of this quarter and hopefully be in a position to have a shareholder vote in the fourth quarter. There's a notice period and things like that, so if we can pull it together we'll get that done this quarter and try to tee it up for Q4, but you never know, right, things can go wrong. The regulators can say no so, we have to proceed on that basis.”

We expect that more information will be forthcoming in Q3 and that the potential merger could consummate in Q4, barring regulatory setbacks.

While we’re not sure as to the specifics of how FCCG’s valuation would change as a result of the merger, we’re confident that the addition of the NOLs would ultimately wind up unlocking value for FCCG shareholders. Based solely on FCCG’s 82% ownership stake in FAT, yesterday’s closing price of $8.45 and an assumption that the outstanding share count of FCCG and FAT currently stands at 11.7 million and 12 million, respectively, we think that FCCG is worth around $6.70. Applying a typical 20% discount to account for uncertainties that a merger would take place or how it would be consummated leads to an FCCG share valuation of $5.36.

Caveats of merger:

Regulators - No guarantee a merger will be approved
Uncertainty on how the merger will value FAT, which will ultimately affect the value of FCCG in FAT
Uncertainty on how much of the value of the loss carryforwards will be transferred to the newly merged entity
Ongoing class action lawsuits possibly preventing or delaying a merger transaction or resulting in a less favorable outcome for FCCG than we are currently expecting.

Research

Tue, 28 Aug 2018 15:21:31 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($2.65; $21.0M market cap) is the publicly traded parent company of FAT Brands (NASDAQ:FAT). Yesterday, a new 13G/A filing showed that FCCG now owns 9.3 million shares, or 82%, of FAT. Previous filings had showed that FCCG owned 8 million shares, or 80%, of FAT. We believe the increase in shares is likely from the dividend that FAT issued to shareholders. FCCG likely took this dividend in stock instead of cash because, at the time, FAT did not have the funding or cash to pay the dividend.

Moving forward, we would expect that FAT will be able to start paying its dividend in cash due to a recent financing that enabled it to complete its anticipated acquisition of Hurricane Grill & Wings. This acquisition should substantially contribute to the Company’s bottom line.

Research

Mon, 20 Aug 2018 14:39:55 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($2.70; $21.4M market cap) is the publicly traded parent company of FAT Brands (NASDAQ:FAT). FAT announced the development of 12 new co-branded Fatburger and Buffalo's Express restaurants throughout Southern California, and one co-branded Fatburger and Buffalo's Express restaurant in Washington state.

It is also worth noting that several insiders have purchased shares at open market prices over the last several weeks.

To see the relationship FCCG and FAT have and why we believe FCCG shares should move higher, view out past coverage here.

Research

Thu, 05 Jul 2018 14:10:41 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($2.70; $21.4M market cap) is the publicly traded parent company of FAT Brands (NASDAQ:FAT). FAT announced it successfully completed its previously announced acquisition of Hurricane Grill & Wings for $12.5 million, which was funded through a combination of $8.0 million of cash and $4.5 million of preferred stock (deal will lead to dilution of 1.5 million shares) . With the acquisition of Hurricane, FAT Brands now franchises more than 325 restaurants around the world with annual system-wide sales exceeding $350 million.

In a separate release, FAT announced that it took on a $16 million senior credit facility, which it used to partly complete the Hurricane acquisition. The rest of the facility is to be used to repay existing indebtedness and for future acquisitions.

With the acquisition of Hurricane complete, the company believes that it will generate substantial EBITDA which should help to ensure that dividends are paid in cash instead of stock which is what occured with the last dividend. It should also expedite the process to consummate some type of merger with Fog Cutter.

The implied price for FCCG based on its ownership with the new debt deal with FAT implies a fair value of around $5.90 per share.

Research

Mon, 21 May 2018 15:03:38 GMT

Looking to possibly add FCGG and IVFH to round out our ‘Buy on Pullback’ Mock Portfolio 7.0

Fog Cutter Cap Grp (PINK:FCCG) ($2.26; $17.9M market cap) is the publicly traded parent company of FAT Brands (NASDAQ:FAT). We are waiting on FAT to close a round of financing that will assist in completing its acquisition plans of Hurricane Grill & Wings.

We believe that once the financing closes, the valuation gap between FCCG and FAT will close as well. Recall, FCCG owns 80% of FAT. More importantly, we feel FAT shares will likely increase therefore taking FCCG with it.

On a side note we are encouraged that a director of FAT recently bought shares at open market prices.

Research

Fri, 04 May 2018 15:58:13 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($2.00; $15.9M market cap) is the publicly traded parent company of FAT Brands (NASDAQ:FAT). On Wednesday, we discussed possibly taking a more active role in informing FCCG shareholders and the market in general about the relationship defined by the ownership structure between FCCG and FAT. See our notehere.

Based on an interview with Andrew Wiederhorn (the CEO of FAT), RegAResearch released an article titled, “Investors Might Have Overlooked This Juicy Merger on FAT’s Menu”. The article discusses in detail the relationship we have been highlighting between the two, specifically that FCCG owns 80% of FAT, and that FCCG is owned by a vehicle that is 75% owned by the family office of Andrew Wiederhorn.

The main takeaway from the article is that it seems Mr. Wiederhorn is looking to merge the two companies and looking out for the best interest of shareholders of both companies. FAT’s last conference call did indicate that a merger between FCCG and FAT may be on the horizon. From an economic perspective, a merger of the two companies would allow FAT to fully take advantage of the large net operating losses (NOLs) that FCCG has accumulated over the years.

The dividend issue we discussed yesterday remains a question mark.

The implications of this article, if it were to be widely viewed, are that it provides more clarity on a few items.

How much of FCCG does Andy own? We now know the answer to be 75%.
Do enough investors know that Fog Cutter is a public entity? The article is very clear that it is.
Does Andy want to treat FCCG minority shareholders fairly? The article implies that this may be the case if a merger takes place.

A wrinkle still exists. While we do think this article could be positive for FCCG’s share price, uncertainty will still remain on what the FAT/FCCG merger will look like. Furthermore, we still want more clarity on whether or not FCCG will distribute the sizable dividends it receives from FAT to FCCG shareholders. Ultimately, this is what would drive FCCG much higher. We will continue putting forth a shareholder activist plan of attack and keep you posted on our findings.

Research

Wed, 02 May 2018 14:46:47 GMT

We are contemplating taking a more active role in informing Fog Cutter Cap Grp (PINK:FCCG) ($2.00; $15.9M market cap) and FAT Brands (NASDAQ:FAT) shareholders, as well as the market in general, about the relationship defined by the ownership structure of FCCG and FAT. FCCG is the publicly traded parent company of FAT Brands. We've been covering this sinceSeptember 27, 2017.

Dividend Update:

For starters, we want to point out that FCCG owns 80% of FAT. This means that the dividend that FAT recently paid to shareholders on April 16, 2018, 80% of the $1.6 million1 belongs to FCCG (and its shareholders).

We are very concerned that no release has been issued by FCCG acknowledging that the dividend was actually paid because, it is our opinion (based on reading filings and participating in FAT conference calls), that FCCG may not hold maximizing minority shareholder values as a priority. Furthermore, it appears to us that FAT is not doing an appropriate job of disclosing all of the facts regarding FCCG.

Specifically, we have yet to see any verbiage in public disclosures by FAT that FCCG is a publicly traded company (at least that has been our observation so far). It remains to be seen if FCCG will distribute any of the dividend it has received from FAT to its minority shareholders, and we hope that our skepticism is misplaced, but we think it's time we start taking a more proactive role in the FCCG story.

Familiarize Yourself with Our Activism

April was an active month for GeoInvesting in terms of subscribers and we want to welcome new members who found us from The China Hustle documentary. We hope those subscribers will start to get an understand of the activist work that we do specifically outside of China. For those who would like to familiarize themselves with this type of activist work we do on behalf of our members, you can read this piece from Barron’s about Blue Bird, one of our most successful activist campaigns thus far. The stock has appreciated from about $14 at the time of our activist involvement, to about $23 today.

Note:
1our estimate of total dividend

Research

Thu, 18 Jan 2018 19:04:47 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($3.02; $24M market cap), is the publicly traded parent company of FAT Brands Inc.(NASDAQ:FAT). Yesterday, we issued the following tweet regarding a preferred share offering by FAT:

In related news, FAT announced today that it continues to expand globally with an international development deal in Scotland.

“The Company has signed an international development deal with FB Scotland LTD to open three co-branded Fatburger and Buffalo’s Express restaurants across Scotland in the next five years, the first of which is planned for Dundee.”

See our full coverage on FCCG here.

Research

Mon, 08 Jan 2018 17:10:54 GMT

Fog Cutter Cap Grp (PINK:FCCG) ($3.34; $26M market cap), the publicly traded parent company of FAT Brands Inc.(NASDAQ:FAT), extended its stockholder rights plan to preserve its use of operating losses.

“The Rights Plan was originally adopted by Fog Cutter as a means of protecting the potential tax benefits of the Company’s net operating loss carryforward ('NOL'),” said Donald J. Berchtold, President of the Company. “Under Federal tax rules, the NOL’s will be limited if the Company undergoes a significant change in ownership. The Rights Plan addresses the Board’s duty to protect the best interests of the Company and its stockholders by diluting any new 5% holder, or any existing 5% holder, that increases its stake by 1% or more, thereby preserving the Company’s NOL.”

Mr. Berchtold continued, “The extension of the Rights Plan was adopted in connection with planning for the initial public offering of FAT Brands, which was completed in October 2017. The preservation of Fog Cutter’s NOL is more important than ever, since Fog Cutter has entered into a written tax sharing agreement with FAT Brands in connection with the IPO.”

Investors should note that this shareholder rights plan (Poison Pill), “is a form of defense against a potential takeover. The Poison Pill is a structural maneuver designed to thwart attempted takeovers, where the target company seeks to make itself less desirable to potential acquirers.”

We view this release as warning, from FCCG to “hostile” investors who may be trying to take the company over for cheap or take on an activist role, that there will be major dilution.

On the positive side, this is the first public acknowledgement of the FCCG and FAT relationship (and seemingly indirect acknowledgment that FCCG management may understand that its shares are undervalued). With the stock trading well below where it should be to account for its 80% ownership stake in FAT, we can see why the company extended the rights plan.

The company states that there are 7.9 million outstanding shares, which is the same amount shown in the last 10-Q filing from 2010. However, there were some stock options with an average exercise price of $1.51 which, if they still exist, would present nearly 3 million additional shares. With no current filings it is unclear if these options still exist, or if any new dilutive securities are present.

We previously used 12 million outstanding shares in our valuation analysis that led us to believe that FCCG was worth between $6 and $7 depending on the price of FAT. If FCCG’s share count winds up being lower (7.9M shares) our price target per share would obviously increase accordingly, by about 40%.

At FAT’s current price of $9.67, FCCG’s 80% ownership stake is worth $9.72 (using 7.9 million o/s) and $6.4 (using our initial 12 million share estimate).

Research

Fri, 05 Jan 2018 17:31:59 GMT

Fog Cutter Cap Grp# (PINK:FCCG) ($3.34; $26M market cap), the publicly traded parent company of FAT Brands Inc.(NASDAQ:FAT) which owns 80% of FAT, saw its shares rocket higher in yesterday’s trading session on what we can only assume is other investors realizing the arbitrage opportunity we have discussed for several months now. In late September 2017, when FCCG was trading at $0.80 we mentioned that FCCG will own 80% of FAT once the FAT IPO commenced.

Snapshot of our September 27, 2017 note:

We will obviously try to follow the developments with respect to FAT and FCCG and provide updates as necessary. With about 12 million shares outstanding as of September 2017, FCCG’s implied valuation could be as high as $8.00 per share. We want to caution our readers that we do not have clarity on FCCG’s current capital structure, debt levels, or preferred shares and it therefore remains a highly speculative play.

With FAT’s current market cap of $101 million, we estimate fair value of FCCG to be $6.70 (101 x .8/12). FCCG shares were up 82% yesterday, closing at $3.34, which still represents a steep discount to fair value.

Research

Thu, 30 Nov 2017 15:35:39 GMT

Fat Brands Inc. (NASDAQ:FAT) ($9.55; $76.4M market cap), a restaurant operator, announced Q3 2017 results:

Sales of $3.5 million vs $4.1 million in the prior year
EPS of $0.15 vs $0.19 in the prior year

Quotes from management:

“FAT Brands is built for growth. Our robust management and systems platforms support the expansion of our existing brands, while enabling the accretive acquisition and efficient integration of additional restaurant concepts. This scalable platform generates significant efficiencies in franchise support services and corporate overhead. Pro forma for the Hurricanes acquisition and expected synergies, we expect annualized revenue to exceed $17 million, and annualized adjusted cash earnings of greater than $11 million, or $1.10 per share”

The conference call gave some positive hints regarding the FCCG/FAT relationship. FCCG will not pay management salaries, which will be paid by FAT. This alleviates the fear of FCCG burning through cash with salary expenses.

Also, management stated in the question and answer section of the call that the dividend distribution from Fatbrands will be equal to all shareholders, including FCCG, but management can’t comment at this point on the pass through of the dividend to FCCG shareholders due to the fact that FCCG is currently dark.

Finally, management hinted at a possible merger or other transaction to combine FCCG and FAT again in order to take full advantage of the tax-loss carryforwards on the FCCG level. Management refused to comment on the size of the tax-loss carryforwards on FCCG or give any concrete numbers of FCCG, but it was noteworthy that many of the questions on the call were about the FCCG/FAT dynamic.

We find the commentary on the conference call encouraging for FCCG shareholders because it shows that analysts seem to be aware of the relationship and are intrigued by the apparent opportunity, and that management is perceiving the current setup as at least a potential issue and is looking for ways to solve it.

We will continue to interpret what the implications of management’s comments mean for FCCG shareholders.

Research

Mon, 27 Nov 2017 16:03:41 GMT

Fog Cutter Capital (PINK:FCCG) ($1.78) - after falling sharply from a high of $2.61 since FAT Brands Inc.(NASDAQ:FAT) completed its IPO at $12 per share, shares have slowly been inching up since hitting a low of $0.95 on November 13, 2017. Part of the reason shares were weak may have been due to the uncertainty of where FAT would settle in at after its IPO. Another reason could be that FAT owes FCCG a substantial amount of money due to prior financing that FAT completed to consummate acquisitions. The FAT prospectus mentioned that after the IPO, it will raise money through debt to retire its obligations to FCCG. We think that if and when this occurs, FCCG could be in better position to move higher (something investors may already be speculating). It is also worth noting that FAT will be presenting at the LD MicroCap conference taking place between December 5th to 7th, 2017. Hopefully, more investors will begin to understand the relationship between FCCG and FAT. You can go to FCCG’s profile page here to read our notes regarding this relationship.

Research

Wed, 04 Oct 2017 17:23:57 GMT

**Reg A+ IPO - Fat Brands Update

In our September 27, 2017 email, we highlighted a speculative situation involving FCCG ($1.11) which is the publicly traded parent company of Fat Brands, one that intends to manage a “portfolio of restaurants throughout the globe”.

Today, Fat Brands announced it is now accepting investments for its $24 million proposed Reg A+ IPO which it expects to trade under the symbol $FAT once complete. The Company is offering 2 million shares at $12.00 per share and expects the offering to close on October 20, 2017.

We hope as the deal moves forward and nears completion, that the valuation gap we highlighted in our speculative note should begin to close. As we stated in our original note, with about 12 million shares outstanding as of September 2017, FCCG’s implied valuation could be as high as $8.00 per share. We want to caution our readers that we do not have clarity on FCCG’s current capital structure and that shares are very illiquid.

We also don't have clarity on FCCG’s stance on how or if it will attempt maximize shareholder value. However, the relationship between FCCG and Fat Burger is real.

Shareholder Letters

Fri, 29 Sep 2017 15:04:03 GMT

Dear customers, franchisees and prospective stockholders of FAT Brands Inc.:

I am delighted to finally position our brands so that you can all be part owners, as well as lovers of our delicious Fresh, Authentic and Tasty burgers, shakes, fries, chicken wings, steaks and other offerings! We are fortunate to have been appreciated by so many of you over the years as loyal diners in our restaurants, and we have worked hard to keep our products tasting the same, as we’ve grown our brands and transition from a private company to the public world.

Our dedication to quality is reflected by our wide following around the world. Across our brands, we have over 43,500 Twitter followers, 68,000 Instagram followers, and over 1,000,000 Facebook likes. We sold more than 15,000,000 hamburger patties, 10,000,000 steaks and 3,000,000 pounds of chicken wings last year, and that’s just the beginning of where we plan to grow as members of the FAT Brands family.

Our histories span more than 70 years, from Fatburger’s start as a hamburger stand in front of our founder Lovie Yancey’s house on Western Avenue in South Central Los Angeles. The Ponderosa and Bonanza Steak House brands were both created more than 50 years ago. Bonanza in Westport, Connecticut by Dan Blocker, who played Eric “Hoss” Cartwright on the famous TV show called Bonanza and shortly thereafter Ponderosa by Dan Lasater with a few friends in Kokomo, Indiana. Our Buffalo’s Cafe brand was started by Ralph Perella in Roswell, Georgia over 30 years ago.

Over these many years you can imagine the millions of meals these storied brands have served to so many families and hungry customers. We’ve been fortunate to inject technology into our business without compromising service or food quality. From mobile apps, home delivery partner apps, loyalty programs, customer feedback and survey systems, store locators, restaurant kitchen safety and management reporting systems, and even point of sale systems technology is everywhere and we are focused on utilizing it to improve operational and financial performance without sacrificing the guest experience. Each member of our senior management team receives every single customer on-line feedback/complaint that is entered in real time on their mobile device. Having our finger on the pulse of our restaurants allows us to better support our franchisees and be aware of customer experiences.

I take very seriously my role in bringing these brands and families of customers together and creating FAT Brands Inc. Our growth from North America to a presence in many countries around the world gives me great pleasure in knowing that I’m sharing these delicious recipes with fans everywhere. We have restaurants in Beijing, Shanghai, Jakarta, Manila, Panama City, London, Vancouver, Dubai, Riyadh, Doha, Cairo, Tunis, Erbil (Iraq), Karachi, and many other places. We know our fans around the world enjoy our food. I can’t take all the credit though. Our franchisees really deserve the most credit. They are the owners of the restaurants that serve you day in and day out. They have invested their money to own, operate, and support their communities and families and they have built their livelihoods based upon the delicious taste, outstanding quality of the food, consistency and the great service they deliver to you each and every day for breakfast, lunch and dinner.

Also, I want to remember and praise our franchise employees and team members. As a young 13 year old boy, having watched my father pass away from lung cancer when I was only 9 years old, I began working in the restaurant business for my now father-in-law, and Fatburger’s President and Chief Operating Officer. I started sorting bottles, washing dishes and busing tables. I learned a great deal during those 5 years before college about how hard and gratifying it is to work in a restaurant with fellow employees and team members, bringing satisfaction to customers, and how physically exhausting yet rewarding that experience is. Our team members today work thanklessly long hours and physically demanding jobs to bring these meals to customers and then do it again the next day and the next. They truly love their jobs.

Someone once taught me two things about the restaurant business: first, that “there are no new ideas in the restaurant industry, just the same ideas repackaged and repositioned, good food and good service is just that, no matter what it looks like” and second that “your best ideas come from your franchise operators and not from the corporate office, because they are the ones every day in the restaurants listening to what customers want”.

My goal is to continue to remember those lessons learned, keep our franchise partners in mind, appreciate our franchise employees and team members and make sure our restaurants continue to deliver FRESH, AUTHENTIC, TASTY food to customers around the world. We would be proud to count you as a stockholder and we appreciate your patronage and partnership.

Sincerely

Andrew A. Wiederhorn
Chief Executive Officer
FAT Brands Inc.

https://www.sec.gov/Archives/edgar/data/1705012/000149315217010945/partiiandiii.htm#a_013 (Pg. 68)

Research

Fri, 29 Sep 2017 12:38:25 GMT

FCCG – Update

Clues about FCCG balance sheet
EPS calculation update
Risks

We informed our members on September 27th about a speculative situation involving FCCG. We have taken a very speculative long position in FCCG which we are treating as an in the money call option on the company’s implied worth, in light of Fat Brands’ valuation gap. FCCG is the publicly traded parent company of restaurant franchisor Fat Brands, which is about to go public through the Reg A+ process.

Balance Sheet Clues

We stated that the Reg A+ documents indicate that FCCG will own 80% of Fat Brands after the IPO, which is valued at approximately $100m. We also cautioned our readers that we do not have clarity on FCCG’s current capital structure, debt levels, or preferred shares and it therefore remains a highly speculative play. FCCG has not been reporting since 2010.

Digging deeper into Fat Brand’s 1-A filing, we found some hints about aspects of FCCG’s capital structure. Specifically, it looks like FCCG had financed Fat Brand’s purchase of its Buffalo’s Franchise in December 2011. The terms of the deal were not publicly disclosed. Fat Brands will use the IPO proceeds along with a new credit line to repay its debt obligations to FCCG in full.

As part of the Reorganization Transactions, we will issue to FCCG an unsecured promissory note with a principal balance of $30,000,000, bearing interest at a rate of 10.0% per annum, and maturing in five years (the “Related Party Debt”). We will use up to $9,500,000 from this Offering to repay a portion of the Related Party Debt to FCCG, which will use this payment to repay indebtedness that it previously incurred in acquiring Buffalo’s Franchise Concepts, Inc. Concurrently with or shortly following the closing of this Offering, we expect to enter into a credit facility with a third-party lender, providing for debt financing of between $35,000,000 and $50,000,000. Upon consummation of such credit facility, we intend to repay the remaining Related Party Debt, which is expected to total approximately $20,500,000 .

Additional detail is provided in the “Use of Proceeds” section of the filing:

“FCCG will contribute to us its two operating subsidiaries, Fatburger North America Inc. and Buffalo’s Franchise Concepts Inc., in exchange for an unsecured promissory note with a principal balance of $30,000,000, bearing interest at a rate of 10.0% per annum, and maturing in five years (referred to as the “Related Party Debt”). The contribution will be consummated pursuant to a Contribution Agreement, a copy of which will be filed as an exhibit to our Regulation A Offering Statement on Form 1-A, and is incorporated herein by this reference.”

“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..”

“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.”

This section implies that if Fat Brands falls short in the raise:

First, the repayment of debt to FCCG will be reduced, and
In the worst case, FCCG will put up the missing balance for the Ponderosa acquisition.

What does that mean for our thesis on for FCCG shareholders?

First of all, we learned that FCCG has debt from the Buffalo Franchise acquisition. We don’t know how much, nor is it clear if there is any other debt...but we do know that there is some.

We also understand that FCCG is owed money by Fat Brands - $30.0 million to be precise - which even increases the value to FCCG.

Lastly, it seems that if Fat Brands is unable to raise at least $10 million in the offering, FCCG will have to come up with the capital for the Ponderosa acquisition. It is not clear if FCCG has that capital available or would have to raise money to finance the Ponderosa acquisition. But, this is only an issue if Fat Brands’ IPO price comes in below the $12 expected price range, or if it sells less than the 2 million shares it has allotted for the Reg A. We actually think this “fall short” scenario is low probability event, given the “hot” aspect of the brand and that at first glance, Fat Brands seems to be on a solid financial standing. Still,

It will be incurring debt after the IPO
Same store sales growth has been light in 2017

EPS Calculation

In our original note we mentioned that the implied Fat Brands EPS 2017 EPS was $0.40 and that the company plans to pay an annual dividend of $0.48. Unless Fat Brands intends to take on debt to pay the dividend, the dividend can not exceed EPS. Verbiage from the 1-A filings indicates that the dividend will not be financed by debt. Thus, it appears to be a decent assumption that EPS will be above (maybe well above) $0.48.

Risks

At this point, we believe the biggest risk to FCCG shareholders is the uncertainty over whether or not FCCG will share the economic benefits it receives from its 80% ownership of Fat Brands with shareholders. But it is worth noting that the CEO of Fat Brands is the CEO of FCCG.

The stock trades very thinly.

Research

Wed, 27 Sep 2017 15:03:22 GMT

Reg A+ IPO - Fat Brands. Will FCCG undergo an 8x?

Another Reg A+ has firmly entered our radar. As you may know, we began seriously looking at these types of deals when ShiftPixy Inc. (NASDAQ:PIXY) ($2.85) and ADOMANI Inc. (NASDAQ:ADOM) ($7.15) went public. These stocks experienced wild swing in price per share, eventually settling considerably lower than their highs of $11.64 and $18.31, respectively. When Chicken Soup for the Soul Enter (NASDAQ:CSSE) ($7.99) was in the process of going public via Reg A+, we were intrigued due to its long-standing brand recognition. This IPO, in terms of its current price, also ended up being a disappointment to shareholders as it is trading 33% lower than its listing price of $12/share. It should be noted that on Sept. 6, 2017 Benchmark initiated coverage on the company with a buy rating and price target of $14/share

FAT Brands firmly on our radar

Fat Brands ($FAT) (IPO to be priced at $12.00) filed it’s amended S-1 offering document with pro forma financials. Fat Brands is currently in the process of a Reg A+ IPO and will apparently trade on the Nasdaq exchange. The company operates fast food chains under the Fat Brand. We find the listing interesting because Fat Brands is an interesting and growing company, and with a long operating history not as speculative as previous Reg A+ IPOs. The pro forma financials imply EPS of $0.40 and a dividend of $0.48 per share. At an offering price of $12 we believe the 4% dividend yield and roughly 24 PE multiple is not cheap, but not terribly expensive either. The company plans to accelerate its growth through strategic acquisitions.

Implications for Fog Cutter Capital (FCCG)

FOG CUTTER CAP GRP (PINK:FCCG), the parent company of Fat Brands, who acquired the Fatburger Brand in 2003 resulting in 100% ownership, will remain 80% owner of the company after a listing. FCCG is an OTC traded microcap that went dark in 2010 and Fat Burger also went through chapter 11 bankruptcy proceedings. It is not publicly known what FCCG’s capital structure currently looks like or what shareholders of FCCG will get in the deal, so it remains a very speculative “deal-related” play. FCCG has been hitting new highs over the past 3 months, and is up over 1000% since April.

In general, Fog Cutter manages and invests in a diverse range of equity, corporate debt and real estate. The Company provides capital to businesses engaged in restructuring, recapitalization, management buy-outs and commercial real estate. We will obviously try to follow the developments with respect to FAT and FCCG and provide updates as necessary. With about 12 million shares outstanding as of September 2017, FCCG’s implied valuation could be as high as $8.00 per share. We want to caution our readers that we do not have clarity on FCCG’s current capital structure, debt levels, or preferred shares and it therefore remains a highly speculative play.