SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KSB
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
July 23, 1996
(Date of Report)
Famous Sam's Group, Inc.
(Exact name of registrant as specified in its
charter)
Nevada
(State or other jurisdiction of incorporation)
0-24736
88-0361701
(Commission File Number)
(IRS Employer Identification
Number)
8351 East
Broadway, Tucson, AZ 85710
(Address of principal executive offices including zip code)
(602) 296-1110
(Registrant's telephone number including area code)
U.S. Flywheel Systems, Inc.
(Former name or former address, if changed since last report)
<PAGE>
Item 1. Change in Control of Registrant.
Acquisition of Famous Sam's Franchise Corporation as a Wholly-Owned
Subsidiary:
In May, 1996, Famous Sam's Group, Inc., a Nevada corporation (the
"Company"), which
was
formerly a
California corporation known as U.S. Flywheel Systems, Inc.,
entered into a letter of intent
with
Famous Sam's
Franchise Corporation, an Arizona corporation ("Famous Sam's"),
which was followed on
May 17,
1996, by a
formal agreement (the "Reorganization Agreement"). Pursuant to the
Reorganization
Agreement,
the Company
agreed to acquire all of the outstanding capital stock of Famous
Sam's in exchange for
700,000
post-split shares
of Common Stock. Prior to closing under the Reorganization
Agreement, the Company was
required
to (i) change
its name, (ii) change its domicile, (iii) reverse split its Common
Stock, (iv) bring itself
current in the
filing of its
reports with the U.S. Securities and Exchange Commission, (v) file
all of the reports required
by
federal and state
regulatory and taxing authorities, (vi) transfer all assets in
trust for the benefit of its
shareholders and
(vii) satisfy
all liabilities. Famous Sam's, under the Reorganization Agreement,
was required, prior to
closing,
to either
produce a balance sheet as of a recent date showing that, after
closing, the Company, on a
consolidated basis with
Famous Sam's, had assets of $4,000,000 or more and a net tangible
book value of at least
$2,000,000,
or, in the
alternative, produce a business plan which reasonably allowed for
the foregoing within one
year after
closing.
The latter of these alternative was met. Famous Sam's was further
required under the
Reorganization
Agreement
and prior to closing to provide audited and unaudited financial
statements allowing for
compliance
by the
Company following closing with the rules and regulations of the
Commission. These were
also
provided.
Due to the full and timely compliance with the foregoing conditions
precedent, the closing
occurred
on July 23,
1996, pursuant to the mutual instruction of the Company and Famous
Sam's. The closing
resulted
in the issuance
of an additional 700,000 shares of the "restricted" common stock of
the Company to Gerald
and
Sandra Ross,
as well as the appointment of a new board of directors and
executive officers of the
Company.
New Directors and Executive Officers:
The following table sets forth all current directors and executive
officers of the Company and
Famous
Sam's, as
well as their ages:
NAME AGE POSITION WITH COMPANY AND
FAMOUS SAM'S
(1)
Gerald Ross (2) 62 Director, President and Chief
Executive Officer of the
Company,
and Director, Chief
Executive Officer and President of Famous
Sam's
Sandra Ross (2) 56 Director, Chief Financial and
Accounting Officer, Treasurer
and
Secretary of the
Company and Director, Treasurer and
Secretary
of Famous Sam's
Thomas Van Buskirk 48 Director of the Company and
Vice-President of Famous Sam's
Robert Plotkin 42 Director of Beverage
Management and Training Coordinator
of
Famous Sam's
John King 45 Systems Analyst and
Construction Project Coordinator for
Famous
Sam's
(1) No current director has any arrangement or understanding
whereby they are or will be
selected
as a
director or nominee.
(2) Mr. and Mrs. Ross are husband and wife.
The executive officers will hold office until the next annual
meeting of shareholders and until
his or
her successor
has been duly elected and qualified. All officers are elected by
the Board of Directors at its
annual
meeting
immediately following the shareholders' annual meeting and hold
office until their death or
until they
earlier resign
or are removed from office. There are no written or other
contracts providing for the election
of
directors or term
of employment of executive officers, all of whom serve on an "at
will" basis.
The Board of Directors currently consists of three members, Mr. and
Mrs. Ross and Mr. Van
Buskirk. The
Company did not, as of the date of this report, have any standing
audit, nominating or
compensation
committees,
or any committees performing similar functions, although a
compensation committee will be
formed
concurrent
with the adoption of the incentive stock option plan discussed
below. The board will meet
periodically throughout
the year as necessity dictates.
Profiles of Directors and Executive Officers:
Gerald Ross is a founder of Famous Sam's, and has been a director
and the President and
Chief
Executive
Officer of the corporation since its inception on February 11,
1987. He became a director
and the
President and
Chief Executive Officer of the Company on July 23, 1996, concurrent
with its acquisition
of Famous
Sam's.
Prior to founding the Company, Mr. Ross acquired Sam's Tavern in
Tucson, Arizona, and
from this
bar and
restaurant developed the current prototype of the concept which
Famous Sam's is now
franchising.
He has over
25 years' experience in the bar and hospitality industry. Mr. Ross
received a Bachelor's
Degree in
Theatre Arts
from the University of Arizona in Tucson, Arizona, in 1956.
Sandra Ross is also a founder of Famous Sam's, and has been a
director and the Treasurer
and
Secretary of the
corporation since its inception. She became a director and the
Chief Financial and
Accounting
Officer, Treasurer
and Secretary of the Company on July 23, 1996. Mrs. Ross has
over 20 years of experience
in the
area of her
responsibilities with the Company and Famous Sam's. She previously
served as President
of the
Tucson,
Arizona, chapter of the B'nai B'rith National woman's organization.
Thomas Van Buskirk has been employed by Famous Sam's since June,
1993, and currently
serves as
Vice-President. He became a director of the Company on July 23,
1996. In his capacity as
Vice-President, Mr. Van
Buskirk oversees all aspects of Famous Sam's franchise operations.
From May, 1991,
through
November, 1995,
Mr. Van Buskirk purchased, opened, operated and then sold a Famous
Sam's franchise in
Tucson.
Prior to May,
1991, Mr. Van Buskirk was a consultant to the restaurant industry,
and he also owned,
operated
and/or developed
several other independent and franchised restaurants. He has over
20 years of experience
in his
current capacities
with Famous Sam's.
Robert Plotkin has been employed by Famous Sam's since November,
1993, as the Director
of
Beverage
Management and as the Training Coordinator. Mr. Plotkin has over
20 years of experience
in the
hospitality
industry, and previously owned and directed a state accredited
vocational school which
taught bar
tending. He
is presently, and has been since 1988, the editor and owner of
P.S.D. Publishing Company,
which
offers a number
of books and other publications, including, by way of example,"The
Professional Guide to
Bartending." Mr.
Plotkin is also a nationally syndicated columnist for 43 trade
journals in the hospitality area.
He has
also served
as a National Director of the American Bartender's Association and
has conducted numerous
lectures
on beverage
management.
John King has been employed as Systems Analyst and Construction
Project Coordinator for
Famous
Sam's since
1989. In the first of these capacities, he oversees all in-house
computer equipment and their
maintenance, and
is responsible for polling sales information on a daily basis from
each franchisee. In
addition, Mr.
King acts as
a programmer/analyst and creates custom applications when and as
necessary. In the second
of these
capacities,
Mr. King coordinates the development of the physical facility for
each new franchise. This
encompasses all
phases of development, including construction and the purchase of
equipment and fixtures.
Mr. King
has
approximately 19 years of experience in these areas. Mr. received
an Associates of
Electronics from
Pima
Community College in Tucson, Arizona, in 1988.
Present Security Ownership of Management and Certain Others:
Based upon information which has been made available to the Company
by its stock transfer
agent,
the following
table sets forth, as of the close of business on July 23, 1996, the
shares of Common Stock
owned by
each current
director, by directors and executive officers as a group and by
each person known by the
Company
to own more
than 5% of the outstanding Common Stock:
Title of Class Name and Address Number of
Shares Percent of Class (1)
of Beneficial Owner
Common Stock Gerald and Sandra Ross (2)
700,000 70%
Directors and Executive Officers as a Group
700,000 70%
(one in number):
(1) Based on approximately 1,000,000 shares of common stock
issued and outstanding on
July 23,
1996.
(2) These shares are owned by Mr. and Mrs. Ross as joint tenants
with rights of
survivorship.
Present Capital Structure:
The Company's equity capitalization consists of two classes of
stock, common and preferred.
There
are
10,000,000 shares of Common Stock, par value $.001 per share, and
1,000,000 shares of
Preferred
Stock, par
value $.01 per share, which are authorized to be issued.
All outstanding shares of Common Stock are fully paid for and
nonassessable. A holder of
Common
Stock is
entitled to one vote per share on all matters submitted for action
by the stockholders. A
quorum for
the
transaction of business at any meeting of the holders of Common
Stock is one-third of the
shares
outstanding.
All shares of Common Stock are equal to each other with respect to
the election of directors;
therefore, the holders
of more than 50% of the outstanding Common Stock present at a
meeting at which a quorum
is
present and at
which directors are being elected can, if they choose to do so,
elect all of the directors. Thus,
the
holders of as
little as 16.51% of the outstanding Common Stock could elect
directors. The terms of the
directors
are not
staggered. Directors are elected annually to serve until the next
annual meeting of
stockholders and
until their
successor is elected and qualified. There are no preemptive rights
to purchase any additional
shares
of Common
Stock or other securities of the Company, nor is cumulative voting
applicable to the election
of the
Board of
Directors. The shares of Common Stock have those dividend rights
prescribed by the laws
of the
State of
Nevada, are not convertible into any other security, do not have
sinking fund provisions
applicable
to them and
are not subject to redemption or to any restrictions on transfer.
As of July 23, 1996, the transfer ledgers maintained by the
Company's stock transfer agent,
including
individual
participants in security position listings, indicated that there
were approximately 1,000,000
shares of
Common
Stock issued and outstanding. There were held approximately 2,218
shareholders on that
date.
The Articles of Incorporation vest the Board of Directors with the
authority to divide the
Preferred
Stock into
series and to fix and determine the relative rights and preferences
of the shares of any
preferred series
established
to the full extent permitted by the laws of the State of Nevada and
the Articles of
Incorporation with
respect to,
among other things, (a) the number of shares to constitute a series
and the distinctive
designation
thereof, (b) the
rate and preference of dividends, if any, the time of payment of
dividends, whether dividends
are
cumulative and
the date from which any dividends begin accruing, (c) whether
shares may be redeemed and,
if so,
the redemption
price and the terms and conditions of redemption, (d) the
liquidation preferences payable in
the event
of
involuntary or voluntary liquidation, (e) sinking fund or other
provisions, if any, for the
redemption
or purchase
of shares, (f) the terms and conditions upon which shares may be
converted, if convertible,
and (g)
voting rights,
if any. The Company, as of July 23, 1996, had no Preferred Stock
outstanding.
There are no issued or outstanding options, warrants or calls
entitling any person to purchase
any
shares of
Common Stock or other securities of the Company.
On July 29, 1996, the Company plans to adopt an Incentive Stock
Option Plan (the "Plan")
for the
benefit of all
employees of the Company and its subsidiaries. The plan will be
administered by a
committee formed
by
members of the Board of Directors. The Plan may issue options to
acquire up to 500,000
shares of
Common
Stock to eligible employees at the fair market value for the stock
at the date of grant. Neither
the
grant to or
exercise of the option by an employee will be subject to taxation.
Correspondingly, no
deduction
accrues to the
Company for the grant or exercise of an option. The shares
acquirable upon exercise of an
option
will be
registered under the Securities Act. The term of the Plan will
expire on July 29, 2007.
Fidelity Transfer Company, 1800 South West Temple, Suite 301, Salt
Lake City, Utah 84115
has
been engaged
by the Company to serve as the transfer agent for the Common Stock.
No dividends have been declared on the Common Stock by the Company
since inception,
and no
dividends are
planned in the foreseeable future; however, there are no
restrictions at present on the
declaration or
payment of
dividends.
Business of Famous Sam's:
Number of Master and Direct Franchises. Famous Sam's Franchise
Corporation was founded
on
February
11, 1987, by Gerald and Sandra Ross, and began franchising in
November of that year.
Presently,
Famous Sam's
is the largest franchisor of the family-oriented neighborhood and
sports bar concept in
Arizona, with
28
franchises in Arizona, which include eleven in the Tucson
metropolitan area, nine in the
Phoenix
metropolitan
area, one in Marana, one in Yuma, one in Sierra Vista, one in
Nogales, and one in Casa
Grande. The
first
franchise outside of Arizona will open on July 24th in Albuquerque,
New Mexico.
Presently, there
are 29
Famous Sam's franchises, 26 of which are in operation and three of
which are in the site
selection
and/or
development process.
In March of 1995, Famous Sam's sold a master franchise to the
Phoenix, Arizona,
metropolitan area,
which
allows the master franchisee to sell franchises in that
geographical area until March of 2000.
As of
the date of
this report eleven franchises under this agreement had been sold,
with eight now being in
operation.
This
franchisee is required to sell a minimum of 20 franchises during
the five year period ended
March,
2000.
Marketing and Sales Focus. Famous Sam's is now focusing its
marketing in Arizona and
New
Mexico, with
immediate plans to expand to Southern California, through the use
of (i) master franchises
to develop
multiple
locations in major metropolitan areas and (ii) direct franchise
sales in the smaller towns.
Each master
franchise
encompasses the right to sell up to and/or no less than a
negotiated number of franchises
within the
master
franchised area during a specified period of time. The master
franchisee then licenses
individual
stores to
independent franchisees and is ultimately responsible for the
support of his territory. In turn,
Famous
Sam's
supports the master franchisee. Master franchises provide Famous
Sam's with two sources
of
revenue: (i) a one-time master franchise fee; and (ii) ongoing
royalty payments based on
sales of food
and beverages in the area.
Franchises sold directly by Famous Sam's also provide two sources
of revenue: (i) a one-time
franchise fee; and
(ii) ongoing royalty payments based on sales of food and beverage.
Famous Sam's is called
upon in
all instances
to provide store development services, including site selection,
training and ongoing business
expertise.
Marketing and advertising services on behalf of the franchisees are
provided in a cooperative
effort
by the master
franchisee and Famous Sam's when a master franchise is involved,
and solely by Famous
Sam's when
no master
franchise is involved. Ultimately, however, the franchisee is in
business for himself, and the
system
which
Famous Sam's employs allows for the independence of the franchisee
to be creative and
innovative
in meeting
the needs of the local customers. The corporate motto is "With
Famous Sam's, you are in
business
for yourself,
but not by yourself." Famous Sam's also provides franchisees with
group purchasing power
in their
food,
beverage and other sales areas.
The Franchise Concept. The Famous Sam's franchise provides a no
frills, good value, family
and
neighborhood
meeting place which serves alcohol responsibly. The principal
focus is on blue collar
working people,
young
professionals and young families, all of whom are typically located
in suburban areas and
smaller
towns.
Famous Sam's features a full bar of alcoholic beverages, a wide
variety of beer and wine, a
substantial
food
menu, including hot and cold sandwiches, salads, burgers, limited
entrees and, in some
locations,
pizza.
Beverages and food are moderately priced and are prepared using
recipes and procedures
developed
by Famous
Sam's. Entertainment includes sporting events on the big screen,
pay-per-view (which may
include
the exclusive,
city-wide broadcast of major boxing events), live music, and a
billiards and dart room,
among other
forms of
entertainment. Also, an in-house graphics department at Famous
Sam's allows each
franchisee to
purchase and
sell Famous Sam's shirts, T-shirts, caps and other miscellaneous
merchandise, and allows the
individual
production for each franchisee of promotional point-of-sale items
such as banners and
posters.
Properties:
The Company, as of the date of this report, owned no real or
personal property, tangible or
intangible, other than
its ownership of all of the issued and outstanding common shares of
Famous Sam's.
Conversely, the
Company
had no liabilities which had not either been paid in their entirety
or fully provided for.
Famous Sam's presently leases its offices from Gerald Ross, a
director and executive officer
of the
Company and
Famous Sam's, at what management believes is a competitive
commercial rate. The facility
houses
the executive
offices of the Company and of Famous Sam's and the training
facilities of Famous Sam's.
The
premises
encompass 12,000 square feet, of which 9,000 are being used by the
Company and Famous
Sam's for
executive
offices and 3,000 of which are being used as the training center.
These offices are located
at 8351
E. Broadway,
Tucson, Arizona 85710. The telephone number at this address is
(520) 296-1110.
Item 2. Acquisition or Disposition of Assets.
See Item 1, above.
Item 3. Bankruptcy or Receivership.
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not Applicable.
Item. 5. Other Events.
None.
Item 6. Resignation of Registrant's Directors.
Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
ROBERT E. HINSKE
Certified Public Accountant
4626 East Fort Lowell Road, Suite A
Tucson, Arizona 85712
(520) 795-7195 FAX (520) 795-1202
Independent Auditor's Report
Board of Directors
Famous Sam's Franchise Corporation
Tucson, Arizona
I have audited the accompanying balance sheets of Famous Sam's
Franchise Corporation as
of
December 31,
1995, 1994 and 1993, and the related statements of operations and
retained earnings (deficit),
and
cash flows for
the years then ended. These financial statements are the
responsibility of the Company's
management.
My
responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audit in accordance with generally accepted auditing
standards. Those
standards
require that I
plan and perform the audit to obtain reasonable assurance about
whether the financial
statements are
free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the
amounts
and
disclosures in the financial statements. An audit also includes
assessing the accounting
principles used
and
significant estimates made by management, as well as evaluating the
overall financial
statement
presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to in the first
paragraph present fairly, in all
material
respects,
the financial position of Famous Sam's Franchise Corporation as of
December 31, 1995,
1994 and
1993, and the
results of its operations and its cash flows for the years then
ended, in conformity with
generally
accepted
accounting principles.
/s/ Authorized Representative
Tucson, Arizona
June 10, 1996
FAMOUS SAM'S FRANCHISE CORPORATION
TUCSON, ARIZONA
AUDITED FINANCIAL STATEMENTS
For the years ending December 31, 1995, 1994 and 1993
ROBERT E. HINSKE
Certified Public Accountant
4626 East Fort Lowell Road, Suite A
Tucson, Arizona 85712
<PAGE>
FAMOUS SAM'S CORPORATION
Balance Sheet
December 31, 1995, 1994, and 1993
1995 1994 1993
ASSETS
Current Assets:
Cash 18,413
$23,896 $14,228
Accounts receivable - Note 3 69,101
42,760 36,074
Current portion - notes receivable 8,829
13,746
Prepaid expenses 4,255
17,972
Total current assets 91,769
93,457 64,048
Fixed assets (at cost):
Furniture, equipment and leasehold
improvements 107,226
75,304 74,662
Less accumulated depreciation 68,258
58,781 48,723
Net fixed assets 38,968
16,523 23,939
Other assets:
Trademark, logos and
franchise improvements - Note 5 1,178
3,554 5,931
Notes receivable
7,276
Loans to related parties - Note 4
124,718 113,718
Deposits and other assets 93,702
1,890 645
Total other assets 94,880
130,162 127,570
$225,617 $240,142 $217,557
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt - Note 6 $19,619
$30,169 $37,497
Accounts payable and accrued expenses 34,202
62,500 8,750
Deferred franchise fees 37,500
69,836 32,786
Total current liabilities
91,321 162,505 79,033
Long-term debt - Note 6 173,893
118,732 160,066
Contingencies - Note 10
Stockholders' equity:
common stock, $10 par value,
1,000,000 shares authorized,
200 shares issued and outstanding 2,000
2,000 2,000
Retained earnings (deficit) (41,597)
(43,095) (23,542)
Total stockholders' equity (39,597)
(41,095) (21,542)
$225,617
$240,142 $217,557
See notes to the financial statements.<PAGE>
FAMOUS SAM'S CORPORATION
Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash Flows Provided (Used) by Operations:
Net income (loss) $1,498
($19,553) $1,104
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11,854
12,435 15,257
Changes in assets and liabilities:
(Increase) in accounts receivable (26,341)
(6,686) (2,357)
(Increase) decrease in prepaid expenses 13,717
(17,972)
Increase (decrease) in accounts payable
and accrued expenses 4,033
(7,328) 16,475
Increase (decrease) in deferred revenues (25,000)
53,750
Net cash provided by operating activities (20,239)
14,646 30,479
Cash Flows Provided (Used) for Investing Activities:
Repayments of loan to franchisee 8,829
12,193 11,037
Acquisition of fixed assets (31,922)
(642) (2,496)
Payment of deposits (91,812)
(1,245)
Loans to related parties (7,483)
(11,000) (43,208)
Net cash used for investing activities (122,388)
(694) (34,667)
Cash flows Provided (Used) for Financing Activities:
Additional borrowings-long-term debt 226,665
87,000 55,000
Principal repayments-long-term debt (89,521)
(91,284) (37,705)
Net cash provided (used) for
financing activities 137,144
(4,284) 17,295
Net increase (decrease) in cash (5,483)
9,668 13,107
Cash - beginning of year 23,896
14,228 1,121
Cash - end of year $18,413
$23,896 $14,228
Summary of non-cash investing and financing activities:
Effective December 31, 1995, the company and the shareholders
agreed
to offset the note receivable from the shareholders in the
amount of $132,201
against the notes payable to the shareholders in the amount of
$246,269 (Note 6).
See notes to the financial statements.<PAGE>
FAMOUS SAM'S CORPORATION
Statements of Operations and Retained Earnings (Deficit)
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues:
Franchise fees $141,240
$77,500 $12,500
Franchise Royalties 446,315
366,817 324,229
Advertising fees 104,757
94,827 87,467
Entertainment fees and other income 111,262
82,001 16,341
Total revenues 803,574
621,144 440,537
Expenses:
Advertising and promotion 222,975
145,232 120,257
Salaries and wages 183,845
157,702 103,972
Office expenses 152,491
116,977 66,637
Rent 52,338
52,798 39,075
Professional fees 49,126
24,617 5,695
Insurance 39,738
37,566 22,830
Interest expense 26,595
22,209 20,656
Legal and accounting 21,483
25,043 35,096
Commissions 21,000
32,316
Payroll taxes 17,092
13,803 9,642
Depreciation and amortization 11,854
12,435 15,257
Total expenses 798,537
640,698 439,117
Income (loss) before taxes and
extraordinary item 5,037
(19,553) 1,420
Income taxes - Note 8 4,472
316
Income (loss) before
extraordinary item 565
(19,553) 1,104
Extraordinary item-tax benefit from
utilization of net operating loss 933
Net income (loss) 1,498
(19,553) 1,104
Retained earnings (deficit):
Beginning of year (43,095)
(23,542) (24,646)
End of year ($41,597)
($43,095) ($23,542)
See notes to the financial statements.<PAGE>
FAMOUS SAM'S FRANCHISE CORPORATION
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Famous Sam's Corporation was incorporated in Arizona on February
11, 1987. Its principal
business
activity
is the sale of "Famous Sam's" restaurant/bar franchises. The
corporation's offices are located
in
Tucson, Arizona.
In August, 1994, the name of the company was changed to Famous
Sam's Franchise
Corporation.
The shareholders of Famous Sam's Franchise Corporation own several
businesses. None of
these
business
entities have been combined in the accompanying financial
statements.
2. Summary of Significant Accounting Principles
Revenue recognition - Franchise agreements outline the contractual
obligations of both the
franchisee
and
franchiser including compensation to Famous Sam's Franchise
Corporation for the
authorization to
operate a
Famous Sam's restaurant/bar, and for the use of trademarks.
Franchise fees - These fees are paid as a purchase price for the
right to operate a Famous
Sam's
franchise.
Prospective franchisees are evaluated and initial requirements for
purchase of the franchise,
such as
the
acquisition of a liquor license and the franchisee's financial
condition are evaluated prior to
receipt
of the
franchise fee. The franchise fee covers primarily the cost of
leasing, training and leasehold
improvements. The
fee is generally nonrefundable. The franchiser may terminate an
agreement because of
difficulties in
establishing
the franchise, such as the inability to obtain a suitable location
or obtain a liquor license.
When the
franchiser
terminates an agreement under these conditions, 50% of the fees are
nonrefundable. The fee
is
generally
recognized as income in the period received, however, where
significant franchise terms have
not
been finalized,
the refundable portion of the fee is deferred.
Royalties and advertising fees - Royalties and advertising fees
are computed on a percentage
of the
franchisee's
gross liquor, food and beverage sales. These fees are remitted
monthly and are recognized
as income
in the same
period as the franchisee sales.
Property and equipment - Property and equipment is recorded at
cost. Depreciation is
provided on
the
straight-line method over the estimated useful lives of the assets,
which range from five to
seven
years.
Income taxes - Deferred income taxes are provided to give effect to
timing differences
between pretax
accounting
income and net taxable income for Federal income tax reporting
purposes. There were no
significant
difference
between pretax accounting income and net taxable income for the
years ended December 31,
1995,
1994 and
1993.
Other assets
Trademarks - The cost of registering and developing trademarks and
logos is capitalized and
amortized over a
period of five years. Costs to modify basic trademarks and logos
for specific advertising
campaigns
are expensed
as incurred.
Franchise improvements - Amounts contributed by Famous Sam's for
improvements to
existing
franchises are
capitalized and amortized over a period of five years. Costs to
start-up new franchises are
expensed
in the period
in which they are incurred.
3. Accounts receivable
Accounts receivable at December 31 are summarized as follows:
1995 1994
1993
Franchise royalties
$51,449 32,489 28,808
Advertising fees 11,202
8,343 6,317
Miscellaneous reimbursements 6,450
1,928 949
Total $69,101
42,760 36,074
_______ ______ ______
4. Advances to related parties
During the year ended December 31, 1993, the Company made cash
advances to and
payments on
behalf of the
shareholders and various entities owned by the shareholders. None
of these transactions
included
terms for
repayment or for the payment of interest. Since these payments
were made in cash, no
imputed
interest has been
included in the financial statements. The balance of these
advances was $113,718 at
December 31,
1993.
Effective January 1, 1994, these advances, and an additional
advance of $11,000 were
converted to
a note
receivable. This note was due on demand and bore interest at the
rate of 6% per year.
Effective
December 31,
1995, the shareholders and the company agreed to offset the balance
of this note and accrued
interest,
in the
amount of $132,201, against the balance of the loans from the
stockholders (Note 6).
5. Other Assets
Other assets include capitalized costs for registration and
development of trademarks and
logos, as
well as
voluntary contributions by Famous Sam's Franchise Corporation for
improvements to
existing
franchises. These
costs are summarized as follows:
1995 1994 1993
Trademark and logos $10,836
10,836 10,836
Franchise improvements 11,883
11,883 11,883
22,719 22,719 22,719
Accumulated amortization 21,541
19,165 16,788
Net other assets $ 1,178
3,554 5,931
_______ ______ ______
6. Long-term debt
Long-term debt at December 31 is summarized as follows:
1995 1994 1993
Notes payable to relatives of
the stockholders, bearing
interest at the rate of 10%
annually, interest only
payments of $583 monthly, until
January, 1998, unsecured $70,000
45,000 45,000
Note payable to individuals,
bearing interest at the rate of
10% annually, payments of $3,936
monthly, including interest,
until October, 1995 at which
time the remaining balance is
due, unsecured 75,027
147,040 ------
Note payables to stockholders,
interest at the rate of 10%
annually, payments of $2,410
monthly including interest
through December, 2000,
unsecured (Note 4) 114,270
68,451 ------
Capital lease obligation, interest
at the rate of 18.53% annually,
payable in monthly installments of
$242 through December, 2000,
secured by telephone equipment 9,242
------ ------
Note payable to former franchisee,
interest at the rate of 10%
annually, payable in monthly
installments of $879, until
January, 1994, unsecured
812
193,512 188,568 192,852
Less current portion 19,919
69,836 32,786
Net long-term debt $173,893
118,732 160,066
________ ________ _______
The following is a summary of maturities of long-term debt:
Year ended December 31,
1996 $19,619
1997 21,800
1998 94,236
1999 26,956
2000 30,901
Effective December 31, 1995, the relatives of the shareholders
entered into agreements to
modify the
terms of
their notes, to extend the maturity date of the notes to January 1,
1998 from September,
1996. All
other terms
of the notes remained unchanged.
7. Lease obligations
The Corporation leases its offices from the sole shareholder on a
month to month basis.
During the
year ended
December 31, 1995 the amount of the lease payment was equal to the
amount required by
the
stockholder to
repay the loans on the building. The amount of the annual rent
payments were $48,859,
$42,546 and
$31,517
in 1995, 1994 and 1993, respectively.
The Corporation also leases equipment and vehicles under the terms
of operating leases.
Monthly
lease payments
totaled $13,660, $10,252 and $2,544 in 1995, 1994 and 1993,
respectively. Future payments
under
this lease
will be $11,501, $7,738, $2,496, $2,496 and $1,248 in 1996, 1997,
1998, 1999 and 2000,
respectively. Other
equipment is leased on a short term basis, as needed by the
company.
The company also leases a telephone system under the terms of a
capital lease. The
following is an
analysis of
this equipment:
Furniture and equipment
$9,437
Less accumulated amortization 1,011
$8,426
______
The following is a schedule, by years, of future minimum lease
payments under this lease:
Year ending
December 31, Amount
1996 $2,904
1997 2,904
1998 2,904
1999 2,904
2000 2,420
14,036
Less amount representing interest 4,794
$9,242
_________
Amortization of the equipment has been included in depreciation
expense in the
accompanying
financial
statements.
8. Income taxes
There are no significant differences between the normally expected
income tax expense and
the actual
income
tax expense, other than the effect of the state income taxes for
the years ended December 31,
1994
and 1993.
The following is a reconciliation of the normally expected income
tax expense, computed
by applying
the
expected Federal tax rate of 15% to pretax accounting income, and
the actual income tax
expense
for the year
ended December 31, 1995:
Normally expected tax expense
$ 756
Non-deductible expenses for
Federal income tax purposes
2,291
State income tax, net of Federal
income tax benefit
1,425
Actual income tax expense
$4,472
______
Components of income tax expense are as follows:
1995 1994 1993
Federal income taxes $2,795
- 192
State income taxes 1,425
- 121
$4,472 - 316
______ ___ _____
9. Related party transactions
During 1993, the shareholders of Famous Sam's Franchise Corporation
and the original
Famous Sam's
bar and
restaurant agreed to separate their business investments. As a
result of this agreement, each
of the
shareholders
became the sole shareholder of one of the corporations. This
transaction had no effect on
the
financial statements
of the company.
As described in Note 6, various relatives of the shareholders have
made cash advances to the
corporation. During
1996, an additional $55,000 was loaned to the corporation by these
individuals. The terms
of these
notes were
modified in June, 1996, to be effective on the date of the
advances, to extend the due dates
to January
1, 1998.
All other terms and conditions of the notes were unchanged.
In January, 1996, the company moved its corporate offices and
training facilities to a new
building.
This building
is owned by the shareholders of the corporation. The corporation
began paying rent on this
building
in January,
1996.
As described in Note 10, the corporation has guaranteed various
personal loans of the
shareholders.
10. Contingencies
Basic disclosure document - Pursuant to Federal Trade Commission
Rules and Regulations,
franchisers are
required to deliver a Basic Disclosure Document to all prospective
franchisees which
includes certain
information
about the franchiser, its officers and its operations, as well as
certain financial statements.
Between
the period
April 1, 1993 and September 1, 1994, Famous Sam's Franchise
Corporation distributed Basic
Disclosure
Documents to prospective franchisees that did not contain all
required financial statements.
The
Federal Trade
Commission can impose penalties for failure to comply with this
requirement. To date, no
penalties
have been
assessed or threatened.
Loan guarantees - The corporation was a guarantor of three loans
made by relatives of the
shareholders to the
shareholders, personally. The proceeds of these loans were used to
acquire the building
which was
used for the
corporate offices through December, 1995. These loans called for
combined monthly
payments of
$1,337,
including interest at the rate of 10% annually, matured in
December, 1995 and were
unsecured. The
total
outstanding balance of these notes was $28,964 at December 31,
1993. These loans were
repaid in
full during
1994.
11. Deposits
As described in Note 10, the company moved its offices and training
facility into a new
building in
January, 1996.
The costs of improvements made to this building by the company and
deposits for furniture
and
equipment have
been recorded as deposits at December 31, 1995. These deposits
totalled $91,536 at
December 31,
1995. The
balance of this account consisted of security deposits for
equipment under operating leases
(Note 7)
and utilities,
in the total amount of $2,166.
FINANCIAL STATEMENTS
March 31, 1996
ROBERT E. HINSKE
Certified Public Accountant
4626 East Fort Lowell Road, Suite A
Tucson, Arizona 85712
(520) 795-7195 FAX (520) 795-1202
Board of Directors
Famous Sam's Franchise Corporation
Tucson, Arizona
I have compiled the accompanying balance sheet of Famous Sam's
Franchise Corporation
as of March
31, 1996,
and the related statements of operations and retained earnings
(deficit) and cash flows for the
three
months then
ended, in accordance with Statements on Standards for Accounting
and Review Services
issued by
the American
Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that
is the
representation
of management. I have not audited or reviewed the accompanying
financial statements and,
accordingly, do not
express an opinion or any other form of assurance on them.
June 18, 1996
<PAGE>
FAMOUS SAM'S CORPORATION
Balance Sheet
March 31, 1996
(See Accountant's Compilation Report)
ASSETS
Current Assets:
Cash
$17,846
Accounts receivable
66,129
Prepaid expenses
412
Total current assets
84,387
Fixed assets (at cost):
Furniture, equipment and leasehold improvements
233,214
Less accumulated depreciation
76,188
Net fixed assets
157,026
Other assets:
Trademark, logos and
franchise improvements - Note 5
785
Deposits and other assets
2,165
Total other assets
2,950
$244,363
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt - Note 6
$20,489
Accounts payable and accrued expenses
35,856
Deferred franchise fees
25,000
Total current liabilities
81,345
Long-term debt - Note 6
189,549
Contingencies - Note 10
Stockholders' equity:
Common stock, $10 par value,
1,000,000 shares authorized,
200 shares issued and outstanding
2,000
Retained earnings (deficit)
(28,531)
Total stockholders' equity
(26,531)
Total Liabilities and Stockholder's Equity
$244,363
See notes to the financial statements.
<PAGE>
FAMOUS SAM'S CORPORATION
Statement of Operations and Retained Earnings (Deficit)
For the Three Months Ended March 31, 1996
(See Accountant's Compilation Report)
Revenues:
Franchise fees
$21,750
Franchise royalties
140,640
Advertising fees
28,902
Entertainment fees and other income
20,853
Total revenue
212,145
Expenses:
Advertising and promotion
47,003
Salaries and wages
53,463
Office expenses
32,606
Rent
14,678
Professional fees
13,359
Insurance
10,688
Interest expense
5,555
Legal and accounting
2,700
Payroll taxes
5,379
Depreciation and amortization
8,322
Total expenses
193,753
Income before taxes
18,392
Income taxes - Note 8
5,325
Net income
13,067
Retained earnings (deficit):
Beginning of year
(41,598)
End of year
($28,531)
See notes to the financial statements.<PAGE>
FAMOUS SAM'S CORPORATION
Statement of Cash Flows
For the Three Months Ended March 31, 1996
(See Accountant's Compilation Report)
Cash Flows Provided (Used) by Operations:
Net income (loss)
$13,067
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization
8,322
Changes in assets and liabilities:
Decrease in accounts receivable
2,972
Decrease in prepaid expenses
3,843
Increase in accounts payable
and accrued expenses
1,654
Decrease in deferred revenues
(12,500)
Net cash provided by operating activities
17,358
Cash Flows Provided (Used) for Investing Activities:
Acquisition of fixed assets
(34,451)
Net cash used for investing activities
(34,451)
Cash Flows Provided (Used for Financing Activities:
Additional borrowings-long-term debt
25,000
Principal repayments -long-term debt
(8,474)
Net cash provided (used) for
financing activities
16,526
Net increase (decrease) in cash
(567)
Cash - beginning of year
18,413
Cash - end of year
$17,846
See note to the financial statements.<PAGE>
FAMOUS SAM'S FRANCHISE CORPORATION
Notes to Financial Statements
March 31, 1996
1. Organization
Famous Sam's Corporation was incorporated in Arizona on February
11, 1987. Its principal
business
activity
is the sale of "Famous Sam's" restaurant/bar franchises. The
corporation's offices are located
in
Tucson, Arizona.
In August, 1994, the name of the company was changed to Famous
Sam's Franchise
Corporation.
The shareholders of Famous Sam's Franchise Corporation own several
businesses. None of
these
business
entities have been combined in the accompanying financial
statements.
2. Summary of Significant Accounting Principles
Revenue recognition - Franchise agreements outline the contractual
obligations of both the
franchisee
and
franchiser including compensation to Famous Sam's Franchise
Corporation for the
authorization to
operate a
Famous Sam's restaurant/bar, and for the use of trademarks.
Franchise fees - These fees are paid as a purchase price for the
right to operate a Famous
Sam's
franchise.
Prospective franchisees are evaluated and initial requirements for
purchase of the franchise,
such as
the
acquisition of a liquor license and the franchisee's financial
condition are evaluated prior to
receipt
of the
franchise fee. The franchise fee covers primarily the cost of
leasing, training and leasehold
improvements. The
fee is generally nonrefundable. The franchiser may terminate an
agreement because of
difficulties in
establishing
the franchise, such as the inability to obtain a suitable location
or obtain a liquor license.
When the
franchiser
terminates an agreement under these conditions, 50% of the fees are
nonrefundable. The fee
is
generally
recognized as income in the period received, however, where
significant franchise terms have
not
been finalized,
the refundable portion of the fee is deferred.
Royalties and advertising fees - Royalties and advertising fees
are computed on a percentage
of the
franchisee's
gross liquor, food and beverage sales. These fees are remitted
monthly and are recognized
as income
in the same
period as the franchisee sales.
Property and equipment - Property and equipment is recorded at
cost. Depreciation is
provided on
the
straight-line method over the estimated useful lives of the assets,
which range from five to
seven
years.
Income taxes - Deferred income taxes are provided to give effect to
timing differences
between pretax
accounting
income and net taxable income for Federal income tax reporting
purposes. There were no
significant
difference
between pretax accounting income and net taxable income for the
years ended March 31,
1996.
Other assets
Trademarks - The cost of registering and developing trademarks and
logos is capitalized and
amortized over a
period of five years. Costs to modify basic trademarks and logos
for specific advertising
campaigns
are expensed
as incurred.
Franchise improvements - Amounts contributed by Famous Sam's for
improvements to
existing
franchises are
capitalized and amortized over a period of five years. Costs to
start-up new franchises are
expensed
in the period
in which they are incurred.
3. Accounts receivable
Accounts receivable at March 31 are summarized as follows:
Franchise royalties
$51,487
Advertising fees
10,214
Miscellaneous reimbursements
4,428
Total
$66,129
______
4. Advances to related parties
During the year ended December 31, 1993, the Company made cash
advances to and
payments on
behalf of the
shareholders and various entities owned by the shareholders. None
of these transactions
included
terms for
repayment or for the payment of interest. Since these payments
were made in cash, no
imputed
interest has been
included in the financial statements. The balance of these
advances was $113,718 at
December 31,
1993.
Effective January 1, 1994, these advances, and an additional
advance of $11,000 were
converted to
a note
receivable. This note was due on demand and bore interest at the
rate of 6% per year.
Effective
December 31,
1995, the shareholders and the company agreed to offset the balance
of this note and accrued
interest,
in the
amount of $132,201, against the balance of the loans from the
stockholders (Note 6).
5. Other Assets
Other assets include capitalized costs for registration and
development of trademarks and
logos, as
well as
voluntary contributions by Famous Sam's Franchise Corporation for
improvements to
existing
franchises. These
costs are summarized as follows:
Trademark and logos
$10,836
Franchise improvements
11,883
22,719
Accumulated amortization
21,934
Net other assets
$ 785
_______
6. Long-term debt
Long-term debt at March 31 is summarized as follows:
Notes payable to relatives of the stockholders,
bearing interest at the rate of 10% annually,
payments of $1,389 monthly, until
January, 1998, unsecured
$ 93,805
Note payables to stockholders, interest at
the rate of 10% annually, payments of $2,410
monthly including interest through December, 2000,
unsecured (Note 4)
107,294
Capital lease obligation, interest at the
rate of 18.53% annually, payable in monthly
installments of $242 through December, 2000,
secured by telephone equipment
8,939
210,038
Less current portion
20,489
Net long-term debt
$189,549
________
The following is a summary of maturities of long-term debt:
Year ended December 31,
1996 $ 13,032
1997 21,800
1998 118,041
1999 26,956
2000 30,901
Effective December 31, 1995, the relatives of the shareholders
entered into agreements to
modify the
terms of
their notes, to extend the maturity date of the notes to January 1,
1998 from September,
1996. All
other terms
of the notes remained unchanged.
7. Lease obligations
The Corporation leases its offices from the sole shareholder on a
month to month basis.
During the
three months
ended March 31, 1996 the amount of the lease payment was equal to
the amount required
by the
stockholder to
repay the loans on the building. The amount of the these rent
payments were $13,104 for
the period
ended March
31, 1996.
The Corporation also leases equipment and vehicles under the terms
of operating leases.
Monthly
lease payments
totaled $1,574 for the three months ended March 31, 1996. Future
payments under these
leases will
be $9,927,
$7,738, $2,496, $2,496 and $1,248 in 1996, 1997, 1998, 1999 and
2000, respectively. Other
equipment is
leased on a short term basis, as needed by the company.
The company also leases a telephone system under the terms of a
capital lease. The
following is an
analysis of
this equipment:
Furniture and equipment
$9,437
Less accumulated amortization 1,311
$8,126
______
The following is a schedule, by years, of future minimum lease
payments under this lease:
Year ending
December 31,
Amount
1996
$2,178
1997
2,904
1998
2,904
1999
2,904
2000
2,420
13,310
Less amount representing interest 4,371
$8,939
______
Amortization of the equipment has been included in depreciation
expense in the
accompanying
financial
statements.
8. Income taxes
The following is a reconciliation of the normally expected income
tax expense, computed
by applying
the
expected Federal tax rate of 25% to pretax accounting income, and
the actual income tax
expense
for the three
months ended March 31, 1996:
Normally expected tax expense
$4,598
Non-deductible expenses for
Federal income tax purposes
636
Graduated tax rates
(1,207)
State income tax, net of Federal
income tax benefit
1,298
Actual income tax expense
$5,325
______
Components of income tax expense are as follows:
Federal income taxes
$3,595
State income taxes
1,730
$5,325
______
9. Related party transactions
During 1993, the shareholders of Famous Sam's Franchise Corporation
and the original
Famous Sam's
bar and
restaurant agreed to separate their business investments. As a
result of this agreement, each
of the
shareholders
became the sole shareholder of one of the corporations. This
transaction had no effect on
the
financial statements
of the company.
As described in Note 6, various relatives of the shareholders have
made cash advances to the
corporation. During
1996, an additional $55,000 was loaned to the corporation by these
individuals. The terms
of these
notes were
modified in June, 1996, to be effective on the date of the
advances, to extend the due dates
to January
1, 1998.
All other terms and conditions of the notes were unchanged.
In January, 1996, the company moved its corporate offices and
training facilities to a new
building.
This building
is owned by the shareholders of the corporation. The corporation
began paying rent on this
building
in January,
1996.
As described in Note 10, the corporation has guaranteed various
personal loans of the
shareholders.
10. Contingencies
Basic disclosure document - Pursuant to Federal Trade Commission
Rules and Regulations,
franchisers are
required to deliver a Basic Disclosure Document to all prospective
franchisees which
includes certain
information
about the franchiser, its officers and its operations, as well as
certain financial statements.
Between
the period
April 1, 1993 and September 1, 1994, Famous Sam's Franchise
Corporation distributed Basic
Disclosure
Documents to prospective franchisees that did not contain all
required financial statements.
The
Federal Trade
Commission can impose penalties for failure to comply with this
requirement. To date, no
penalties
have been
assessed or threatened.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, Registrant
has
duly caused
this report to be signed on its behalf by the undersigned hereunto
duly authorized.
FAMOUS SAM'S GROUP, INC.
(Registrant)
By: /s/ Gerald Ross
Gerald Ross, President and
Chief Executive Office
Date: July 23, 1996
