Sadot Group Inc. annual report, FY2021

Business context and reporting period

Filing identity mismatch: The supplied filing is Muscle Maker, Inc. (ticker GRIL), not Sadot Group Inc. The summary below reflects the filing text and should not be attributed to Sadot Group without verification. This is the company’s Form 10-K for the year ended December 31, 2021; it reports annual results, not standalone fourth-quarter results.

Muscle Maker operated Muscle Maker Grill restaurants, Pokemoto Hawaiian poke restaurants and SuperFit Foods meal prep. It acquired SuperFit Foods in March 2021 and Pokemoto in May 2021, so 2021 includes only partial-year results from those businesses. At December 31, the filing describes 22 company-operated locations (including the SuperFit kitchen) and 20 franchised restaurants.

Financial performance

• Revenue increased 131%, primarily reflecting acquired Pokemoto and SuperFit Foods sales. Company restaurant sales rose 154% to $9.32 million; franchise royalties and fees increased 5% to $778,181.
• Net loss improved by $1.92 million. Operating loss remained substantial; the net loss includes a $1.23 million gain on debt extinguishment, mainly associated with PPP loan forgiveness.
• Restaurant food and beverage costs were 37.9% of company restaurant sales, versus 40.0% in 2020. Reported labor was 20.6% versus 52.0%, but 2021 labor expense benefited from approximately $1.92 million of employee retention credits; excluding those credits, labor was reported as 41.2% of company restaurant sales.
• Company-segment operating results were Muscle Maker Grill loss of approximately $303,000, Pokemoto income of $492,000 and SuperFit Foods income of $300,000. These figures do not include substantial unallocated corporate costs.
• Financing provided $21.54 million of net cash, principally from two 2021 private placements. Investing used $3.58 million, including $3.32 million for acquisitions. Year-end cash was supported by external equity financing, while operations continued to consume cash.
• Reported debt included $1.17 million of other notes payable and $182,458 of convertible notes. Other notes carried stated rates of 1%–8% and maturities through 2026. The filing also lists $4.11 million of future minimum lease payments, an undiscounted commitment.

Changes, outlook and material risks

• Management said cash on hand and expected franchise cash flows should fund operations, planned capital expenditures and repayment obligations for the next 12 months. No specific revenue, earnings or unit-opening guidance is provided.
• Management’s strategy emphasizes Pokemoto franchising, with company-operated locations used to seed markets. The filing cites 31 signed franchise agreements, six recently opened locations and three under construction; it also reports 17 potentially new Pokemoto locations contracted during 2021, with $217,500 recorded as deferred revenue. A master franchise agreement provides for development of up to 40 Muscle Maker Grill restaurants in Saudi Arabia through 2030.
• The company decided not to renew seven delivery-only kitchen licenses because those sites underperformed. After year-end, it closed two company-operated Muscle Maker Grill locations and opened a company-operated Pokemoto in Miami.
• COVID-19 continued to affect staffing, supplies and operations. Management also cited inflation in food, labor, rent and other costs, with uncertainty about passing those increases to customers. Other key risks include competition, dependence on third-party delivery and digital platforms, franchisee financial health, supplier concentration and geographic concentration.
• Liquidity improved after equity raises, but the company had an accumulated deficit of $71.37 million and used $6.39 million of operating cash in 2021. Management warned that further financing might be needed if cash generation or access to capital falls short; additional equity could dilute shareholders.
• Potential dilution is significant: 20.28 million warrants were outstanding at year-end, compared with 26.11 million common shares issued and outstanding. The stock price also fell below Nasdaq’s $1.00 minimum bid-price threshold; the company received a deficiency notice in February 2022 and had until August 1, 2022 to regain compliance, subject to possible extension.
• Unusual items and contingencies include $1.14 million of intangible-asset impairment, $86,348 of goodwill impairment, delinquent historical sales taxes accrued at $125,550, and several legal liabilities accrued in the accounts. The 2021 audit opinion was unqualified; the 2020 auditor’s report included a going-concern explanatory paragraph. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.

Important facts for investors to verify

• Confirm the registrant: the filing is for Muscle Maker, Inc., not Sadot Group Inc., and confirm the intended reporting period.
• Reconcile restaurant counts: the filing reports 42 system restaurants at year-end in one section, but a March 16, 2022 table reports 41 total, including 21 company-owned and 20 franchised.
• Assess comparable, post-acquisition performance and cash generation for Pokemoto and SuperFit Foods; reported 2021 growth reflects acquisitions and partial-year consolidation.
• Verify the collection and timing of the $1.70 million employee-retention-credit receivable, and the sustainability of reported labor costs without those credits.
• Review the warrant terms, potential share issuance and dilution, private-placement proceeds and remaining financing needs; also verify Nasdaq listing compliance subsequent to the filing.
• Review the complete audited financial statements and notes for lease commitments, debt maturities, tax and legal accruals, acquisition accounting, and impairment assumptions.