Filing summary
Entity discrepancy: The request identifies Sadot Group Inc., but the supplied Form 10-Q is for Muscle Maker, Inc. (NASDAQ: GRIL). This summary reflects the filing provided, not a Sadot Group filing.
Business context and reporting period
The filing covers the three months ended March 31, 2021, with comparative results for the three months ended March 31, 2020. Muscle Maker operated Muscle Maker Grill and Healthy Joe’s restaurants as a franchisor and owner-operator; it reported 18 company-owned and 14 franchised restaurants at quarter-end. On March 25, 2021, it acquired the assets of SuperFit Foods, a Jacksonville-area prepared-meal business, for stated consideration of $1.15 million.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $1.328 million | $1.435 million |
| Operating loss | $3.700 million | $5.357 million |
| Net loss | $3.712 million | $5.492 million |
| Net loss per share, basic and diluted | $0.31 | $0.84 |
| Cash used in operating activities | $1.600 million | $2.543 million |
| Cash at period-end | $2.010 million | $4.196 million at Dec. 31, 2020 |
| Working capital | Deficit of $1.604 million | Surplus of $1.384 million at Dec. 31, 2020 |
Restaurant operating expenses were $1.868 million, exceeding company restaurant sales of $1.179 million. Food and beverage costs, labor, and rent were 42.8%, 65.1%, and 21.7% of restaurant sales, respectively. General and administrative expense was $2.967 million, including $1.713 million of non-cash stock-based compensation. The filing does not provide a consolidated gross-margin figure.
At March 31, total liabilities were $5.258 million. Notes payable totaled $1.440 million: $182,458 in convertible notes and $1.258 million in other notes. Current liabilities were $3.920 million. Stockholders’ equity was $4.079 million.
Material changes versus the prior comparable period
- Revenue declined $106,716, or about 7%, as restaurant sales and franchise royalties and fees fell. Management attributed lower restaurant sales to COVID-19; franchise revenue also reflected fewer franchise locations, two franchise locations acquired by the company, lower sales, and closures.
- Net loss improved by $1.781 million, while operating loss improved by $1.656 million. Lower general and administrative expense—primarily less consulting expense and stock-based compensation—was the main contributor; restaurant operating costs increased.
- Operating cash use decreased by $942,285 year over year, but cash fell $2.186 million from year-end. Investing cash use was $568,000, including $500,000 for SuperFit Foods; financing cash use was $18,493.
- Restaurant food and beverage, labor, and rent costs rose as a share of restaurant sales. Management cited new cloud kitchens and acquired locations, operating inefficiencies, and COVID-related lower sales.
Outlook, risks, contingencies, and unusual items
- Going concern: Management stated there was substantial doubt about the company’s ability to continue as a going concern for at least one year from issuance, citing its working-capital deficit, accumulated deficit of $66.905 million, quarterly net loss, and operating cash use. It said further financing could be needed and was not assured.
- Subsequent financing: A private placement closed April 9, 2021, for approximately $10 million gross; the filing reports $9.181 million net of underwriting costs and other fees. The transaction included common shares and warrants, creating potential dilution. No formal operating or earnings guidance is provided.
- Subsequent acquisition: On May 14, 2021, the company acquired the PokeMoto concept, described as a 13-location business, through transactions involving $4 million cash, a $730,000 promissory note, and $1.25 million in stock consideration.
- COVID-19: The company said the pandemic continued to affect operations and that the duration and financial impact were uncertain. Four university locations remained unopened due to COVID-19 restrictions.
- Legal and tax matters: Disclosed matters include a $160,000 settlement with an investor and former parent, mechanics liens, contractor and lease disputes, a $100,000 convertible-note liability, and $233,713 accrued for delinquent sales taxes, penalties, and interest. Management said ordinary-course matters were not expected to materially affect the financial statements.
- Controls and concentration: Management concluded disclosure controls were ineffective due to material weaknesses involving accounting resources and segregation of duties, timely communication of transaction information, and IT controls. One supplier accounted for 84% of purchases in the quarter.
- Unusual disclosure differences: The SuperFit acquisition cash payment is reported as $500,000 in the notes and cash-flow statement but as $475,000 in one Part II disclosure. The notes also report franchise advertising contributions of $25,140, while the income statement reports $14,087. These amounts should be reconciled.
Most important facts for investors to verify
- Confirm the filing belongs to the intended issuer: the supplied document is Muscle Maker, Inc., not Sadot Group Inc.
- Review the going-concern warning, post-quarter financing proceeds, financing terms, and resulting potential share dilution.
- Reconcile the SuperFit cash consideration and advertising-fund contribution discrepancies noted above.
- Track restaurant-level cost trends, sales recovery, COVID-19 effects, and the performance and integration of SuperFit Foods and PokeMoto.
- Assess the status and potential cash impact of litigation, sales-tax liabilities, and remediation of the disclosed control weaknesses.