Business context and reporting period
This is Muscle Maker, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. The company operated Muscle Maker Grill, Pokemoto and SuperFit Foods, across four segments; its system comprised 21 company-owned locations, including the SuperFit Foods kitchen, and 22 franchised locations. Although the request identifies Sadot Group Inc., the filing issuer is Muscle Maker, Inc. The filing reports that Muscle Maker formed Sadot LLC on October 9, 2022, to pursue a new business line; it had taken no further action as of the filing date.
Financial results and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2022: $2.824 million; 2021: $3.302 million | 2022: $8.673 million; 2021: $7.369 million |
| Operating loss | 2022: $1.962 million; 2021: $1.619 million | 2022: $5.687 million; 2021: $7.645 million |
| Net loss | 2022: $1.898 million; 2021: $0.433 million | 2022: $5.558 million; 2021: $5.267 million |
| Operating cash flow | Not presented for the quarter | 2022: $(3.414) million; 2021: $(4.941) million |
- Q3 operating loss was 69.5% of revenue (prior year: 49.1%); nine-month operating loss was 65.6% of revenue (prior year: 103.7%).
- At September 30, cash was $11.673 million, down from $15.767 million at December 31, 2021. Working capital surplus was $10.391 million, down from $15.041 million.
- Debt included $932,292 of other notes payable and $102,458 of convertible notes, including the former-parent note. Operating lease liabilities were $2.572 million. Total liabilities were $6.450 million.
- Nine-month investing cash use was $0.503 million, primarily $0.575 million of property and equipment purchases. Financing cash use was $0.177 million, including $0.080 million of convertible-note repayments and $0.097 million of other-note repayments.
- Restaurant food and beverage costs were 38.0% of company restaurant sales for the nine-month period, versus 37.8% a year earlier; labor was 36.5%, versus 42.5%.
Material changes versus prior comparable periods
- Q3 revenue declined 14.5%, mainly from lower company restaurant sales following closures of underperforming locations. Company restaurant sales fell 11.6%; franchise royalties and fees fell 47.7%.
- Q3 net loss widened by about $1.465 million. Lower revenue and substantially lower other income—including 2021 employee retention tax credits and a debt-extinguishment gain—more than offset lower total costs and expenses.
- Nine-month revenue increased 17.7% on the financial-statement comparison, mainly reflecting Pokemoto and SuperFit Foods sales and changes in the location base. Nine-month operating loss improved by $1.958 million, with lower SG&A and higher revenue contributing.
- Nine-month net loss nevertheless increased by $0.291 million, as the $2.237 million reduction in other income—principally 2021 tax credits and PPP loan forgiveness—outweighed the operating improvement.
- Intangible-asset amortization rose after the Muscle Maker trademark was assigned a three-year finite life beginning January 1, 2022. The company reported no goodwill or intangible-asset impairment charge at September 30.
Outlook, commentary, risks and unusual items
- Management said existing cash and expected franchise cash flows should fund operations, anticipated capital expenditures and repayments over the next 12 months. It cautioned that additional financing might not be available on acceptable terms and could dilute shareholders; inability to fund operations could require asset or business sales or reduced operations.
- Management cited food inflation, supply-chain disruptions, rising labor and service costs, and third-party delivery fees as ongoing pressures. It described price increases, menu and portion changes, cost controls and shorter operating hours as responses. No quantified earnings or revenue guidance was provided.
- The company incurred $116,729 of preopening costs for three new Pokemoto company locations and $158,783 of post-closing costs associated with three underperforming corporate closures during Q3.
- Nasdaq granted an extension through January 30, 2023, to regain compliance with the $1.00 minimum bid-price requirement; the filing gives no assurance of compliance and notes possible delisting proceedings.
- Legal matters include an agreement to repay $110,000 related to an Iowa default judgment, with $20,000 reported accrued at quarter-end, as well as previously accrued contractor and lease-related claims. Management said ordinary-course matters were not expected to materially affect the financial statements.
- The filing states disclosure controls were effective and reports no material change in internal control over financial reporting during the nine months.
Important facts for investors to verify
- Reconcile the revenue comparison: the statements report nine-month 2021 revenue of $7.369 million, while one MD&A passage says $7.258 million; the filing’s narrative growth amount and percentage should be checked against the statements.
- Review continuing operating cash burn, cash runway, and the assumptions behind management’s 12-month liquidity assessment.
- Check Nasdaq bid-price compliance status and the potential effect of the 17.9 million outstanding warrants, alongside the share count and possible dilution.
- Assess the performance and expansion economics of Pokemoto, the closures of underperforming stores, and the proposed Sadot LLC business line.
- Confirm developments in the disclosed litigation, sales-tax balances, and other repayment obligations.