Business context and reporting period
This is Muscle Maker, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The filing describes Muscle Maker Grill, Pokemoto, SuperFit Foods and a hybrid division, with 19 company-operated locations (including the SuperFit Foods kitchen) and 18 franchise locations. The supplied filing identifies the registrant as Muscle Maker, Inc. (ticker GRIL); it does not identify Sadot Group Inc. as the filer.
Financial highlights
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | $2.93 million, up 8.3% year over year | $5.85 million, up 46.1% year over year |
| Operating loss | $1.74 million, compared with $2.33 million | $3.73 million, compared with $6.03 million |
| Net loss | $1.77 million, compared with $1.12 million | $3.66 million, compared with $4.83 million |
| Net loss per share | $0.06 | $0.13 |
| Net cash used in operating activities | Not provided separately for the quarter | $1.91 million, compared with $3.70 million |
Revenue growth reflected acquired Pokemoto and SuperFit Foods operations and changes in company and franchise locations. Six-month company restaurant sales rose 45.4%; franchise royalties and fees increased 53.2%. Pokemoto generated $2.47 million in six-month revenue and $58,119 in operating income. Muscle Maker Grill and the hybrid division reported operating losses of $438,369 and $269,439, respectively.
For the quarter, lower selling, general and administrative expense and higher revenue narrowed the operating loss. Net loss nevertheless increased year over year, principally because the prior-year quarter included a $875,974 PPP debt-forgiveness gain, a $127,500 compensation fair-value benefit and other income that did not recur. For the six-month period, lower operating expenses and higher revenue contributed to an improved net loss despite lower other income.
Margins, liquidity and debt
Food and beverage costs increased to 40.6% of company restaurant sales in the quarter from 34.7% a year earlier; for the six-month period, they rose to 39.4% from 36.4%. Management cited inflation and supply-chain disruption, and said it had raised prices and adjusted menus and recipes. Six-month labor, rent and other restaurant costs improved as a percentage of restaurant sales, according to management.
At June 30, 2022, cash was $13.47 million, working capital surplus was $11.93 million, total assets were $27.67 million and total liabilities were $6.87 million. Cash was down $2.30 million from year-end 2021. Other notes payable totaled $965,344; convertible notes, including the former-parent note, totaled $132,458. Operating lease liabilities were $2.69 million, recognized following adoption of lease accounting in 2022. Stockholders’ equity was $20.80 million, with an accumulated deficit of $75.05 million.
Outlook, risks and unusual items
- Management said cash on hand and expected franchise cash flows should fund operations, anticipated capital expenditures and repayment obligations for the next 12 months. No quantified revenue, earnings or margin guidance was provided.
- Management warned that additional financing might be needed if operating cash flows prove inadequate; financing may be unavailable or could dilute shareholders or constrain operations.
- Nasdaq had notified the company of a minimum-bid-price deficiency. A subsequent event disclosed an extension through January 30, 2023 to regain compliance; the filing cautioned that compliance was not assured and delisting could follow.
- The company recorded $266,573 of losses on asset disposals for the six months, tied to closed locations and terminated future locations. It reported no goodwill or intangible-asset impairment at June 30, 2022.
- Four and 17 potentially new Pokemoto locations were covered by franchise agreements entered in the quarter and six-month period, respectively; related fees were recorded as deferred revenue.
- Reported litigation included a $110,000 repayment agreement with a note holder and accrued claims related to a contractor dispute and a lease judgment. Management said ordinary-course legal matters were not expected to materially affect the financial statements. Past-due 2017–2018 sales taxes were reported paid, with $56,184 still accrued for sales taxes.
- Shares outstanding increased from 26.11 million at December 31, 2021 to 28.70 million at June 30, 2022, including cashless warrant exercises. At quarter-end, 17.87 million warrants remained outstanding, a potential source of dilution.
Investor verification priorities
- Confirm the issuer identity and whether this Muscle Maker, Inc. filing is the intended filing for Sadot Group Inc.
- Track quarterly cash burn, franchise cash generation and the basis for management’s 12-month liquidity assessment.
- Assess whether food-cost inflation, pricing changes and supply availability affect restaurant-level economics.
- Monitor Nasdaq bid-price compliance and the potential effects of warrants, options and future financing on dilution.
- Verify progress on franchise openings, location closures, litigation accruals and remaining lease obligations.