Sadot Group Inc. annual report, FY2020

Business context and reporting period

This is Muscle Maker, Inc.’s Form 10-K for the fiscal year ended December 31, 2020, filed April 15, 2021—not a standalone fourth-quarter report. The filing identifies the registrant as Muscle Maker, Inc. (Nasdaq: GRIL), not Sadot Group Inc.; investors should verify the company and filing intended.

Muscle Maker operated a fast-casual restaurant and franchise business focused on health-inspired meals, with delivery, ghost kitchens, and meal-prep offerings. At year-end, its system included 16 company-operated and 16 franchised restaurants. COVID-19 restrictions disrupted operations, temporarily closed locations, and led to permanent closures.

Key financial metrics

At December 31, 2020, cash was $4.196 million, total assets were $10.504 million, and total liabilities were $4.708 million. The balance sheet reports current assets of $4.493 million and current liabilities of $3.110 million, implying working capital of $1.384 million; however, another filing passage calls this a working capital deficit of the same amount. The filing reports $182,458 of convertible notes and $1.277 million of other notes payable, including the $866,300 Paycheck Protection Program loan, whose forgiveness application was pending.

Restaurant operating expenses were $5.215 million, exceeding company restaurant sales. As a percentage of company restaurant sales, the filing reports food and beverage costs of 40.0%, labor of 53.2%, rent of 18.8%, and other restaurant expenses of 29.9%. These disclosed costs collectively exceeded company restaurant sales.

Changes versus the prior comparable period

• Total revenue declined $485,558, primarily as franchise royalties, fees, and vendor rebates fell; company restaurant sales rose $206,391, or 6.0%, with additional stores partly offset by COVID-related closures.
• Operating loss worsened by approximately $6.303 million. Costs rose with a larger company-operated footprint, higher delivery-related costs, and increased general and administrative expenses, including stock-based compensation and offering-related professional fees.
• Net loss narrowed by $18.286 million, mainly because 2019 included substantial noncash inducement and warrant-modification expenses related to convertible-debt conversions. The improvement did not reflect stronger operating performance.
• Operating cash outflow increased by approximately $3.282 million. Financing activities, including public offerings, supported year-end cash; 2020 net offering proceeds were reported as $11.720 million, plus $764,399 from the over-allotment.

Outlook, commentary, risks, and unusual items

Management expected continued losses and negative cash flow and stated that additional financing might be needed. The auditor’s report included a going-concern paragraph, citing recurring losses, operating cash use, and the need to raise funds. The filing provides no clear quantitative revenue or earnings guidance.

Management’s revised strategy emphasized non-traditional locations, delivery, ghost kitchens, direct-to-consumer meal plans, and acquisitions. It reported five stand-alone ghost kitchens open at year-end and university locations built but not open because of pandemic restrictions. The company also acquired two franchise locations during 2020.

• COVID-19 caused reduced hours and capacity, delivery-only operations, temporary and permanent closures, deferred franchise royalties, and uncertainty about future operations and liquidity.
• Management disclosed material weaknesses in internal control, including limited accounting resources, inadequate transaction communication controls, and deficiencies in IT controls.
• Operating leases carried $2.755 million of future minimum payments at year-end. The company relied on Sysco for substantially all food and supplies; its largest supplier accounted for 87% of purchases in 2020.
• Contingencies included accrued past-due sales taxes of approximately $231,177, several recorded legal liabilities, and an investor dispute in mediation for which no liability had been accrued. PPP loan forgiveness was not yet determined.
• After year-end, the company acquired Superfit Foods for $1.15 million, partly paid in shares, and completed a private placement reported at approximately $10 million gross. The placement included common and pre-funded warrants, creating potential dilution.

Most important facts for investors to verify

• Confirm the intended issuer: the supplied filing is Muscle Maker, Inc. (GRIL), while the request metadata names Sadot Group Inc.
• Reconcile the filing’s conflicting working-capital descriptions and its inconsistent statements about restaurant openings and temporary closures.
• Assess liquidity against ongoing operating cash burn, debt maturities, lease commitments, and whether PPP forgiveness was obtained.
• Review the going-concern disclosure, remediation of internal-control weaknesses, and the status and accrual of legal and sales-tax matters.
• Evaluate the economics of delivery and ghost kitchens, franchisee closures and deferred royalties, and dilution from the 2021 financing and warrants.