Filing summary
Entity and period: The supplied filing is Muscle Maker, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed August 20, 2019. This does not match the request metadata identifying Sadot Group Inc. or “2018 Q4”; the filing reports annual results, not standalone fourth-quarter results.
Business context
Muscle Maker operated and franchised Muscle Maker Grill, a fast-casual restaurant brand focused on health-inspired meals. At year-end 2018, the filing reports 6 company-operated and 34 franchised restaurants. The company closed 8 company-operated locations during 2018 and opened 1. The filing also reports that it sold its 70% interest in point-of-sale and technology subsidiary Custom Technology, Inc. (CTI) in May 2018 for $1.
Financial performance and liquidity
| Metric | FY 2018 / Dec. 31, 2018 | FY 2017 / Dec. 31, 2017 |
|---|---|---|
| Total revenue | $6.02 million | $7.93 million |
| Company restaurant sales | $3.87 million | $5.22 million |
| Franchise royalties and fees | $1.91 million | $1.99 million |
| Operating loss | $3.59 million | $11.93 million |
| Net loss | $7.20 million | $15.57 million |
| Net loss attributable to controlling interest | $7.20 million | $13.21 million |
| Cash used in operating activities | $2.73 million | $3.68 million |
| Cash | $357,842 | $78,683 |
| Working capital deficit | $3.92 million | $4.31 million |
| Total assets / total liabilities | $4.49 million / $7.33 million | $4.25 million / $7.45 million |
Revenue fell 24.0%, primarily due to company-store closures and the CTI sale. Company restaurant sales declined 25.8%; franchise royalties and fees declined about $80,000. The company reported an operating loss equal to 59.5% of revenue. As a share of company restaurant sales, food and beverage costs were 37.0%, labor 42.5%, rent 17.6%, and other restaurant operating expenses 22.0%.
Other expense included $983,499 of net interest expense, $2.28 million of debt-discount amortization, and a $456,169 loss on the CTI sale. The company had an accumulated deficit of $23.83 million and stockholders’ deficit of $2.84 million. The balance sheet shows current liabilities of $4.56 million against current assets of $637,894.
Changes and unusual items
- Revenue and company restaurant sales contracted as the company closed 8 operated restaurants; lower expenses also reflected these closures and the CTI sale.
- General and administrative expense declined to $4.36 million from $7.98 million, with reported reductions in professional fees, compensation, marketing, and CTI-related costs.
- The prior year included $4.31 million of impairment charges for intangible assets, property and equipment, and goodwill; no such impairment charges were reported for 2018.
- Despite the lower reported loss, operating cash outflow remained substantial. The auditor’s report raised substantial doubt about the company’s ability to continue as a going concern.
Outlook, risks, and contingencies
Management expected continuing operating losses and negative cash flow and said additional financing would be needed. It described plans to improve food and labor costs, favor variable-rent nontraditional sites, and expand company-operated locations. The filing states a 2019 plan to open 4–6 company-operated and 4–6 franchised restaurants, plus 1–2 Kuwait locations; it also says franchise sales were paused as of August 2019, with a relaunch anticipated in the fourth quarter. These are plans, not assurances.
Subsequent to year-end, the company disclosed $6.239 million of financing proceeds associated with convertible notes and other notes. It reported approximately $2.52 million of cash as of August 14, 2019 and, elsewhere, $9.589 million of outstanding convertible notes as of August 2019, including $8.189 million of senior secured convertible notes. These later-period amounts do not represent year-end 2018 balances.
- Debt and dilution: Financing included secured convertible debt, warrants, and conversion terms tied to a future public offering or listing. The filing warns that further borrowing or equity issuance could create significant debt service, restrictions, and shareholder dilution.
- Lease and legal exposure: The company disclosed settlements and payment plans for closed-location leases, including a $531,594 settlement payable in installments, and unresolved lease obligations for closed sites. It also reported mechanics liens of about $98,005, with some amounts still outstanding as of July 2019.
- Sales taxes: Approximately $297,160 of past-due sales taxes, including penalties and interest, was accrued at year-end; the company said it was completing or discussing payment plans.
- Controls: Management concluded disclosure controls were ineffective and identified material weaknesses involving undocumented procedures, insufficient accounting resources and segregation of duties, communication of financial information, and IT controls.
- Business risks: The filing highlights intense competition, franchisee financial and operating dependence, food and labor cost pressures, reliance on a major distributor, delivery-platform costs and execution, geographic concentration, and the risks of raising capital and executing restaurant expansion.
Important facts for investors to verify
- Confirm the issuer and reporting period: the document is Muscle Maker, Inc.’s 2018 annual filing, not a Sadot Group filing or a standalone Q4 report.
- Reconcile the restaurant counts: the filing reports 40 locations at December 31, 2018, but later disclosures and an August 2019 table give different counts.
- Review the going-concern disclosure, available liquidity, financing received after year-end, and the full terms and conversion features of outstanding debt.
- Track lease settlements, mechanics liens, sales-tax payment plans, and other accrued or contingent obligations.
- Assess whether the identified material weaknesses were remediated and whether the company’s planned cost improvements and openings produced measurable results.
- Note that the filing’s narrative includes differing net-loss figures depending on whether it refers to consolidated net loss or loss attributable to controlling interest; use the audited statements for comparisons.