Business context and reporting period
The supplied filing is Muscle Maker, Inc. and subsidiaries’ unaudited Form 10-Q for the quarter and nine months ended September 30, 2017, signed February 27, 2019. The company operated Muscle Maker Grill restaurants and franchised locations, and also reported technology sales and services through CTI. At quarter-end it reported 13 company-owned restaurants and 39 franchised restaurants.
Issuer discrepancy: The request identifies Sadot Group Inc., but the filing text identifies Muscle Maker, Inc. Investors should verify that this is the intended filing before relying on this summary.
Financial results and liquidity
- Revenue: Third-quarter revenue was $2.36 million, up 17.9% year over year; nine-month revenue was $6.25 million, up 59.5%. Growth was primarily attributed to additional company-owned restaurants. Nine-month company restaurant sales rose to $3.96 million from $1.90 million; franchise royalties and fees were $1.73 million, and other revenue was $558,469.
- Profit and margins: Third-quarter net loss was $5.38 million, versus $1.13 million a year earlier. Nine-month net loss was $12.38 million, versus $2.33 million. Nine-month operating loss was $8.42 million, versus $2.15 million. Results included $2.52 million of goodwill impairment and $410,225 of intangible-asset impairment, plus $3.96 million of debt-discount amortization for the nine months. Restaurant-level costs were elevated: food and beverage, labor, rent, and other restaurant expenses equaled 41.0%, 48.5%, 23.1%, and 22.0% of restaurant sales, respectively, for the nine months.
- Cash flow: Operating activities used $2.64 million and investing activities used $529,496 in the first nine months. Financing provided $2.98 million. Cash declined by $192,323 to $143,401.
- Balance sheet and liquidity: At September 30, cash was $143,401, current assets were $839,975, and current liabilities were $4.19 million, resulting in a $3.35 million working-capital deficit. Total liabilities were $6.20 million against total assets of $6.03 million, leaving a $177,369 stockholders’ deficit. Convertible notes payable totaled $1.55 million; accounts payable and accrued expenses were $2.25 million, and deferred revenue was $1.42 million.
Changes versus the prior comparable period
- Revenue increased substantially, mainly from company-owned restaurant additions; restaurant sales more than doubled over the nine-month comparison.
- Losses worsened as operating expenses increased, including higher general and administrative costs, opening-related restaurant inefficiencies, and impairment charges. Debt-discount amortization also increased sharply.
- Operating cash use increased from $1.00 million to $2.64 million. Cash fell from $335,724 at December 31, 2016 to $143,401 at September 30, 2017.
- Equity moved from $4.32 million to a $177,369 deficit, while reported goodwill fell to zero following impairment. Share count increased, including through note conversions, stock issuances, and compensation awards.
Outlook, risks, contingencies, and unusual items
- Management and the filing state that substantial doubt existed about the company’s ability to continue as a going concern. The company expected continuing losses and working-capital needs, and said further financing might be required; financing availability and terms were uncertain.
- No specific operating guidance is provided. The filing describes plans to expand company-owned restaurants and franchising, while warning that funding constraints could require cost reductions, delayed development, asset sales, or reduced operations.
- The filing reports a material weakness in internal controls: insufficient written procedures, accounting resources, and timely communication of transaction information. Disclosure controls were deemed ineffective as of September 30, 2017.
- Contingencies included approximately $242,110 accrued for delinquent sales taxes at quarter-end and litigation disclosures, principally involving rent and other claims. Several later events and settlements are described in the filing; these are subsequent disclosures, not September 2017 quarter-end results.
- Subsequent information in this late-filed report describes later restaurant closures, additional impairment, financing and debt conversions, and the sale of CTI. It also says the company closed eight of 13 corporate locations from March through July 2018 as a cost-saving measure.
Important facts for investors to verify
- Confirm the issuer and filing identity: the supplied request says Sadot Group Inc., while the filing is for Muscle Maker, Inc.
- Review the going-concern disclosure, financing needs, debt terms, and subsequent financing or conversion activity; distinguish quarter-end balances from later events.
- Assess the basis for the goodwill and franchise-agreement impairments and the assumptions behind projected cash flows.
- Verify the status and amounts of sales-tax liabilities, landlord claims, settlements, and other litigation disclosed after quarter-end.
- Track remediation of the disclosed internal-control material weakness and the effect of restaurant closures on operations and liquidity.