Sadot Group Inc. (filing identifies registrant as Muscle Maker, Inc.) — Form 10-Q summary
Reporting period: Quarter and six months ended June 30, 2021. The filing was signed August 16, 2021. The registrant operated Muscle Maker Grill, Healthy Joe’s, SuperFit Foods and Pokemoto; it reported 25 company-owned and 14 franchised restaurants at quarter-end.
Financial performance and liquidity
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $2.74 million | $4.07 million | $0.83 million quarter; $2.27 million six months |
| Operating loss | $2.33 million | $6.03 million | $1.39 million quarter; $6.75 million six months |
| Net loss | $1.12 million | $4.83 million | $1.50 million quarter; $6.99 million six months |
| Net loss per share | $0.07 | $0.36 | $0.21 quarter; $1.01 six months |
| Operating cash flow | Not separately presented for the quarter | $(3.70) million | $(3.83) million six months |
Second-quarter revenue rose about 228% year over year, largely reflecting additional stores and easing COVID-related restrictions. Six-month revenue increased about 79%. Company restaurant sales drove the growth; six-month franchise royalties and fees and advertising contributions declined. Restaurant operating expenses and general and administrative costs remained substantial, and the company continued to report operating and net losses.
At June 30, cash was $4.97 million, working capital surplus was $2.43 million, total assets were $18.96 million, and stockholders’ equity was $13.55 million. Current liabilities were $3.09 million. Debt included $1.38 million of other notes payable and $182,458 of convertible notes. The filing reports six-month investing cash outflow of $3.41 million, including acquisitions, and financing cash inflow of $7.89 million, principally from the private placement. Cash increased by $776,000 from year-end.
Material changes and unusual items
- The company acquired SuperFit Foods in March for stated consideration of $1.15 million and acquired Pokemoto in May for stated consideration of $5.98 million, including cash, a promissory note and stock. These acquisitions expanded the business and increased goodwill and intangible assets.
- An April private placement generated approximately $10 million gross proceeds; reported net proceeds were about $9.18 million. It included common stock and warrants. Shares outstanding increased from 11.73 million at December 31, 2020 to 17.69 million at June 30, 2021; 6.62 million warrants were outstanding at quarter-end.
- The SBA forgave the company’s first PPP loan, producing an $875,974 gain on extinguishment of debt. Other income also included a store-related revitalization grant. These items helped reduce reported net loss but are not recurring operating revenue.
- Five delivery-only kitchen locations were closed after quarter-end as a cost-saving measure because they had not performed as anticipated.
Outlook, risks and contingencies
The company provided no quantified financial guidance. Management expected continued working-capital needs to fund operations and possible expansion, and stated that additional equity or debt financing might be required. The filing says there is substantial doubt about the company’s ability to continue as a going concern for at least one year; financing was not committed, and management cautioned that additional capital might not be available on acceptable terms. If funding is unavailable, possible actions include cost reductions, deferring development, seeking extensions from creditors, asset sales or reduced operations.
Management said COVID-19 continued to affect operations and that the duration and financial impact were uncertain. Other identified risks included labor availability and costs, delivery-platform fees, supplier concentration, natural disasters affecting the Jacksonville meal-prep business, and potential dilution or added debt-service burdens from future financing. The company disclosed material weaknesses in financial-reporting controls, including limited accounting resources, inadequate transaction communication controls and IT-control deficiencies; disclosure controls were deemed ineffective as of June 30, 2021.
Contingencies included legacy litigation and judgments, accrued sales taxes of $252,558 including penalties and interest, and a settled investor dispute for which the company paid $100,000. A former employee wage dispute was settled after quarter-end for $18,500. Management stated that other ordinary-course legal matters were not expected to have a material financial-statement impact.
Important facts for investors to verify
- Confirm the issuer’s identity and corporate-name history: this supplied 2021 filing is for Muscle Maker, Inc., although the request identifies Sadot Group Inc.
- Review the going-concern disclosure, cash burn and the company’s access to additional financing.
- Assess acquisition performance and the effect of the acquired businesses on revenue, operating losses, goodwill and intangible-asset values.
- Evaluate dilution exposure from outstanding warrants and the sizable increase in shares outstanding.
- Track the five post-quarter restaurant closures, COVID-19 and labor effects, sales-tax liabilities, litigation and remediation of disclosed control weaknesses.