Business Context and Reporting Period
Company: Muscle Maker, Inc. (Trading Symbol: GRIL)
Filing Type: Form 8-K (Current Report)
Date of Report: May 14, 2021
Reporting Period: The filing reports on transactions closed on May 14, 2021. The company is an emerging growth company incorporated in Nevada.
Key Financial Metrics and Transaction Details
The filing details the acquisition of the "PokeMoto" brand, a 13-location poke restaurant concept. The transaction structure involves cash, debt, and equity components:
- Cash Consideration: $4,000,000 paid for membership interests in PKM Stamford, LLC, Poke Co., LLC, LB Holdings LLC, and TNB Holdings, LLC.
- Debt Obligation: A promissory note ("Poke Note") of $730,000 issued as part of the purchase price.
- Equity Consideration: Common stock valued at $1,250,000 issued for Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC.
- Total Consideration: Approximately $6,000,000 (excluding potential working capital adjustments).
- Debt Terms: The $730,000 note is payable in 60 monthly installments. The first 59 payments are $5,308.73 each, commencing June 1, 2021, with a final balloon payment of $535,855.79 due May 1, 2026.
Material Changes and Agreements
Acquisition of Assets: The Company acquired all issued and outstanding membership interests of the Poke Entities and Poke Entities II, effectively acquiring the PokeMoto brand and its 13 locations.
Working Capital Adjustment: The purchase price is subject to adjustment within 90 days of closing to reflect credit card payments, third-party delivery vendor amounts, and accrued expenses/liabilities. Adjustments may result in additional payments to sellers or refunds to the Company.
Intellectual Property License: An agreement was entered into between Saladco Holdings, LLC and Poke Co Holdings, LLC granting a one-year license for "Saladcraft" branded products. Royalties are set at 10% of net sales for Saladcraft products at PokeMoto locations and 50% of license revenue collected from franchisees attributable to these products.
Guidance, Outlook, and Risks
Management Commentary: The acquisition is positioned as a strategic expansion into a "healthier modern culinary twist on a traditional Hawaiian poke classic."
Financial Statement Status: Audited financial statements for the acquired entities for the years ended December 31, 2020 and 2021, as well as unaudited statements for the three months ended March 31, 2021, are not included in this filing and are noted as "to be filed by amendment."
Pro Forma Information: Unaudited Pro Forma Condensed Consolidated Financial Statements are also to be filed by amendment.
Risks and Contingencies:
- Working Capital Risk: The final purchase price is contingent on the 90-day post-closing adjustment calculation.
- Debt Service: The Company assumes a new fixed debt obligation with a significant balloon payment due in 2026.
- Regulatory Exemption: The equity issuance relies on an exemption from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D.
Investor Verification Checklist
- Verify the upcoming filing of audited and unaudited financial statements for the acquired Poke Entities to assess historical profitability and debt levels.
- Review the Pro Forma Condensed Consolidated Financial Statements once filed to understand the impact of the acquisition on the Company's consolidated balance sheet and liquidity.
- Monitor the 90-day post-closing period for the working capital adjustment amount, which could alter the total cash outflow.
- Confirm the Company's ability to service the $730,000 promissory note, particularly the final balloon payment of $535,855.79 in 2026.
- Assess the performance of the 13 acquired locations and the revenue potential of the new Saladcraft intellectual property license.