Sadot Group Inc. — Filing Summary
Entity and period caveat: The supplied filing is a Form 10-K for Muscle Maker, Inc., not Sadot Group Inc. It reports the fiscal year ended December 31, 2019; it is not a standalone 2019 fourth-quarter report. The summary below reflects the filing as provided.
Business context and reporting period
Muscle Maker operated a fast-casual restaurant and franchising business focused on healthy-inspired meals under the Muscle Maker Grill brand, and introduced its Healthy Joe’s concept in November 2019. At year-end, its system had 38 restaurants: 10 company-operated and 28 franchised, across 15 states and Kuwait. The company signed the 10-K on May 29, 2020.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 | Change or context |
|---|---|---|---|
| Total revenue | $4.96 million | $6.02 million | Down 17.7% |
| Company restaurant sales | $3.47 million | $3.87 million | Down 10.4% |
| Franchise royalties and fees | $1.35 million | $1.91 million | Down $555,334 |
| Operating loss | $3.65 million | $3.59 million | Loss widened by $68,159 |
| Net loss | $28.39 million | $7.20 million | Increase driven principally by debt-conversion-related expenses |
| Cash used in operations | $4.50 million | $2.73 million | Cash burn increased |
| Cash at year-end | $478,854 | $357,842 | — |
| Working capital deficit | $3.71 million | $3.92 million | Still materially negative |
| Gross debt | $1.42 million | — | Stated rates of 10%–15%; maturities through 2024 |
Company restaurant food and beverage costs were 36.8% of company restaurant sales (37.0% in 2018); labor was 45.8% (42.5%); and rent was 13.0% (17.6%). General and administrative expense was $4.24 million, about 85.6% of total revenue. The filing reports total assets of $6.26 million, total liabilities of $6.01 million, and stockholders’ equity of $245,762 at December 31, 2019.
Other expense totaled $24.73 million, including $15.10 million of inducement expense and $5.41 million of warrant-modification expense associated with inducing conversion of approximately $9.5 million of debt into equity. These charges were substantially non-cash. The company reported $2.65 million of debt-discount amortization and $1.58 million of net interest expense.
Material changes versus 2018
- Revenue fell as franchise royalties and fees declined and company sales weakened. Management attributed lower company sales partly to prior store closures, partly offset by two new company stores and two acquired franchise locations.
- Comparable same-store sales were negative 12% in 2019, compared with negative 8% in 2018.
- The company acquired two former franchise locations in 2019. These acquisitions contributed to higher property and equipment and $656,348 of goodwill at year-end.
- Debt conversions and revised warrants substantially increased reported 2019 net loss, while reducing convertible debt outstanding. Common shares outstanding increased to 5,714,464 at year-end from 1,489,686 a year earlier; the filing also reports 2,450,287 warrants outstanding.
- Adoption of Topic 606 changed franchise-fee recognition to recognition over the franchise agreement term and reduced opening retained earnings by $875,902.
Outlook, risks, contingencies, and unusual items
- Going concern: The auditor’s report includes a substantial-doubt paragraph. The company reported recurring losses, negative operating cash flow, a working-capital deficit, and reliance on additional financing. The financial statements contain no adjustments for the outcome of this uncertainty.
- Financing and plans: A February 2020 public offering generated $6.78 million net proceeds. Management said those resources were expected to support projected requirements through Q4 2020, while also estimating 2020 cash needs of approximately $7.2 million and expecting to need more funding. A previously stated plan to open or acquire 12–16 company restaurants and add two to four franchise restaurants in 2020 was undermined by the pandemic: the company paused nearly all new-store construction to preserve liquidity.
- COVID-19: The company temporarily closed five company-operated locations; franchise locations also took closure or operating restrictions. Dining rooms were closed where required, with takeout, curbside pickup, or delivery used where feasible. Management said the pandemic’s duration and financial impact could not be determined.
- Subsequent borrowing: The company received an $866,300 Paycheck Protection Program loan in May 2020 at 1% interest, with payments initially deferred. Forgiveness was not assured.
- Other liquidity pressures: The filing lists $2.10 million of future minimum lease payments and describes reliance on capital raising. Delivery partners can charge fees of up to 25% of an order. One supplier accounted for 83% of purchases in 2019.
- Contingencies: Accrued sales taxes were approximately $329,089 at year-end. The filing also describes several landlord, contractor, and note-holder matters, including a $30,000 accrual for a Texas contractor claim and a $52,500 remaining liability under a landlord settlement. Some other listed settlements were paid by year-end or shortly afterward.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective and identified material weaknesses involving undocumented procedures, limited accounting resources and segregation of duties, weak transaction-information communication, and IT controls.
- Additional unusual item: The filing reports a one-time $875,902 retained-earnings adjustment on adopting the revenue standard, revised upward by $307,362 during 2019; the revision affected the balance sheet, not the 2019 income statement.
Most important facts for investors to verify
- Confirm the issuer identity: the filing is for Muscle Maker, Inc. (ticker GRIL), despite the request naming Sadot Group Inc.
- Reconcile the $28.39 million net loss to the non-cash inducement, warrant-modification, and debt-discount charges, and assess continuing operating losses and cash burn.
- Verify post-year-end liquidity, including public-offering proceeds, PPP loan status and forgiveness, debt repayments, and whether additional capital was obtained.
- Track COVID-related closures, sales, franchisee health, paused construction, and whether the stated restaurant-development plans were achieved.
- Assess the negative comparable sales trend, restaurant-level labor burden, and the economics of delivery and acquired locations.
- Review outstanding debt and warrants, potential dilution, lease commitments, sales-tax liabilities, legal matters, and progress addressing the disclosed material weaknesses.