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Muscle Maker Grill faces lawsuits over closed locations

The fast-casual health food franchise has been closing restaurants since its failed IPO.
Photograph courtesy of Muscle Maker Grill

Muscle Maker Grill, the fast-casual health food franchise, is facing lawsuits after closing more than half of its company-owned locations in a bid to save money following the failure of its mini IPO to generate investor interest.

According to an SEC filing earlier this month, Muscle Maker Grill disclosed three lawsuits, two of which were filed by landlords over closed restaurants and another was over an unpaid promissory note. The company also revealed a mechanic’s lien filed by a construction company.

Muscle Maker said that the lawsuits were filed after the company closed eight of its 13 corporate locations between March and July of this year. Muscle Maker operated 53 locations as of last year. Franchisees operate the remaining locations.

The Texas-based company last year announced plans to raise $20 million in a Regulation A+ IPO, otherwise known as a mini IPO.

That IPO failed to generate much interest. Muscle Maker raised just $143,497 after selling shares at $3.25.

The company’s CEO, Robert Morgan, subsequently resigned for personal reasons. Kevin Mohan was named interim president, and in May, former Taco Bueno CEO Michael Roper was named to the permanent post.

In May, according to the filing, Crownhall Realty sued Muscle Maker in a New York court for more than $1 million in rent, interest and “other expenses” over a broken 10-year lease that was signed on Jan. 1, 2016.

Also in May, Limestone Associates filed a $1.4 million lawsuit in New York. That followed a lawsuit the real estate firm filed against Muscle Maker last year for nearly $26,000 in unpaid rent.

Muscle Maker did not respond to requests for comment.

The company opted to list its shares over the counter following the failure of its IPO. Over-the-counter listings are more difficult to trade, making it harder for the company to get attention from investors.

Muscle Maker has struggled with a history of losses. Its IPO came along with a “going concern” warning, meaning its auditors feared for the company’s future. The company’s offering also noted that if “we are unable to raise additional funding from other sources, we may be unable to continue in business even if this offering is successful.”

The company said earlier this year that it would close company locations to concentrate on building units on military bases. Muscle Maker said earlier this year that it has 10 military locations in its pipeline and has ongoing discussions with other military sites.

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