SCHEDULE OF OTHER INTANGIBLE ASSETS USEFUL LIVES
| |
Franchisee
agreements |
13
years |
|
| |
Franchise
license |
10
years |
|
| |
Trademark – Muscle Maker, SuperFit and Pokemoto |
3
– 5 years |
|
| |
Domain name, customer list and Proprietary recipes |
3
– 7
years |
|
| |
Non-compete
agreement |
2
– 3
years |
|
Impairment
of Long-Lived Assets
When
circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company
performs an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash
flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected
future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis
indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the
carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income.
Convertible
Instruments
The
Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative
financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”).
If
the instrument is determined not to be a derivative liability, the Company then evaluates for the existence of a beneficial conversion
feature by comparing the market price of the Company’s common stock as of the commitment date to the effective conversion price
of the instrument.
As
of March 31, 2022 and December 31, 2021, the Company deemed the conversion feature was not required to be bifurcated and recorded as
a derivative liability.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue
Recognition
The
Company’s revenues consist of restaurant sales, franchise royalties and fees, franchise advertising fund contributions, and other
revenues. The Company recognized revenues according to Topic 606 “Revenue from Contracts with Customers”. Under the guidance,
revenue is recognized in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying
the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance
obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model,
we made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and
which represent separate performance obligations.
Restaurant
Sales
Retail
store revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts
and other sales related taxes. The Company recorded retail store revenues of $2,694,192 and $1,178,911 during the quarters ended March
31, 2022 and 2021, respectively.
The
Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances.
The Company recognizes revenues from gift cards as restaurant revenues once the Company performs its obligation to provide food and beverage
to the customer simultaneously with the redemption of the gift card or through gift card breakage, as discussed in Other Revenues below.
Franchise
Royalties and Fees
Franchise
revenues consists of royalties, franchise fees and rebates. Royalties are based on a percentage of franchisee net sales revenue. The
Company recognizes the royalties as the underlying sales occur. The Company recorded revenue from royalties of $108,421
and $81,469
during the quarters ended March 31, 2022 and
2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of
operations.
The
Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in
exchange for the multi-unit development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee,
these fees are then recognized as franchise fee revenue on a straight-line basis over the life of the related franchise agreements and
any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance
obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of
time, which is satisfied equally over the life of each franchise agreement. The Company recorded revenue from franchise fees of $48,891
and $9,786
during the quarters ended March 31, 2022 and
2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of
operations.
The
Company has supply agreements with certain food and beverage vendors. Pursuant to the terms of these agreements, rebates are provided
to the Company based upon the dollar volume of purchases for all company-owned and franchised restaurants from these vendors. Rebates
earned on purchases by franchise stores are recorded as revenue during the period in which the related food and beverage purchases are
made. The Company recorded revenue from rebates of $50,829
and $44,085
during the quarters ended March 31, 2022 and
2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of
operations. Rebates earned on purchases by Company-owned stores are recorded as a reduction of food and beverage costs during the period
in which the related food and beverage purchases are made.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Franchise
Advertising Fund Contributions
Under
the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues
to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and therefore,
not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these
sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding
advertising expense. The Company records the related advertising expenses as incurred under selling, general and administrative
expenses. When an advertising contribution fund is over-spent at year end, advertising expenses will be reported on the condensed
consolidated statement of operations in an amount that is greater than the revenue recorded for advertising contributions. Conversely,
when an advertising contribution fund is under-spent at a period end, the Company will accrue advertising costs up to advertising contributions
recorded in revenue. The Company recorded contributions from franchisees of $18,125
and $14,087
during the quarters ended March 31, 2022 and
2021, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated
statements of operations.
Other
Revenues
Gift
card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there
is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card
breakage rate is based upon the Company’s specific historical redemption patterns. Gift card liability is recorded in other current
liabilities on the condensed consolidated balance sheet. For the quarter ended March 31, 2022 and 2021, the Company did not record
any gift card breakage.
Deferred
Revenue
Deferred
revenue primarily includes initial franchise fees received by the Company, which are being amortized over the life of the Company’s
franchise agreements. Deferred revenue is recognized in income over the life of the franchise agreements and vendor rebates are recognized
in income as performance obligations are satisfied.
Advertising
Advertising
costs are charged to expense as incurred. Advertising costs were approximately $113,719
and $24,051
during the quarters ended March 31, 2022 and
2021, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated
statements of operations.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Net
Loss per Share
Basic
loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted loss per common share is computed by dividing net loss attributable to common stockholders by
the weighted average number of common shares outstanding, plus the impact of potential common shares, if dilutive, resulting from the
exercise of warrants, options or the conversion of convertible notes payable.
The
following securities are excluded from the calculation of weighted average diluted common shares at March 31, 2022 and 2021, respectively,
because their inclusion would have been anti-dilutive:
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
| | |
2022 | | |
2021 | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Warrants | |
| 17,873,906 | | |
| 2,560,361 | |
| Options | |
| 100,000 | | |
| 300,000 | |
| Convertible debt | |
| 32,350 | | |
| 32,350 | |
| Total potentially dilutive shares | |
| 18,006,256 | | |
| 2,892,711 | |
Major
Vendor
The
Company engages various vendors to distribute food products to their Company-owned restaurants. Purchases from the Company’s largest
supplier totaled 45% and 84%
of the Company’s purchases for the quarters ended March 31, 2022 and 2021, respectively.
Fair
Value of Financial Instruments
The
Company measures the fair value of financial assets and liabilities based on the guidance of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”
(“ASC 820”).
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Fair
Value of Financial Instruments, continued
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example, cash flow modelling inputs based on assumptions)
The
carrying amounts of accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts
of our short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual
interest rates, taken together with other features such as concurrent issuance of common stock and warrants, are comparable to rates
of returns for instruments of similar credit risk.
See
Note 16– Equity – Warrant and Options Valuation for details related to accrued compensation liability being fair valued
using Level 1 inputs.
Leased
Assets
The
Company adopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit
of $15,010
as of the adoption date. Lease right-of-use assets
represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments arising
from the lease agreement. These assets and liabilities are recognized at the commencement of the lease based upon the present value of
the future minimum lease payments over the lease term. The lease term reflects the no cancellable period of the lease together
with periods covered by an option to extend or terminate the lease when management is reasonably certain that it will exercise such option.
Changes in the lease term assumption could impact the right-of-use assets and lease liabilities recognized on the balance sheet. As our
leases typically do not contain a readily determinable implicit rate, we determine the present value of the lease liability using our
incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis.
Income
Taxes
The
Company accounts for income taxes under Accounting Standards Codification (“ASC”) 740 Income Taxes (“ASC 740”).
Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases
of assets and liabilities and net operating loss and credit carry forwards using enacted tax rates in effect for the year in which
the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets
to the amounts expected to be realized.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes
a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return.
Tax
benefits claimed or expected to be claimed on a tax return are recorded in the Company’s financial statements. A tax benefit from
an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such
a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
resolution. Uncertain tax positions have had no impact on the Company’s financial condition, results of operations or cash flows.
The Company does not expect any significant changes in its unrecognized tax benefits within years of the reporting date.
The
Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling,
general and administrative expenses in the condensed consolidated statements of operations.
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Stock-Based
Compensation
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For
employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award
is generally recorded on the grant date and re-measured on financial reporting dates and vesting dates until the service period is complete.
The fair value amount of the award is then recognized over the period services are required to be provided in exchange for the award,
usually the vesting period.
Recent
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-02, Leases (Topic 842), which requires companies to recognize lease liabilities and corresponding right-of-use leased assets on
the balance sheets and to disclose key information about leasing arrangements. Qualitative and quantitative disclosures will be enhanced
to better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for annual periods
beginning after December 15, 2022, with early adoption permitted. Additionally, in 2018 and 2019, the FASB issued the following
Topic 842–related ASUs:
●
ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, which clarifies the applicability of Topic 842 to land easements
and provides an optional transition practical expedient for existing land easements;
●
ASU 2018-10, Codification Improvements to Topic 842, Leases, which makes certain technical corrections to Topic 842;
●
ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows companies to adopt Topic 842 without revising comparative period
reporting or disclosures and provides an optional practical expedient to lessors to not separate lease and non-lease components of a
contract if certain criteria are met; and
●
ASU 2019-01, Leases (Topic 842): Codification Improvements, which provides guidance for certain lessors on determining the fair value
of an underlying asset in a lease and on the cash flow statement presentation of lease payments received; ASU No. 2019-01 also clarifies
disclosures required in interim periods after adoption of ASU No. 2016-02 in the year of adoption.
The
Company adopted Topic 842 as of January 1, 2022, and recognized a cumulative-effect adjustment to the opening balance of accumulated
deficit of $15,010
as of the adoption date. See Note 11 - Leases
for further details.
In
October 2021, the FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination
to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers,
as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized
by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the extent of the impact of this
ASU, but do not expect the adoption of this standard to have a significant impact on our condensed consolidated financial statements.
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Subsequent
Events
The
Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the
evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in
the financial statements, except as disclosed in Note 16 – Subsequent Events.
NOTE
3 – ACQUISITIONS
SuperFit
Foods Acquisition
On
March 25, 2021, the Company entered into an asset purchase agreement with SuperFit Foods, LLC, a Florida limited liability company and
SuperFit Foods, LLC, a Nevada limited liability company (the “SuperFit Acquisition”). The purchase price of the assets and
rights was $1,150,000. The purchase price was payable as follows: $500,000 that was paid at closing, of which $25,000 was released from
an escrow account held by our attorney, and $625,000 paid in 268,240 shares of common stock. The remaining $25,000, which was to be issued
in the Company’s common stock, was forfeited as the Company and former owner agreed that not all obligations were met.
The
Company acquired the following assets as part of the purchase agreement, adjusted for purchase accounting adjustments to reflect the fair value of the net assets acquired during 2021:
SCHEDULE
OF ASSETS AND LIABILITIES ACQUIRED IN BUSINESS COMBINATIONS
| | |
| | |
| Furniture and equipment | |
$ | 82,000 | |
| Vehicles | |
| 55,000 | |
| Property and Equipment | |
| 55,000 | |
| Tradename | |
| 45,000 | |
| Customer list | |
| 140,000 | |
| Domain name | |
| 125,000 | |
| Proprietary Recipes | |
| 160,000 | |
| Non-compete agreement | |
| 260,000 | |
| Intangible assets | |
| 260,000 | |
| Goodwill | |
| 258,000 | |
| Total assets acquired | |
$ | 1,125,000 | |
The
adjustment to the estimate identifiable net assets acquired resulted in a corresponding $25,000 decrease in estimated goodwill due to
the Company having no further obligation to issue the $25,000 shares of common stock as mentioned above.
The
unaudited pro-forma financial information in the table below summarizes the condensed consolidated results of operations of the
Company and SuperFit Foods, LLC as though the acquisition had occurred as of January 1, 2021. The pro forma financial information as
presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been
achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection
of future results.
SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION
| | |
2022 | | |
2021 | |
| | |
Pro Forma | |
| | |
(Unaudited) | |
| | |
For the Three Months Ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Revenues | |
$ | 2,920,458 | | |
$ | 1,835,838 | |
| Restaurant operating expenses | |
| 3,092,851 | | |
| 2,322,412 | |
| Total cost and expenses | |
| 4,913,652 | | |
| 5,482,877 | |
| Loss from Operations | |
| (1,993,194 | ) | |
| (3,647,039 | ) |
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
3 – ACQUISITIONS, continued
Pokemoto
Acquisition
On
May 14, 2021, the Company entered into Membership Interest Purchase Agreement with the members (the (“Poke Sellers”) of PKM
Stamford, LLC, Poke Co., LLC, LB Holdings LLC, and TNB Holdings, LLC, each a Connecticut limited liability company (collectively, the
“Poke Entities”) pursuant to which the Company acquired all of the issued and outstanding membership interest of the Poke
Entities in consideration of $4,000,000 in cash and $730,000 payable in the form of a promissory note (the “Poke Note”).
In
a related transaction, on May 14, 2021, the Company and the Poke Sellers entered into a Membership Interest Exchange Agreement pursuant
to which the Company acquired Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC, each a Connecticut limited liability
company (collectively, the Poke Entities II”) in exchange for shares of common stock of the Company valued at $1,250,000. The Company
issued 880,282 shares of common stock of the Company on May 14, 2021. The price per share was determined by using the 10-day trading
average preceding the date of closing. The closing occurred on May 14, 2021.
Poke
Entities and Poke Entities II are hereinafter referred to as “Pokemoto”.
As
of the date of the acquisition Pokemoto operated a total of 14 locations, six Company-owned restaurants and eight franchised
restaurants, in four states, offering up chef-driven contemporary flavors with fresh delectable and healthy ingredients such as Atlantic
salmon, sushi-grade tuna, fresh mango, roasted cashews and black caviar tobiko that appeals to foodies, health enthusiasts, and sushi-lovers
everywhere.
The
Company acquired the following assets as part of the purchase agreement, adjusted for purchase accounting adjustments to reflect our
estimate of the fair value of the net assets acquired during 2021:
SCHEDULE
OF ASSETS AND LIABILITIES ACQUIRED IN BUSINESS COMBINATIONS
| | |
| | |
| Purchase Price | |
$ | 5,980,000 | |
| | |
| | |
| Assets | |
| | |
| Cash | |
$ | 1,184,610 | |
| Accounts Receivables | |
| - | |
| Inventory | |
| 19,500 | |
| Property and Equipment | |
| 297,529 | |
| Intangible assets, net | |
| 4,560,000 | |
| Operating lease right-of-use assets, net | |
| 719,941 | |
| Security deposits and other assets | |
| 35,580 | |
| | |
$ | 6,817,160 | |
| Liabilities | |
| | |
| Accounts payable and accrued expenses | |
$ | 296,224 | |
| Other notes payable | |
| 1,462,453 | |
| Deferred revenue | |
| 125,624 | |
| Operating lease liability | |
| 751,258 | |
| | |
$ | 2,635,559 | |
| | |
| | |
| Fair value of identifiable net assets acquired | |
| 4,181,601 | |
| | |
| | |
| Goodwill | |
$ | 1,798,399 | |
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
3 – ACQUISITIONS, continued
Pokemoto
Acquisition, continued
Identifiable
intangible assets acquired include the following:
SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS
| | |
Fair Value | | |
Weighted average
amortization period | |
| | |
| | |
| |
| Tradename | |
$ | 175,000 | | |
| 5.00 | |
| Franchise License | |
| 2,775,000 | | |
| 10.00 | |
| Proprietary Recipes | |
| 1,130,000 | | |
| 7.00 | |
| Non-Compete | |
| 480,000 | | |
| 2.00 | |
| | |
$ | 4,560,000 | | |
| 8.22 | |
The
unaudited pro-forma financial information in the table below summarizes the condensed consolidated results of operations of the
Company and Pokemoto, LLC as though the acquisition had occurred as of January 1, 2021. The pro forma financial information as presented
below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved
if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future
results.
SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION
| | |
2022 | | |
2021 | |
| | |
Pro Forma | |
| | |
(Unaudited) | |
| | |
For the Three Months Ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Revenues | |
$ | 2,920,458 | | |
$ | 2,312,161 | |
| Restaurant operating expenses | |
| 3,092,851 | | |
| 2,588,186 | |
| Total cost and expenses | |
| 4,913,652 | | |
| 5,927,844 | |
| Loss from Operations | |
| (1,993,194 | ) | |
| (3,615,683 | ) |
NOTE
4 - LOANS RECEIVABLE
At
March 31, 2022 and December 31, 2021, the Company’s loans receivable balance was $0.
Loans
receivable includes loans to franchisees and a former franchisee totaling, in the aggregate, $0, net of reserves for uncollectible loans
of $70,784 and $71,184 at March 31, 2022 and December 31, 2021, respectively.
NOTE
5 –PREPAID EXPENSES AND OTHER CURRENT ASSETS
At
March 31, 2022 and December 31, 2021, the Company’s prepaid expenses and other current assets consisted of the following:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Prepaid expenses | |
$ | 362,685 | | |
$ | 83,975 | |
| Preopening expenses | |
| 457 | | |
| 602 | |
| Other receivables | |
| 728,134 | | |
| 1,704,751 | |
| Prepaid and Other Current Assets | |
$ | 1,091,276 | | |
$ | 1,789,328 | |
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
5 –PREPAID EXPENSES AND OTHER CURRENT ASSETS, continued
Prepaid
and other current assets at March 31, 2022 and December 31, 2021, included a receivable of $728,134
and $1,704,751,
respectively, related to the employee retention tax credits receivable from the Internal Revenue Services (“IRS”) that was
made available to companies effected by Covid-19.
NOTE
6 – PROPERTY AND EQUIPMENT, NET
As
of March 31, 2022 and December 31, 2021, property and equipment consist of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT, NET
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Furniture and equipment | |
$ | 1,335,774 | | |
$ | 1,397,098 | |
| Vehicles | |
| 55,000 | | |
| 55,000 | |
| Leasehold improvements | |
| 1,692,480 | | |
| 1,981,019 | |
| Property and equipment, gross | |
| 3,083,254 | | |
| 3,433,117 | |
| Less: accumulated depreciation and amortization | |
| (1,147,462 | ) | |
| (1,152,850 | ) |
| Property and equipment, net | |
$ | 1,935,792 | | |
$ | 2,280,267 | |
Depreciation
expense amounted to $123,250 and
$153,522 for
the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022 and 2021, the Company wrote
off property and equipment with an original cost value of $384,675
and $99,313,
respectively, related to closed locations and future locations that were terminated due to the economic environment as a result of COVID-19
and recorded a loss on disposal of $239,637
and $37,027,
respectively, after accumulated depreciation of $127,926
and $62,286,
respectively, in the condensed consolidated statement of operations.
NOTE
7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Intangible
Assets
A
summary of the intangible assets is presented below:
SCHEDULE OF INTANGIBLE ASSETS
| Intangible Assets | |
Intangible assets, net at
December 31, 2021 | | |
Acquisitions | | |
Impairment of intangible assets | | |
Amortization expense | | |
Intangible assets, net at
March 31, 2022 | |
| Trademark Muscle Maker Grill | |
$ | 1,525,653 | | |
$ | - | | |
$ | - | | |
$ | (125,396 | ) | |
$ | 1,400,257 | |
| Franchise Agreements | |
| 162,439 | | |
| - | | |
| - | | |
| (6,603 | ) | |
| 155,836 | |
| Trademark SuperFit | |
| 38,075 | | |
| - | | |
| - | | |
| (2,218 | ) | |
| 35,857 | |
| Domain Name SuperFit | |
| 105,764 | | |
| - | | |
| - | | |
| (6,161 | ) | |
| 99,603 | |
| Customer List SuperFit | |
| 118,455 | | |
| - | | |
| - | | |
| (6,900 | ) | |
| 111,555 | |
| Proprietary Recipes SuperFit | |
| 135,378 | | |
| - | | |
| - | | |
| (7,886 | ) | |
| 127,492 | |
| Non-Compete Agreement SuperFit | |
| 193,339 | | |
| - | | |
| - | | |
| (21,350 | ) | |
| 171,989 | |
| Trademark Pokemoto | |
| 152,862 | | |
| - | | |
| - | | |
| (8,625 | ) | |
| 144,237 | |
| Franchisee License Pokemoto | |
| 2,599,473 | | |
| - | | |
| - | | |
| (68,387 | ) | |
| 2,531,086 | |
| Proprietary Recipes Pokemoto | |
| 1,027,916 | | |
| - | | |
| - | | |
| (39,773 | ) | |
| 988,143 | |
| Non-Compete Agreement Pokemoto | |
| 328,110 | | |
| - | | |
| - | | |
| (59,178 | ) | |
| 268,932 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
$ | 6,387,464 | | |
$ | - | | |
$ | - | | |
$ | (352,477 | ) | |
$ | 6,034,987 | |
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET, continued
Intangible
Assets, continued
Amortization
expense related to intangible assets was $352,477
and $15,606
for the three months ended March 31, 2022 and
2021, respectively.
The
estimated future amortization expense is as follows:
SCHEDULE OF FUTURE AMORTIZATION EXPENSE
| For the three months ended March 31, | |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
2027 | | |
Thereafter | | |
Total | |
| Trademark Muscle Maker Grill | |
$ | 508,551 | | |
$ | 509,944 | | |
$ | 381,762 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 1,400,257 | |
| Franchise Agreements | |
| 26,780 | | |
| 26,853 | | |
| 26,780 | | |
| 26,780 | | |
| 26,780 | | |
| 21,864 | | |
| 155,836 | |
| Trademark SuperFit | |
| 8,995 | | |
| 9,020 | | |
| 8,995 | | |
| 8,847 | | |
| - | | |
| - | | |
| 35,857 | |
| Domain Name SuperFit | |
| 24,986 | | |
| 25,055 | | |
| 24,986 | | |
| 24,576 | | |
| - | | |
| - | | |
| 99,603 | |
| Customer List SuperFit | |
| 27,985 | | |
| 28,061 | | |
| 27,985 | | |
| 27,524 | | |
| - | | |
| - | | |
| 111,555 | |
| Proprietary Recipes SuperFit | |
| 31,982 | | |
| 32,070 | | |
| 31,982 | | |
| 31,457 | | |
| - | | |
| - | | |
| 127,492 | |
| Non-Compete Agreement SuperFit | |
| 86,588 | | |
| 85,401 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 171,989 | |
| Trademark Pokemoto | |
| 34,981 | | |
| 35,077 | | |
| 34,981 | | |
| 34,981 | | |
| 4,218 | | |
| - | | |
| 144,237 | |
| Franchisee License Pokemoto | |
| 277,348 | | |
| 278,108 | | |
| 277,348 | | |
| 277,348 | | |
| 277,348 | | |
| 1,143,586 | | |
| 2,531,086 | |
| Proprietary Recipes Pokemoto | |
| 161,303 | | |
| 161,744 | | |
| 161,302 | | |
| 161,302 | | |
| 161,302 | | |
| 181,189 | | |
| 988,143 | |
| Non-Compete Agreement Pokemoto | |
| 240,000 | | |
| 28,932 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 268,932 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total | |
$ | 1,429,500 | | |
$ | 1,220,265 | | |
$ | 976,121 | | |
$ | 592,815 | | |
$ | 469,648 | | |
$ | 1,346,639 | | |
| 6,034,987 | |
The Company determined that no impairment testing
of the Company’s intangible assets was require as of March 31, 2022. Therefore, no impairment charge is required.
Goodwill
A
summary of the goodwill assets is presented below:
SCHEDULE OF GOODWILL ASSETS
| Goodwill | |
Muscle Maker Grill | | |
Pokemoto | | |
SuperFit Food | | |
Total | |
| Goodwill, net at December 31, 2021 | |
$ | 570,000 | | |
$ | 1,798,399 | | |
$ | 258,000 | | |
$ | 2,626,399 | |
| Impairment of goodwill | |
| - | | |
| - | | |
| - | | |
| - | |
| Goodwill, net at March 31, 2022 | |
$ | 570,000 | | |
$ | 1,798,399 | | |
$ | 258,000 | | |
$ | 2,626,399 | |
The
Company determined that no impairment testing of the Company’s goodwill was require as of March 31, 2022. Therefore, no impairment
charge is required.
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
8 – ACCOUNTS PAYABLES AND ACCRUED EXPENSES
Accounts
payables and accrued expenses consist of the following:
SCHEDULE OF ACCOUNTS PAYABLES AND ACCRUED EXPENSES
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accounts payable | |
$ | 999,922 | | |
$ | 734,688 | |
| Accrued payroll | |
| 254,130 | | |
| 758,732 | |
| Accrued professional fees | |
| 113,642 | | |
| 185,872 | |
| Accrued board members fees | |
| 18,000 | | |
| 57,573 | |
| Accrued rent expense | |
| 203,895 | | |
| 176,727 | |
| Accrued compensation expense | |
| - | | |
| 36,600 | |
| Sales taxes payable (1) | |
| 106,500 | | |
| 125,550 | |
| Accrued interest | |
| 28,290 | | |
| 28,426 | |
| Other accrued expenses | |
| 80,161 | | |
| 104,355 | |
| Total Accounts Payable
and Accrued Expenses | |
$ | 1,804,540 | | |
$ | 2,208,523 | |
| (1) |
See Note 14 – Commitments and Contingencies –Taxes for detailed
related to delinquent sales taxes. |
NOTE
9 – CONVERTIBLE NOTE PAYABLE TO FORMER PARENT
On
April 6, 2018, the Company issued a $475,000 convertible promissory note (the “2018 ARH Note”) to the Former Parent for services
rendered and expense paid on behalf of the Company. The 2018 ARH Note has no stated interest rate or maturity date and is convertible
into shares of the Company’s common stock at a conversion price of $3.50 per share at a time to be determined by the lender.
On
April 11, 2018, the Former Parent elected to partially convert the 2018 ARH Note for the principal of $392,542 into 112,154 shares of
the Company’s common stock.
The
Company had an aggregate gross amount of $82,458, as of March 31, 2022 and December 31, 2021, respectively, in convertible notes payable
to Former Parent outstanding.
NOTE
10 –NOTES PAYABLE
Convertible
Notes
As
of March 31, 2022 and December 31, 2021, the Company has convertible note payable in the amount of $100,000
which is included within convertible notes payable.
See Note 14 – Commitments and Contingencies – Litigation, Claims and Assessments for details related to the $100,000
convertible note payable.
Other
Notes Payable
On
October 10, 2019, the Company issued a note payable in connection with the acquisition of the franchisee location in the amount of $300,000.
The note has a stated interest rate of 8% with monthly payments payable over 5 years.
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
10 –NOTES PAYABLE, continued
Other
Notes Payable, continued
On
May 9, 2020, the Company entered into a Paycheck Protection Program Promissory Note and Agreement with Greater Nevada Credit Union, pursuant
to which the Company received loan proceeds of $866,300 (the “PPP Loan”). The PPP Loan was made under, and is subject to
the terms and conditions of, the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration.
On
June 21, 2021, the U.S. Small Business Administration (the “SBA”) forgave the Company’s first Paycheck Promissory Note
(“PPP loan”) entered into on May 9, 2020. The aggregate amount forgiven is $875,974, consisting of $866,300 in principal
and $9,674 in interest expenses. The forgiven amount was accounted for as a gain on debt extinguishment of $875,974 and was recorded
in our condensed consolidated statement of operations.
During
the year ended December 31, 2021, as part of the Pokemoto acquisition, the Company acquired $1,171,400 loans issued by the Small Business
Administration under its Economic Injury Disaster Loans (“EIDL”). The Company repaid all the loans in full during the year
ended December 31, 2021.
During
the year ended December 31, 2021, as part of the Pokemoto acquisition the Company acquired $291,053 in paycheck protection loans second
draw (the “PPP 2 Loan”). The SBA forgave $139,877 in principal and $1,402 in interest expense during the three months ended
March 31, 2022.
During
the three months ended March 31, 2022 and 2021, the Company repaid a total amount of $30,982 and $18,493, respectively, of the other
notes payable and other notes payable, related party.
As
of March 31, 2022, the Company had an aggregate amount of $997,818 in other notes payable. The notes had interest rates ranging between
1% - 8% per annum, due on various dates through May 2026.
The
maturities of other notes payable as of March 31, 2022, are as follows:
SCHEDULE OF MATURITIES OF OTHER NOTES PAYABLE
| | |
Principal | |
| Repayments due as of | |
Amount | |
| 03/31/2023 | |
$ | 133,219 | |
| 03/31/2024 | |
| 142,203 | |
| 03/31/2025 | |
| 121,016 | |
| 03/31/2026 | |
| 69,906 | |
| 03/31/2027 | |
| 531,474 | |
| Long term debt | |
$ | 997,818 | |
NOTE
11 –LEASES
The
Company adopted Topic 842 as of January 1, 2022. The Company’s leases consist of restaurant locations. We determine if a contract
contains a lease at inception. The lease generally has remaining terms of 1-10 years and most lease included the option to extend the
lease for an additional 5-year period.
The
total lease cost associated with right of use assets and operating lease liabilities for the three months ended March 31, 2021, was $241,588
and has been recorded in the condensed consolidated statement of operations as rent expense within restaurant operating expenses.
As
of March 31, 2022, assets and liabilities related to the Company’s leases were as follows:
SCHEDULE
OF OPERATING LEASE ASSETS AND LIABILITIES
| | |
2022 | |
| | |
March 31, | |
| | |
2022 | |
| Assets | |
| | |
| Right to use asset | |
$ | 2,667,385 | |
| Total lease assets | |
$ | 2,667,385 | |
| | |
| | |
| Liabilities | |
| | |
| Current: | |
| | |
| Operating leases | |
$ | 561,137 | |
| Operating leases Current | |
$ | 561,137 | |
| Noncurrent: | |
| | |
| Operating leases | |
| 2,250,439 | |
| Operating leases Noncurrent | |
| 2,250,439 | |
| Total Lease liabilities | |
$ | 2,811,576 | |
As
of March 31, 2022, the Company’s lease liabilities mature as follows:
SCHEDULE
OF OPERATING LEASE LIABILITY MATURITY
| | |
Operating Leases | |
| Fiscal Year: | |
| | |
| Remainder of 2022 | |
$ | 662,377 | |
| 2023 | |
| 769,266 | |
| 2024 | |
| 712,592 | |
| 2025 | |
| 578,094 | |
| 2026 | |
| 367,041 | |
| Thereafter | |
| 783,390 | |
| Total lease payments | |
$ | 3,872,760 | |
| Less imputed interest | |
| (1,061,184 | ) |
| Present value of lease liabilities | |
$ | 2,811,576 | |
The
Company’s lease term and discount rates were as follows:
SCHEDULE
OF LEASE TERM AND DISCOUNT RATE
| | |
March 31, | |
| | |
2022 | |
| Weighted-average remaining lease term (in year) | |
| | |
| Operating leases | |
| 5.65 | |
| Weighted-average discount rate | |
| | |
| Operating leases | |
| 12 | % |
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
12 – DEFERRED REVENUE
At
March 31, 2022 and December 31, 2021, deferred revenue consists of the following:
SCHEDULE
OF DEFERRED REVENUE
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Deferred revenues, net | |
$ | 1,254,482 | | |
$ | 1,063,373 | |
| Less: Deferred revenues, current | |
| (78,103 | ) | |
| (49,728 | ) |
| Deferred revenues, non-current | |
$ | 1,176,379 | | |
$ | 1,013,645 | |
NOTE
13 – OTHER
CURRENT LIABILITIES
Other
current liabilities consist of the following:
SCHEDULE
OF OTHER CURRENT LIABILITIES
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Gift card liability | |
$ | 27,997 | | |
$ | 27,633 | |
| Co-op advertising fund liability | |
| 117,358 | | |
| 126,564 | |
| Advertising fund liability | |
| 133,065 | | |
| 131,891 | |
| Other current liabilities | |
$ | 278,420 | | |
$ | 286,088 | |
See
Note 2 – Significant Accounting Policies – Revenue Recognition for details related to the gift card liability and advertising
fund liability.
NOTE
14 – COMMITMENTS
AND CONTINGENCIES
Franchising
During
the three months ended March 31, 2022, the Company entered into a various franchise agreement for a total of eleven potentially new Pokemoto
locations with various franchisees. The franchisees paid the Company an aggregate of $205,000
and this has been recorded in deferred revenue
as of March 31, 2022.
Litigations,
Claims and Assessments
On
March 27, 2018, a convertible note holder filed a complaint in the Iowa District Court for Polk County #CVCV056029 against the
Company for failure to pay the remaining balance due on a promissory note in the amount of $100,000,
together with interest, attorney fees and other costs of $171,035.
On June 6, 2018, a default judgement was entered against the Company for the amount of $171,035.
The Company repaid an aggregate amount of $71,035,
consisting of principal and interest, as of the date of the filing of this report. As of March 31, 2022, the Company has accrued for
the liability in convertible notes payable in the amount of $100,000
and accrued interest of $28,290
is included in accounts payable and accrued expenses.
See Note 17 – Subsequent Events – Litigations, Claims and Assessments for details related to the settlement of this judgement.
On
or about March 7, 2019, the Company was listed as a defendant to a lawsuit filed by a contractor in the State of Texas in El Paso County
#2019DCV0824. The contractor is claiming a breach of contract and is seeking approximately $32,809 in damages for services claimed to
be rendered by the contractor. As of December 31, 2021, the Company accrued $30,000 for the liability in accounts payable and accrued
expenses.
On
January 23, 2020, the Company was served a judgment issued by the Judicial Council of California in the amount of $130,185 for a breach
of a lease agreement in Chicago, Illinois, in connection with a Company-owned store that was closed in 2018. As of December 31, 2021,
the Company has accrued for the liability in accounts payable and accrued expenses.
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course
of business. In the opinion of management after consulting legal counsel, such matters are currently not expected to have a material
impact on the Company’s financial statements.
The
Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements after
consulting legal counsel.
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
14 – COMMITMENTS AND CONTINGENCIES,
continued
Employment
Agreements
On
January 2, 2022, the Company appointed Jennifer Black as Chief Financial Officer of the Company and entered into an Offer Letter with
Ms. Black. Pursuant to the Offer Letter, Ms. Black will be employed as Chief Financial Officer of the Company on an at-will basis. Ms.
Black will be entitled to a base salary at the annualized rate of $190,000.
The Company’s previous CFO, Ferdinand Groenewald, will remain and was appointed as the Chief Accounting Officer of the Company.
The Company issued Ms. Black 20,000
shares of common stock upon completion of 90
days of employment. Ms. Black will be entitled to receive stock options to acquire 20,000
shares of common stock subject to the approval
of the Board of Directors and Compensation Committee and the terms and conditions will be subject to entering into a stock option agreement.
See Note 17 – Subsequent Events – Common Stock and Options for details related to the issuance of the shares of common
stock and stock options.
On
February 10, 2022, the Company entered into an Employment Agreement with Michael Roper effective February 14, 2022, which replaced his
prior employment agreement. Pursuant to the Employment Agreement, Mr. Roper will continue to be employed as Chief Executive Officer of
the Company on an at will basis. During the term of the Employment Agreement, Mr. Roper will be entitled to a base salary at the annualized
rate of $350,000,
will be increased to $375,000
upon the one-year anniversary. Mr. Roper will
be eligible for a discretionary performance bonus to be paid in cash or equity. Within 90 days of the effective date, the Company will
issue Mr. Roper stock options to receive 100,000
shares of common stock which will vest over a
term of five
years. If Mr. Roper is terminated by the Company
for any reason other than cause, including termination without cause in connection with a change in control, Mr. Roper will be entitled
to a severance package of 18 months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule,
but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17 – Subsequent Events
– Options for details related to the issuance of the stock options.
On
February 10, 2022, the Company and Kevin Mohan, Chief Investment Officer, entered a letter agreement providing that Mr. Mohan will continue
to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $200,000
effective February 14, 2022. Mr. Mohan will be
eligible for a discretionary performance bonus to be paid in cash or equity of up to 75%
of his salary. Within 90 days of the effective date, the Company will issue Mr. Mohan stock options to receive 75,000
shares of common stock which will vest over a
term of five
years. If Mr. Mohan is terminated by the Company
for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a
severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule
and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17
– Subsequent Events – Options for details related to the issuance of the stock options.
On
February 9, 2022, the Company and Kenn Miller, Chief Operations Officer, entered a letter agreement providing that Mr. Miller will continue
to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $275,000
effective February 14, 2022. Mr. Miller will
be eligible for a discretionary performance bonus to be paid in cash or equity of up to 75%
of his salary. Within 90 days of the effective date, the Company will issue Mr. Miller stock options to receive 50,000
shares of common stock which will vest over a
term of five
years. If Mr. Miller is terminated by the Company
for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a
severance package of 12 months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule
and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17
– Subsequent Events – Options for details related to the issuance of the stock options.
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
14 – COMMITMENTS AND CONTINGENCIES,
continued
Employment
Agreements, continued
On
February 9, 2022, the Company and Aimee Infante, Chief Marketing Officer, entered a letter agreement providing that Ms. Infante will
continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $175,000
effective February 14, 2022. Ms. Infante will
be eligible for a discretionary performance bonus to be paid in cash or equity of up to 25%
of her salary. Within 90 days of the effective date, the Company will issue Ms. Infante stock options to receive 42,500
shares of common stock which will vest over a
term of five
years. If Ms. Infante is terminated by the Company
for any reason other than cause, including termination without cause in connection with a change in control, she will be entitled to
a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule
and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17
– Subsequent Events – Options for details related to the issuance of the stock options.
On
February 9, 2022, the Company and Ferdinand Groenewald, Chief Accounting Officer, entered a letter agreement providing that Mr. Groenewald
will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $175,000
effective February 14, 2022. Mr. Groenewald will
be eligible for a discretionary performance bonus to be paid in cash or equity of up to 25%
of his salary. Within 90 days of the effective date, the Company will issue Mr. Groenewald stock options to receive 25,000
shares of common stock which will vest over a
term of five
years. If Mr. Groenewald is terminated by the
Company for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled
to a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule
and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17
– Subsequent Events – Options for details related to the issuance of the stock options.
Nasdaq
Notice
On
February 1, 2022, the Company received notice from The Nasdaq Stock Market (“Nasdaq”) that the closing bid price for the
Company’s common stock had been below $1.00 per share for the previous 30 consecutive business days, and that the Company is therefore
not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule
5550(a)(2) (the “Rule”).
Nasdaq’s
notice has no immediate effect on the listing or trading of the Company’s common stock on The Nasdaq Capital Market.
The
notice indicates that the Company will have 180 calendar days, until August 1, 2022, to regain compliance with this requirement. The
Company can regain compliance with the $1.00 minimum bid listing requirement if the closing bid price of its common stock is at least
$1.00 per share for a minimum of ten (10) consecutive business days during the 180-day compliance period. If the Company does not regain
compliance during the initial compliance period, it may be eligible for additional time of 180 calendar days to regain compliance. To
qualify, the Company will be required to meet the continued listing requirement for market value of our publicly held shares and all
other Nasdaq initial listing standards, except the bid price requirement, and will need to provide written notice to Nasdaq of its intention
to cure the deficiency during the second compliance period. If the Company is not eligible or it appears to Nasdaq that the Company will
not be able to cure the deficiency during the second compliance period, Nasdaq will provide written notice to the Company that the Company’s
common stock will be subject to delisting. In the event of such notification, the Company may appeal Nasdaq’s determination to
delist its securities, but there can be no assurance that Nasdaq would grant the Company’s request for continued listing.
The
Company intends to actively monitor the minimum bid price of its common stock and may, as appropriate, consider available options to
regain compliance with the Rule. There can be no assurance that the Company will be able to regain compliance with the Rule or will otherwise
be in compliance with other Nasdaq listing criteria.
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
14 – COMMITMENTS AND CONTINGENCIES,
continued
Taxes
The
Company failed in certain instances in paying past state and local sales taxes collected from customers in specific states that impose
a tax on sales of the Company’s products during 2017 and 2018. The Company had accrued a liability for approximately $38,792 and
$125,550 as of March 31, 2022 and December 31, 2021, respectively, related to this matter. All current state and local sales taxes from
January 1, 2018 for open Company-owned locations have been fully paid and in a timely manner. The Company has completed or is in discussions
on payment plans with the various state or local entities for these past owed amounts.
NOTE
15 – REPORTABLE
OPERATING SEGMENTS
See
Note 1 – Business Organization and Nature of Operations for descriptions of our operating segments.
SUMMARY OF OPERATING SEGMENTS
| | |
For The Three Months Ended | |
| | |
March 31, 2022 | |
| Revenues | |
| | |
| Muscle Maker Grill Division | |
$ | 1,271,935 | |
| Pokemoto Division | |
| 1,287,637 | |
| SuperFit Foods Division | |
| 360,886 | |
| Revenues | |
$ | 2,920,458 | |
| | |
| | |
| Operating Loss | |
| | |
| Muscle Maker Grill Division | |
$ | (307,474 | ) |
| Pokemoto Division | |
| (22,858 | ) |
| SuperFit Division | |
| 16,564 | |
| Corporate and unallocated G&A expenses (a) | |
| (1,326,947 | ) |
| Unallocated operating other income (expense) (b) | |
| (352,479 | ) |
| Operating Loss | |
$ | (1,993,194 | ) |
| Gain in debt extinguishment | |
| 141,279 | |
| Interest expense, net | |
| (14,743 | ) |
| Other non-operating income (expense) | |
| (19,421 | ) |
| (a) | Includes charges
related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates
to payroll, benefits and other compensation expense of $779,718, professional fees of $97,963, and consulting fees of $8,645. |
| (b) | This includes amortization
of intangible assets. See Note 7. |
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
16 – EQUITY
Common
Stock
On
January 3, 2022, the Company authorized the issuance of an aggregate of 1,200,000 shares of common stock in connection with the cashless
exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,200,215 warrants were exercised.
On
January 6, 2022, the Company authorized the issuance of an aggregate of 39,573 shares of common stock to the members of the board of
directors as compensation earned during the fourth quarter of 2021. The Company accrued for the liability as of December 31, 2021.
On
January 18, 2022, the Company issued an aggregate of 30,000 shares of common stock of the Company to a consultant that assisted with
the acquisition of SuperFit Foods and Pokemoto, with an aggregate fair value amount of $15,600. The Company accrued for the liability
as of December 31, 2021.
On
February 24, 2022, the Company authorized the issuance of an aggregate of 1,209,604 shares of common stock in connection with the cashless
exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,210,110 warrants were exercised.
On
March 31, 2022, the Company authorized the issuance of an aggregate of 53,961 shares of common stock to the members of the board of directors
as compensation earned during the first quarter of 2022.
Options
A
summary of options activity during the three months ended March 31, 2022 is presented below:
SCHEDULE OF OPTION ACTIVITY
| | |
| | |
| | |
Weighted | |
| | |
| | |
Weighted | | |
Average | |
| | |
| | |
Average | | |
Remaining | |
| | |
Number of | | |
Exercise | | |
Life | |
| | |
Options | | |
Price | | |
In Years | |
| Outstanding, December 31, 2021 | |
| 100,000 | | |
$ | 5.00 | | |
| 1.92 | |
| Issued | |
| - | | |
| - | | |
| | |
| Exercised | |
| - | | |
| - | | |
| | |
| Forfeited | |
| | | |
| - | | |
| | |
| Outstanding, March 31, 2022 | |
| 100,000 | | |
$ | 5.00 | | |
| 1.67 | |
| | |
| | | |
| | | |
| | |
| Exercisable, March 31, 2022 | |
| 100,000 | | |
$ | 5.00 | | |
| 1.67 | |
MUSCLE
MAKER, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
16 – EQUITY, continued
Warrants
A
summary of warrants activity during the three months ended March 31, 2022 is presented below:
SCHEDULE OF WARRANTS ACTIVITY
| | |
| | |
| | |
Weighted | |
| | |
| | |
Weighted | | |
Average | |
| | |
| | |
Average | | |
Remaining | |
| | |
Number of | | |
Exercise | | |
Life | |
| | |
Warrants | | |
Price | | |
In Years | |
| Outstanding, December 31, 2021 | |
| 20,284,016 | | |
$ | 1.66 | | |
| 4.0 | |
| Issued | |
| - | | |
| - | | |
| | |
| Exercised | |
| (2,410,110 | ) | |
| 0.01 | | |
| | |
| Forfeited | |
| - | | |
| - | | |
| | |
| Outstanding, March 31, 2022 | |
| 17,873,906 | | |
$ | 1.89 | | |
| 4.3 | |
| | |
| | | |
| | | |
| | |
| Exercisable, March 31, 2022 | |
| 17,873,906 | | |
$ | 1.89 | | |
| 4.3 | |
Stock-Based
Compensation Expense
Stock-based
compensation related to restricted stock issued to employees, directors and consultants, warrants and warrants to consultants amounted
to $72,586
and $1,712,845
for the three months ended March 31, 2022 and
2021, respectively, of which $72,586
and $1,712,597,
respectively, was recorded in selling, general and administrative expenses and $0
and $248,
respectively, was recorded in labor expense within restaurant operating expenses.
NOTE
17 – SUBSEQUENT
EVENTS
Company-Owned
Restaurants
Subsequent
to March 31, 2022, and through the date of the issuance of these condensed consolidated financial statements, the Company opened
one new Company-owned Pokemoto location in Miami.
Common
Stock
On
April 4, 2022, the Company authorized the issuance of 20,000
shares of common stock to a member of the executive
team per the employment agreement. The stock was not fully earned until April 4, 2022.
Options
On
May 2, 2022, the Company, pursuant to the employment agreements, issued options to purchase an aggregate of 312,500
shares of the Company’s common stock. The options had an exercise price of $0.41
per share and vest
over ratably over twenty quarters anniversaries with the first vesting occurring on June 30, 2022.
Litigations,
Claims and Assessments
On
April 22, 2022, the Company and a convertible note holder entered into a settlement agreement to settle the outstanding principal and
interest due on the note in the aggregate amount of $110,000. The Company paid $40,000, on of before May 1, 2022, and the remaining balance
will be paid in seven instalments of $10,000 a month with the first payment being due on June 1, 2022.