Notes
to Condensed Consolidated Financial Statements
NOTE
1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS, GOING CONCERN AND MANAGEMENT’S PLANS
Muscle
Maker, Inc. (“MMI”), a Nevada corporation was incorporated in Nevada on October 25, 2019. MMI was a wholly owned subsidiary
of Muscle Maker, Inc (“MMI-Cal”), a California corporation incorporated on December 8, 2014, but the two merged on
November 13, 2019 with MMI as the surviving entity. MMI wholly owns Muscle Maker Development, LLC (“MMD”), Muscle
Maker Corp, LLC (“MMC”) and Muscle Maker USA, Inc (“Muscle USA”). MMD was formed on July 18, 2017, in
the State of Nevada for the purpose of running our existing franchise operations and continuing to franchise the Muscle Maker
Grill® name and business system to qualified franchisees. MMC was formed on July 18, 2017, in the State of Nevada for
the purpose of developing new corporate stores and operating new and existing corporate stores of MMI. Muscle USA was formed on
March 14, 2019 in the State of Texas for the purpose of opening additional new corporate stores. Muscle Maker Development International.
LLC, a directly wholly owned subsidiary, which was formed in Nevada on November 13, 2020 to franchise the Muscle Maker Grill name
and business system to qualified franchisees internationally.
MMI
is a fast-casual restaurant concept that specializes in preparing healthy-inspired, high-quality, fresh, made-to-order lean, protein-based
meals featuring chicken, seafood, pasta, hamburgers, wraps and flat breads. In addition, our restaurants feature freshly prepared
entrée salads and an appealing selection of sides, protein shakes and fruit smoothies. MMI operates in the fast-casual
restaurant segment.
MMI
is the owner of the trade name and service mark Muscle Maker Grill®, Healthy Joe’s and other trademarks and intellectual
property we use in connection with the operation of Muscle Maker Grill® restaurants. We license the right to use the Muscle
Maker Grill® and Healthy Joe’s trademarks and intellectual property to our wholly-owned subsidiaries, MMD, MMC and Muscle
USA, and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® and Healthy Joe’s
restaurants.
On
March 25, 2021, we acquired the assets of Superfit Foods, a subscription based fresh-prepared meal prep business located in Jacksonville,
Florida. With this acquisition, we are also the owner of the trade name Superfit Foods that we use in connection with the operations
of Superfit Foods. In 2020 Superfit foods produced overs 220,000 fresh-prepared meals. Superfit Foods is differentiated from other
meal prep services by allowing customers in the Jacksonville Florida market to order online via the company’s website or
mobile app and pick up their fully prepared meals from 28 company owned coolers located in gyms and wellness centers.
MMI
and its subsidiaries are hereinafter referred to as the “Company”.
The
Company operates under the name SuperFit Foods and Muscle Maker Grill and is a franchisor and owner operator of Muscle Maker Grill
and Healthy Joe’s restaurants. As of March 31, 2021, the Company’s restaurant system included eighteen company-owned
restaurants, and fourteen franchise restaurants. Seven of the company-owned restaurants are delivery-only locations. In addition,
the Company built four new locations on university campuses but due to Covid-19 restrictions have not yet opened these locations
but incurred expenses during the twelve months ended December 31, 2020. A Muscle Maker Grill restaurant offers quality food freshly
prepared with the Company’s proprietary recipes created with the guest’s health in mind. The menu is protein based,
and features various supplements, health food snacks, along with a nutritious children’s menu and meal plans. SuperFit Foods
is a healthy meal prep Company that offers subscription meal services to customers in the Northeast Florida market with 100 meals
to choose from.
COVID-19
The
COVID-19 global pandemic continues to rapidly evolve. The Company is continually monitoring the outbreak of COVID-19 and the related
business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial
position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition
to the impact on its employees. The pandemic has resulted in a negative impact on the Company’s operations during the year
ended December 31, 2020 and continued into the first three months of March 31, 2021. However, due to the rapid development and
fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity
is uncertain as of the date of this report. While there could ultimately be an additional material impact on operations and liquidity
of the Company, the full impact could not be determined, as of the date of this report.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS, GOING CONCERN AND MANAGEMENT’S PLANS, continued
Going
Concern and Management’s Plans
As
of March 31, 2021, the Company had a cash balance, a working capital deficit and an accumulated deficit of $2,009,650, $1,603,691,
and $66,905,391, respectively. During the three months ended March 31, 2021, the Company incurred a pre-tax net loss of
$3,711,684. These conditions indicate that there is substantial doubt about the Company’s ability to continue as
a going concern for at least one year from the date of the issuance of these condensed consolidated financial statements.
Subsequent
to March 31, 2021, the Company received an aggregate of $9,181,355, net of underwriters’ costs and other fees of $790,000,
upon closing of a private placement. (See Note 13 - Subsequent Events – Private Placement)
Although
management believes that the Company has access to capital resources, there are no commitments in place for new financing as of
the date of the issuance of these condensed consolidated financial statements and there can be no assurance that the Company will
be able to obtain funds on commercially acceptable terms, if at all. The Company expects to have ongoing needs for working capital
in order to (a) fund operations; plus (b) expand operations by opening additional corporate-owned restaurants. To that end, the
Company may be required to raise additional funds through equity or debt financing. However, there can be no assurance that the
Company will be successful in securing additional capital. If the Company is unsuccessful, the Company may need to (a) initiate
cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund its liabilities, or (d) seek
protection from creditors.
The
accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern
and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets
and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable
or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the
outcome of this uncertainty.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do
not include all of the information and disclosures required by accounting principles generally accepted in the United States of
America for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only
of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial
statements of the Company as of March 31, 2021, and for the three months ended March 31, 2021, and 2020. The results
of operations for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the
full year. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 2020. The balance sheet as of December 31, 2020 has
been derived from the Company’s audited financial statements.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
Any intercompany transactions and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Management
bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Significant estimates include:
|
●
|
the
assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets;
|
|
●
|
the
estimated useful lives of intangible and depreciable assets;
|
|
●
|
estimates
and assumptions used to value warrants and options;
|
|
●
|
the
recognition of revenue; and
|
|
●
|
the
recognition, measurement and valuation of current and deferred income taxes.
|
Estimates
and assumptions are periodically reviewed, and the effects of any material revisions are reflected in the financial statements
in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.
Cash
and Cash Equivalents
The
Company considers all highly-liquid instruments with an original maturity of three months or less when purchased to be cash equivalents.
There were no cash equivalents as of March 31, 2021 and December 31, 2020.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized, and minor
replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the
straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the
estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:
|
Furniture
and equipment
|
5
- 7 years
|
|
|
|
|
Vehicles
|
5
years
|
|
|
|
|
Leasehold
improvements
|
0.5
– 10.38 years
|
Smallware,
which consists of pots, pans and other cooking utensils, is carried at cost and any replacements are expensed when acquired.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Intangible
Assets
We
account for recorded intangible assets in accordance with ASC 350 “Intangibles - Goodwill and Other”. In accordance
with ASC 350, we do not amortize intangible assets with indefinite useful lives. Our goodwill and trademarks are deemed to have
indefinite lives, and accordingly are not amortized, but are evaluated for impairment at least annually, or more often whenever
changes in facts and circumstances may indicate that the carrying value may not be recoverable. The Accounting Standards Codification
(“ASC”) requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level
below an operating segment). Application of the goodwill impairment test requires judgment, including the identification of reporting
units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value.
Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining
appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination
of fair value and/or goodwill impairment.
Other
intangible assets include a trademark with an indefinite useful life. The other intangible assets estimated useful lives are as
follows:
|
Franchisee
agreements
|
13
years
|
|
|
|
|
Trademark
– SuperFit, domain name, customer list and proprietary recipes
|
5
years
|
|
|
|
|
Non-compete
agreement
|
3
years
|
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires
an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also
require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December
15, 2021, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its condensed consolidated
financial statements and disclosures.
In
June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”).
ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments.
Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different.
ASU 2018-07 expands the scope of Topic 718, Compensation — Stock Compensation (which currently only includes share-based
payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting
for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity
— Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier
than a Company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company is currently evaluating
ASU 2018-07 and its impact on the condensed consolidated financial statements.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Recent
Accounting Pronouncements, continued
In
July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic
842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide
additional clarification and implementation guidance on certain aspects of the previously
issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same
effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10
will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance,
lessees will be required to recognize for all leases, with the exception of short-term
leases, a lease liability, which is a lessee’s obligation to make lease payments
arising from a lease, measured on a discounted basis. Concurrently, lessees will be required
to recognize a right-of-use asset, which is an asset that represents the lessee’s
right to use, or control the use of, a specified asset for the lease term. ASU 2018-10
is effective for emerging growth companies for interim and annual reporting periods beginning
after December 15, 2021, with early adoption permitted. The guidance is required to be
applied using a modified retrospective transition approach for leases existing at, or
entered into after, the beginning of the earliest comparative periods presented in the
financial statements. The Company is currently assessing the impact this guidance will
have on its condensed consolidated financial statements.
In
July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”).
The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease
contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease
contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for emerging growth companies for fiscal
years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently assessing the
impact this guidance will have on its condensed consolidated financial statements.
In
March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements” (“Topic 842”)
(“ASU 2019-01”). These amendments align the guidance for fair value of the underlying asset by lessors that are not
manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease
commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse
of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820,
Fair Value Measurement) should be applied. (Issue 1). The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository
and Lending, to present all “principal payments received under leases” within investing activities. (Issue 2). Finally,
the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company
adopts the new leases standard. (Issue 3). The transition and effective date provisions apply to Issue 1 and Issue 2. They do
not apply to Issue 3 because the amendments for that Issue are to the original transition requirements in Topic 842. On June
3, 2020, the FASB issued ASU 2020-05 that extended the adoption
to fiscal years beginning after December 15, 2021, with interim periods within fiscal years beginning after December 15, 2022.
Early adoption is permitted. The Company
is currently evaluating ASU 2019-01 and its impact on its unaudited condensed consolidated financial statements and financial
statement disclosures.
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 13 – Subsequent Events.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue
Recognition
In
accordance with the Accounting Standards Codification Topic 606 “Revenue from Contracts with Customers”, the Company
recognized revenue 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 have 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, discount
and other sales related taxes. The Company recorded retail store revenues of $1,178,911 and $1,237,427 during the three months
ended March 31, 2021 and 2020, 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 $81,469 and
$120,909 during the three months ended March 31, 2021 and 2020, 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
revenues from franchise fees of $9,786 and $14,440, respectively, during the three months ended March 31, 2021 and 2020, which
is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES, continued
Franchise
Royalties and Fees, continued
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 $44,085 and $40,682 during the three months ended March 31, 2021
and 2020, respectively, which is included in franchise royalties and fees on the accompanying 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.
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. The Company recognizes gift
card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption.
Gift card liability is recorded in other current liabilities on the condensed consolidated balance sheet. For the three months
ended March 31, 2021 and 2020, respectively, the Company determined that no gift card breakage is necessary based on current redemption
rates.
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, as well as unearned vendor rebates. 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.
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 general and administrative
expenses. When an advertising contribution fund is over-spent at year end, advertising expenses will be reported on the 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 $25,140 and $32,536, respectively, during the three
months ended March 31, 2021 and 2020, respectively, which are included in franchise advertising fund contributions on the accompanying
condensed consolidated statements of operations.
Advertising
Advertising
costs are charged to expense as incurred. Advertising costs were approximately $13,615 and $103,643 for the three months ended
March 31, 2021 and 2020, respectively, and are included in general and administrative expenses in the accompanying condensed consolidated
statements of operations.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to 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, 2021 and 2020, respectively,
because their inclusion would have been anti-dilutive:
|
|
March
31,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants
|
|
|
2,560,361
|
|
|
|
2,537,264
|
|
Options
|
|
|
300,000
|
|
|
|
4,821
|
|
Convertible debt
|
|
|
32,350
|
|
|
|
32,350
|
|
Total
potentially dilutive shares
|
|
|
2,892,711
|
|
|
|
2,574,435
|
|
Major
Vendor
The
Company engages various vendors to distribute food products to their Company-owned restaurants. Purchases from the Company’s
largest supplier totaled 84% and 85% of the Company’s purchases for the three months ended March 31, 2021 and 2020,
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:
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 modeling 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 12 – Equity – Warrant and Options Valuation for details related to a accrued compensation liability being fair
valued using Level 1 inputs.
Reclassifications
Certain
amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no
effect on previously reported net loss.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
3 – ACQUISITIONS
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 is 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 to be held for six
months before being registered. The remaining $25,000 shall be paid in shares of common stock provided that the seller meets various
obligation, within 60 days, as outline in the purchase agreement. As of March 31, 2021 the Company has accrued for the liability
in accounts payable and accrued expenses.
The
Company acquired the following assets as part of the purchase agreement:
Furniture
and equipment
|
|
$
|
82,000
|
|
Vehicles
|
|
|
55,000
|
|
Tradename
|
|
|
45,000
|
|
Customer list
|
|
|
140,000
|
|
Domain name
|
|
|
125,000
|
|
Proprietary Recipes
|
|
|
160,000
|
|
Non-compete agreement
|
|
|
260,000
|
|
Goodwill
|
|
|
283,000
|
|
Total
assets acquired
|
|
$
|
1,150,000
|
|
The
unaudited pro-forma financial information in the table below summarizes the consolidated results of operations of the Company
and SuperFits Foods, LLC as though the acquisition had occurred as of January 1, 2020. 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.
|
|
Pro
Forma
(Unaudited)
For
the Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Revenues
|
|
$
|
1,835,838
|
|
|
$
|
1,865,979
|
|
Restaurant operating expenses
|
|
|
2,322,412
|
|
|
|
1,915,505
|
|
Total cost and expenses
|
|
|
5,482,877
|
|
|
|
7,177,761
|
|
Loss from Operations
|
|
|
(3,647,039
|
)
|
|
|
(5,311,782
|
)
|
NOTE
4 - LOANS RECEIVABLE
At
March 31, 2021 and December 31, 2020, the Company’s loans receivable consists of the following:
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
Loans receivable, net
|
|
$
|
5,148
|
|
|
$
|
3,390
|
|
Less:
current portion
|
|
|
(5,148
|
)
|
|
|
(2,394
|
)
|
Loans
receivable, non-current
|
|
$
|
-
|
|
|
$
|
996
|
|
Loans
receivable includes loans to franchisees and a former franchisee totaling, in the aggregate, $5,148 and $3,390, net of reserves for uncollectible
loans of $61,275 and $106,900 at March 31, 2021 and December 31, 2020, respectively. The loans have original terms ranging up
to 10 years, earn interest at rates ranging from 5% to 12%, and are being repaid on a weekly or monthly basis.
NOTE
5 – PROPERTY AND EQUIPMENT, NET
As
of March 31, 2021 and December 31, 2020 property and equipment consists of the following:
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
1,221,313
|
|
|
$
|
1,143,320
|
|
Vehicles
|
|
|
55,000
|
|
|
|
-
|
|
Leasehold
improvements
|
|
|
1,913,355
|
|
|
|
1,940,907
|
|
|
|
|
3,189,668
|
|
|
|
3,084,227
|
|
Less:
accumulated depreciation and amortization
|
|
|
(832,740
|
)
|
|
|
(741,504
|
)
|
Property
and equipment, net
|
|
$
|
2,356,928
|
|
|
$
|
2,342,723
|
|
Depreciation
expense amounted to $153,522 and $362,009 for the three months ended March 31, 2021 and 2020, respectively. During the three months
ended March 31, 2021, the Company wrote off property and equipment with an original cost value of $99,313 related to a closed location
and a future location that was terminated due to the economic environment as a result of COVID-19 and recorded a loss on disposal of
$37,027 after accumulated depreciation of $62,286 in the unaudited condensed consolidated statement of operations.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
6 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET
The
Company’s intangible assets include a trademark with an indefinite useful life as well as franchise agreements which are
amortized over useful lives of thirteen years.
A
summary of the intangible assets is presented below:
Intangible
Assets
|
|
Trademark
|
|
|
Franchise
Agreements
|
|
|
Trademark
- SuperFit
|
|
|
Domain
Name
|
|
|
Customer
List
|
|
|
Proprietary
Recipes
|
|
|
Non-Compete
Agreement
|
|
|
Total
|
|
Intangible
assets, net at December 31, 2020
|
|
$
|
2,524,000
|
|
|
$
|
354,278
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,878,278
|
|
SuperFit
acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
125,000
|
|
|
|
140,000
|
|
|
|
160,000
|
|
|
|
260,000
|
|
|
|
730,000
|
|
Amortization
expense
|
|
|
-
|
|
|
|
(12,638
|
)
|
|
|
(148
|
)
|
|
|
(411
|
)
|
|
|
(460
|
)
|
|
|
(526
|
)
|
|
|
(1,423
|
)
|
|
|
(15,606
|
)
|
Intangible
assets, net at March 31, 2021
|
|
$
|
2,524,000
|
|
|
$
|
341,640
|
|
|
$
|
44,852
|
|
|
$
|
124,589
|
|
|
$
|
139,540
|
|
|
$
|
159,474
|
|
|
$
|
258,577
|
|
|
$
|
3,592,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining amortization period at
March 31, 2021 (in years)
|
|
|
|
|
|
|
7.06
|
|
|
|
4.98
|
|
|
|
4.98
|
|
|
|
4.98
|
|
|
|
4.98
|
|
|
|
2.98
|
|
|
|
|
|
Amortization
expense related to intangible assets amounted to $15,606 and $15,732 for the three months ended March 31, 2021 and 2020,
respectively.
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payables and accrued expenses consist of the following:
|
|
March
31,
2021
|
|
|
December
31, 2020
|
|
Accounts payable
|
|
$
|
675,863
|
|
|
$
|
692,966
|
|
Accrued payroll
|
|
|
204,486
|
|
|
|
78,667
|
|
Accrued professional fees
|
|
|
275,522
|
|
|
|
224,028
|
|
Accrued board members fees
|
|
|
21,000
|
|
|
|
36,697
|
|
Accrued rent expense
|
|
|
196,066
|
|
|
|
171,266
|
|
Accrued compensation
expense(1)
|
|
|
342,000
|
|
|
|
-
|
|
Sales taxes payable
(2)
|
|
|
233,713
|
|
|
|
231,177
|
|
Accrued interest
|
|
|
29,446
|
|
|
|
25,222
|
|
Other accrued
expenses
|
|
|
109,555
|
|
|
|
40,912
|
|
Total
Accounts Payable and Accrued Expenses
|
|
$
|
2,087,651
|
|
|
$
|
1,500,935
|
|
|
(1)
|
Included
within accrued compensation expense is a liability of $342,000 related to 150,000 shares of common stock to be issued by the
Company to a consultant for services. See Note 13 – Subsequent events – Common Stock for details related to the
issuance of the stock.
|
|
(2)
|
See
Note 11 – Commitments and Contingencies –Taxes for detail related to delinquent sales taxes.
|
NOTE
8 – DEFERRED REVENUE
At
March 31, 2021 and December 31, 2020, deferred revenue consists of the following:
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
Franchise fees
|
|
$
|
973,678
|
|
|
$
|
983,958
|
|
Unearned vendor rebates
|
|
|
12,712
|
|
|
|
23,171
|
|
Less: Unearned
vendor rebates, current
|
|
|
(12,712
|
)
|
|
|
(23,171
|
)
|
Less:
Franchise fees, current
|
|
|
(9,786
|
)
|
|
|
(39,687
|
)
|
Deferred revenues,
non-current
|
|
$
|
963,892
|
|
|
$
|
944,271
|
|
NOTE
9 – OTHER CURRENT LIABILITIES
At
March 31, 2021 and December 31, 2020, other current liabilities consist of the following:
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
Gift
card liability
|
|
$
|
93,163
|
|
|
$
|
91,034
|
|
Co-op
advertising fund liability
|
|
|
295,407
|
|
|
|
299,490
|
|
Advertising
fund liability
|
|
|
250,131
|
|
|
|
250,894
|
|
|
|
$
|
638,701
|
|
|
$
|
641,418
|
|
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
10 – NOTES PAYABLE
Convertible
Notes
Convertible
Note Payable to Former Parent
As
of March 31, 2021, the Company had an amount of $82,458 in convertible notes payable to Former Parent outstanding.
Other
Convertible Notes
As
of March 31, 2021 and December 31, 2020, the Company has another convertible note payable in the amount of $100,000 which is included
within convertible notes payable. See Note 11 – Commitments and Contingencies – Litigation, Claims and Assessments
for details related to the $100,000 other convertible note payable.
Other
Notes Payable
During
the three months ended March 31, 2021, the Company repaid $18,493 of the other notes payable.
As
of March 31, 2021, the Company had an aggregate amount of $1,258,199 in other notes payable. The notes had interest rates
ranging between 1% - 8% per annum, due on various dates through October 31, 2025.
The
maturities of other notes payable as of March 31, 2021, are as follows:
|
|
Principal
|
|
Repayments
due as of
|
|
Amount
|
|
03/31/2022
|
|
$
|
88,993
|
|
03/31/2023
|
|
|
960,914
|
|
03/31/2024
|
|
|
102,114
|
|
03/31/2025
|
|
|
82,668
|
|
03/31/2026
|
|
|
23,510
|
|
|
|
$
|
1,258,199
|
|
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Consulting
Agreements
On
February 7, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultant to provide
the Company with business and marketing advice as needed. The term of the agreement is for five months from the effective date
on February 7, 2021. Pursuant to the terms of the agreement the Company agreed to pay the consultant a total of 100,000 shares
of the Company’s common stock. The Company issued 60,000 shares of common stock upon the effective date of the agreement
with the remaining 40,000 to be issued upon the successful completion of the agreement.
On
March 8, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultant to provide the
Company with financial and business advice. The term of the agreement is for five months from the effective date on March
8, 2021. Pursuant to the terms of the agreement the Company agreed to pay the consultant a total of 100,000 shares of the Company’s
common stock. The Company issued 70,000 shares of common stock upon the effective date of the agreement with the remaining 30,000
to be issued upon the successful completion of the agreement.
On
March 22, 2021, the Company entered into a Consulting Agreement with consultants with experience in the area of investor relations
and capital introductions. The term of the agreement is for six months from the effective date on March 22, 2021. Pursuant to
the terms of the agreement the Company agreed to pay $250,000 in cash for ancillary marketing, to be paid out at the Company’s
discretion. In addition, the Company issued 150,000 shares of the Company’s common stock as a commencement incentive which
is fully earned by entering into the agreement.
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, 2021, the Company has accrued for the liability in convertible notes payable in the amount of $100,000
and accrued interest of $24,082 is included in accounts payable and accrued expenses.
In
May 2018, Resolute Contractors, Inc., Quality Tile, MTL Construction, Genesis Electric, JNB Interiors and Captive Aire filed a
Mechanics Lien for labor, service, equipment and materials in the total amount of $98,005. The Company intends to set up various
payment plans with these vendors. As of March 31, 2021, the Company has accrued for the liability in accounts payable and accrued
expenses.
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. 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.
The Company is working with legal counsel in order to reach a settlement. As of March 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 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 March 31, 2021, the Company has accrued for the liability
in accounts payable and accrued expenses.
In
March 2021, the Company participated in a mediation concerning an investor who invested with American Restaurant Holdings, Inc
and/or American Restaurants, LLC, our former parent company, from 2013 through 2015 in the total amount of $531,250. As of the
filing of this report, the company entered into a settlement with American Restaurant, LLC and the investor in the amount of $160,000.
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.
Taxes
The
Company failed in certain instances in paying sales taxes collected from customers in specific states that impose a tax on sales
of the Company’s products during 2018 and 2019. The Company had accrued $233,713 and $231,177 which includes penalties and
interest as of March 31, 2021 and December 31, 2020, respectively, related to this matter.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
12 – EQUITY
Common
Stock
On
February 3, 2021, the Company issued an aggregate of 20,000 shares of common stock of the Company to a digital marketing consultant
with an aggregate fair value of $42,600.
On
February 3, 2021, the Company issued an aggregate of 16,126 shares of common stock of the Company to the members of the board
of directors as compensation earned through the end of the fourth quarter of 2020.
On
March 31, 2021, the Company authorized the issuance of an aggregate of 12,711 shares of common stock to the members of the board
of directors as compensation earned during the first quarter of 2021.
See
Note 11 – Commitments and Contingencies – Consulting Agreements for details related to additional stock issuances
during the three months ended March 31, 2021.
Restricted
Common Stock
On
February 11, 2021, the Company issued an aggregate of 221,783 shares of restricted common stock of the Company to various executives
and an employee.
A
summary of the activity related to the restricted common stock for the three months ended March 31, 2021 is presented below:
|
|
|
|
|
Weighted
Average Grant
|
|
|
|
Total
|
|
|
Date
Fair Value
|
|
Outstanding at January 1, 2021
|
|
|
1,200
|
|
|
$
|
65.33
|
|
Granted
|
|
|
221,783
|
|
|
|
2.87
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(222,983
|
)
|
|
|
(3.21
|
)
|
Outstanding at March 31, 2021
|
|
|
-
|
|
|
$
|
-
|
|
Stock-Based
Compensation Expense
Stock-based
compensation related to restricted stock issued to employees, directors and consultants and warrants issued to consultants amounted to
$1,712,845 and $3,348,143 for the three months ended March 31, 2021 and 2020, respectively, of which $1,712,845 and $3,347,591,
respectively, was recorded in general and administrative expenses and $248 and $552, respectively, was recorded in labor expense within
restaurant operating expenses.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
12 – EQUITY, continued
Options
A
summary of option activity during the three months ended March 31, 2021 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
|
Options
|
|
|
Price
|
|
|
In
Years
|
|
Outstanding, December 31, 2020
|
|
|
300,000
|
|
|
$
|
3.33
|
|
|
|
1.1
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding, March 31, 2021
|
|
|
300,000
|
|
|
$
|
3.33
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2021
|
|
|
300,000
|
|
|
$
|
3.33
|
|
|
|
0.9
|
|
Warrants
A
summary of warrants activity during the three months ended March 31, 2021 is presented below:
|
|
Number
of Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining Life
In Years
|
|
Outstanding,
December 31, 2020
|
|
|
2,582,857
|
|
|
$
|
4.08
|
|
|
|
3.3
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/cancelled
|
|
|
(22,496
|
)
|
|
|
11.38
|
|
|
|
-
|
|
Outstanding,
March 31, 2021
|
|
|
2,560,361
|
|
|
$
|
4.02
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2021
|
|
|
2,560,361
|
|
|
$
|
4.08
|
|
|
|
3.1
|
|
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
13 – SUBSEQUENT EVENTS
Private
Placement
On
April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase
Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase
from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company
(ii) a common stock purchase warrant to purchase up to 4,115,227 shares of Common Stock (the “Common Warrant”) and
(iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of Common Stock (the “Pre-Funded Warrant”).
Each share is being sold together at a combined offering price of $2.43 per share and Common Warrant,
and each Pre-Funded Warrant and accompanying Common Warrant is being sold together at a combined offering price of $2.42 per Pre-Funded
Warrant and accompanying Common Warrant. The Pre-Funded Warrant is immediately exercisable, at a nominal exercise price of $0.01
per share, and may be exercised at any time until the Pre-Funded Warrant is fully exercised. The Common Warrant will have an exercise
price of $2.43 per share, are immediately exercisable and will expire five and one-half (5.5) years from the date of issuance.
The Private Placement closed on April 9, 2021.
The
Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and
customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company
is required to register the resale of the Shares and the shares issuable upon exercise of the Common Warrant and the Pre-Funded
Warrant. The Company is required to prepare and file a registration statement with the Securities and Exchange Commission within
30 days of the date of the Securities Purchase Agreement and to use commercially reasonable efforts to have the registration statement
declared effective within 90 days of the closing of the Private Placement.
Pursuant
to a placement agency agreement, dated April 6, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement
Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for
the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to
8% of the gross proceeds raised in the Private Placement and a 164,609 common stock purchase warrant to purchase shares of Common
Stock in an amount equal to 4% of the Shares and shares of Common Stock issuable upon exercise of the Warrants sold in the Private
Placement, the warrant has an exercise price of $2.916 per share and is exercisable commencing six months from the date of the
pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company
has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement.
Common
Stock
On
April 30, 2021, the Company issued an aggregate of 10,000 shares of common stock of the Company to a digital marketing consultant,
pursuant to their service agreement, with an aggregate fair value of $14,700.
On
May 6, 2021, the Company issued an aggregate of 150,000 shares of common stock of the Company to a digital marketing consultant
with an aggregate fair value of $214,500. The Company accrued for the liability as accrued compensation expense on the books as
of March 31, 2021, as the share were fully earned pursuant to their service agreement.
MUSCLE
MAKER, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
NOTE
13 – SUBSEQUENT EVENTS, continued
Members
Interest Purchase Agreement
On
May 14, 2021, Muscle Maker, Inc. (the “Company”) entered into a 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”). The closing occurred on May 14, 2021. Within 90 days of the closing, the purchase
price will be adjusted to reflect credit card payments and third-party delivery vendors of the Poke Entities prior to the closing
and the aggregate amount of expenses and liabilities incurred by the Poke Entities after the Closing but accrued or attributable
to the period prior to the closing. If the Adjustment Amount is a positive amount, the Company shall remit the adjustment amount
to the Sellers. If the adjustment amount is a negative amount, the Sellers shall remit the adjustment amount to the Company. The
Poke Note provides for the payment of principal and interest to be paid in 60 monthly installments consisting of 59 installments
of $5,308.73 commencing June 1, 2021 and one installment of $535,855.79 due and payable in May 1, 2026.
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. The price per share was determine by using the
10-day trading average preceding the date of closing. The closing occurred on May 14, 2021.
On
May 14, 2021, between Saladco Holdings, LLC and Poke Co Holdings, LLC, a wholly owned subsidiary of the Compay (“Poke Co”),
entered into an Intellectual Property License Agreement providing Poke Co with a license to use certain intellectual property
in connection with the preparation of Saladcraft®branded fruit and vegetable salads and related items for a term of one year
in consideration of a fee of 10% of the restaurant’s net sales of Saladcraft® Products with respect to Pokémoto
Restaurants owned and operated by Poke Co or its affiliates and 50% of the license revenue collected by Poke Co from such franchisees
that is directly attributable to the sale of Saladcraft® Products in or from franchisees’ Pokémoto Restaurants.
As
a result of the above transactions, the Company has acquired PokeMoto (www.pokemoto.com), a thirteen-location concept known
for its healthier modern culinary twist on a traditional Hawaiian poke classic.
The
Company claims an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”)
for the private placement of these securities pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation
D promulgated under the Securities Act.