Sadot Group Inc. 10-Q

10-Q 1 form10-q.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2020 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-39223 MUSCLE MAKER, INC. (Exact name of registrant as specified in its charter) Nevada 47-2555533 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 2600 South Shore Blvd., Suite 300, League City, Texas 77573 (Address of Principal Executive Offices) (Zip Code) Registrant’s telephone number, including area code: (682)-708-8250 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock, $0.0001 par value per share GRIL The NASDAQ Capital Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes [ X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Emerging growth company [X] If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes [ ] No [X] The number of shares if the Registrant’s common stock, $0.0001 par value per share, outstanding as of November 16, 2020, was 11,589,561. MUSCLE MAKER, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020 TABLE OF CONTENTS Page PART 1 – FINANCIAL INFORMATION ITEM 1. Financial Statements. Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 1 Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 2 Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Nine Months Ended September 30, 2019 3 Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2020 4 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 5 Notes to Unaudited Condensed Consolidated Financial Statements 7 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations . 23 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk . 37 ITEM 4. Controls and Procedures. 37 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. 38 ITEM 1A. Risk Factors. 39 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds. 40 ITEM 3. Defaults Upon Senior Securities. 41 ITEM 4. Mine Safety Disclosures. 41 ITEM 5. Other Information. 41 ITEM 6. Exhibits. 42 SIGNATURES 43 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS UNAUDITED September 30, 2020 December 31, 2019 (unaudited) Assets Current Assets: Cash $ 6,063,811 $ 478,854 Accounts receivable, net of allowance for doubtful accounts of $75,000 as of September 30, 2020 and December 31, 2019, respectively 230,675 136,477 Inventory 86,056 78,422 Current portion of loans receivable, net of allowance of $46,900 and $55,000 at September 30, 2020 and December 31, 2019, respectively 35,911 38,712 Prepaid expenses and other current assets 37,224 48,064 Total Current Assets 6,453,677 780,529 Property and equipment, net 1,933,416 1,646,879 Goodwill 656,348 656,348 Intangible assets, net 2,890,916 3,038,815 Loans receivable, non-current 92,669 98,677 Security deposits and other assets 90,062 39,462 Total Assets $ 12,117,088 $ 6,260,710 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable and accrued expenses $ 1,985,808 $ 2,630,948 Convertible notes payable to Former Parent 82,458 82,458 Convertible notes payable, net of debt discount of $0 and $38,918 at September 30, 2020 and December 31, 2019 100,000 536,082 Other notes payable, current 486,573 351,512 Other notes payable, related party - 91,000 Deferred revenue, current 75,650 122,697 Deferred rent, current 11,135 20,730 Other current liabilities 652,629 652,643 Total Current Liabilities 3,394,253 4,488,070 Convertible notes payable - 75,000 Other notes payable, non-current 633,287 240,295 Deferred revenue, non-current 955,179 1,152,975 Deferred rent, non-current 84,117 58,608 Total Liabilities 5,066,836 6,014,948 Commitments and Contingencies Stockholders’ Equity: Common stock, $0.0001 par value, 25,000,000 shares authorized, 11,089,440 and 5,714,464 shares issued and outstanding as of September 30, 2020, and December 31, 2019, respectively 1,108 571 Additional paid-in capital 67,799,514 53,339,793 Accumulated deficit (60,750,370 ) (53,094,602 ) Total Stockholders’ Equity 7,050,252 245,762 Total Liabilities and Stockholders’ Equity $ 12,117,088 $ 6,260,710 See Notes to the Condensed Consolidated Financial Statements 1 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended For the Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenues: Company restaurant sales, net of discounts $ 887,922 $ 821,684 $ 2,785,288 $ 2,438,284 Franchise royalties and fees 251,491 252,744 569,815 1,126,541 Franchise advertising fund contributions 13,132 39,030 45,587 116,423 Total Revenues 1,152,545 1,113,458 3,400,690 3,681,248 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 346,808 339,454 1,067,831 915,063 Labor 420,804 347,786 1,350,247 966,020 Rent 184,309 96,832 468,590 283,667 Other restaurant operating expenses 286,689 113,292 719,601 367,611 Total restaurant operating expenses 1,238,610 897,364 3,606,269 2,532,361 Preopening expenses - - 46,764 - Depreciation and amortization 80,113 59,033 288,615 190,637 Impairment of intangible asset 100,000 - 100,000 - Other expenses incurred for closed locations - - - 27,519 Franchise advertising fund expenses 13,132 39,030 45,587 116,423 General and administrative expenses 457,282 1,514,123 6,800,536 3,584,698 Total Costs and Expenses 1,889,137 2,509,550 10,887,771 6,451,638 Loss from Operations (736,592 ) (1,396,092 ) (7,487,081 ) (2,770,390 ) Other Income (Expense): Other (expense) income, net (5,360 ) 112,673 (18,908 ) 3,680 Interest expense, net (20,128 ) (614,100 ) (114,861 ) (1,262,521 ) Change in fair value of accrued compensation 100,000 - 4,000 - Amortization of debt discounts - (451,310 ) (38,918 ) (1,345,683 ) Total Other Income (Expense), Net 74,512 (952,737 ) (168,687 ) (2,604,524 ) Loss Before Income Tax (662,080 ) (2,348,829 ) (7,655,768 ) (5,374,914 ) Income tax provision - - - - Net Loss $ (662,080 ) $ (2,348,829 ) $ (7,655,768 ) $ (5,374,914 ) Net Loss Per Share: Basic and diluted $ (0.09 ) $ (1.56 ) $ (1.06 ) $ (3.59 ) Weighted Average Number of Common Shares Outstanding: Basic and diluted 7,633,347 1,503,438 7,217,767 1,499,019 See Notes to the Condensed Consolidated Financial Statements 2 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (Unaudited) Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance - December 31, 2018 1,489,686 $ 148 $ 20,990,373 $ (23,833,656 ) $ (2,843,135 ) Cumulative effect of change in accounting principle - - - (875,902 ) (875,902 ) Issuance of restricted stock 1,988 1 (1 ) - - Restricted stock issued as compensation for services 20,000 2 139,998 - 140,000 Beneficial conversion feature - Convertible Notes - - 217,800 - 217,800 Warrants issued and recorded as debt discount in connection with convertible notes payable - - 217,641 - 217,641 Stock-based compensation: Amortization of restricted common stock - - 165,133 - 165,133 Net loss - - - (1,483,479 ) (1,483,479 ) Balance - March 31, 2019 1,511,674 $ 151 $ 21,730,944 $ (26,193,037 ) $ (4,461,942 ) Common stock issued in exchange for interest earned on other notes payable 68,475 7 479,316 - 479,323 Common stock issued in exchange for interest earned on convertible notes payable 15,952 2 111,664 - 111,666 Beneficial conversion feature - Convertible Notes - - 330,220 - 330,220 Warrants issued and recorded as debt discount in connection with convertible notes payable - - 330,713 - 330,713 Stock-based compensation: Amortization of restricted common stock - - (123,431 ) - (123,431 ) Net loss - - - (1,542,606 ) (1,542,606 ) Balance - June 30, 2019 1,596,101 $ 160 $ 22,859,426 $ (27,735,643 ) $ (4,876,057 ) Common stock issued as compensation to board of directors 17,005 1 119,045 - 119,046 Restricted stock issued as compensation for services 41,426 4 289,996 - 290,000 Common stock issued as compensation for services 500 - 3,500 - 3,500 Stock-based compensation: Amortization of restricted common stock - - 19,085 - 19,085 Net loss - - - (2,348,829 ) (2,348,829 ) Balance - September 30, 2019 1,655,032 $ 165 $ 23,291,052 $ (30,084,472 ) $ (6,793,255 ) See Notes to the Condensed Consolidated Financial Statements 3 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance - December 31, 2019 5,714,464 $ 571 $ 53,339,793 $ (53,094,602 ) $ 245,762 Issuance of restricted stock 1,226 - - - - Common stock issued upon offering on February 12, 2020, net of underwriter’s discount and offering costs of $920,000 1,540,000 154 6,779,846 - 6,780,000 Restricted common stock issued as compensation to executive team upon completion of the initial public offering 216,783 22 1,083,893 - 1,083,915 Common stock issued as compensation to board of directors 25,616 3 128,077 - 128,080 Common stock issued as compensation for services 385,000 39 1,924,961 - 1,925,000 Stock-based compensation: Restricted common stock - - 20,148 - 20,148 Warrant - - 191,000 - 191,000 Net loss - - - (5,492,263 ) (5,492,263 ) Balance - March 31, 2020 7,883,089 $ 789 $ 63,467,718 $ (58,586,865 ) $ 4,881,642 Common stock issued as compensation for services 20,000 2 56,198 - 56,200 Common stock issued in exchange for accrued interest 51,105 5 357,730 - 357,735 Common stock issued as compensation to board of directors 4,340 - 11,874 - 11,874 Stock-based compensation: Restricted common stock - - 20,148 - 20,148 Net loss - - - (1,501,425 ) (1,501,425 ) Balance – June 30, 2020 7,958,534 796 63,913,668 (60,088,290 ) 3,826,174 Restricted common stock cancelled by executive team (216,783 ) (22 ) (1,083,893 ) - (1,083,915 ) Common stock cancelled by consultant issued for prior services (300,000 ) (30 ) - - - Common stock issued as compensation for services as per settlement 300,000 30 - - - Common stock issued as compensation for services 53,571 5 200,700 - 200,705 Offering on September 10, 2020, net of underwriter’s discount and offering cost of $660,000 3,294,118 329 4,939,672 - 4,940,001 Warrant expense – Reclassed to accrued compensation for future options - - (191,000 ) - (191,000 ) Stock-based compensation: Restricted common stock - - 20,367 - 20,367 Net loss - - - (662,080 ) (662,080 ) Balance – September 30, 2020 11,089,440 $ 1,108 $ 67,799,514 $ (60,750,370 ) $ 7,050,252 See Notes to the Condensed Consolidated Financial Statements 4 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2020 2019 Cash Flows from Operating Activities Net loss $ (7,655,768 ) $ (5,374,914 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 288,615 190,637 Stock-based compensation 2,619,522 613,333 Amortization of debt discounts 38,918 1,345,683 Gain on change in fair value of accrued compensation (4,000 ) - Impairment of intangible asset 100,000 - Write off of property and equipment 41,480 - Bad debt expense - 147,922 Deferred rent 15,914 6,323 Changes in operating assets and liabilities: Accounts receivable (94,198 ) (124,274 ) Inventory (7,634 ) (33,634 ) Prepaid expenses and other current assets 10,840 (32,252 ) Security deposits and other assets (50,600 ) (1,475 ) Accounts payable and accrued expenses (520,405 ) 337,859 Deferred revenue (244,843 ) (442,079 ) Other current liabilities (14 ) 71,757 Total Adjustments 2,193,595 2,078,800 Net Cash Used in Operating Activities (5,462,173 ) (3,296,114 ) Cash Flows from Investing Activities Purchases of property and equipment (568,733 ) (864,451 ) Collections (repayments) from loans receivable 8,809 (60,186 ) Cash paid in connection with the acquisition of Midtown franchise store - (35,116 ) Collections from loans receivables - 26,681 Collections from loans receivable - related party - 650 Net Cash Used in Investing Activities (559,924 ) (932,422 ) Cash Flows from Financing Activities Proceeds from offerings, net of underwriter’s discount and offering costs of $1,580,000 11,720,001 - Proceeds from PPP loan 866,300 - Proceeds from convertible notes payable - 6,373,000 Proceeds from convertible notes payable - related parties - 100,000 Repayments of convertible note payable (550,000 ) (50,000 ) Repayments of convertible note payable – related parties - (100,000 ) Repayments of other notes payable - related party (91,000 ) (335,000 ) Repayments of other notes payables (488,247 ) (225,000 ) Proceeds from other notes payable – related party - 100,000 Proceeds from other note payable 150,000 - Net Cash Provided by Financing Activities 11,607,054 5,854,000 Net Increase in Cash 5,584,957 1,625,464 Cash - Beginning of Period 478,854 357,842 Cash - End of Period $ 6,063,811 $ 1,983,306 See Notes to the Condensed Consolidated Financial Statements 5 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2020 2019 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 388,101 $ 471,774 Supplemental disclosures of non-cash investing and financing activities Beneficial conversion feature $ - $ 548,020 Warrants issued and recorded as debt discount in connection with convertible notes payable $ - $ 548,354 Common stock issued in exchange for interest earned on convertible notes payable $ - $ 111,666 Common stock issued in exchange for interest earned on other notes payable $ - $ 479,323 Common stock issued in exchange for accrued interest $ 357,735 $ - Warrant expense – Reclassed to accrued compensation for future options $ 191,000 $ - See Notes to the Condensed Consolidated Financial Statements 6 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 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. 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. MMI and its subsidiaries are hereinafter referred to as the “Company”. The Company operates under the name Muscle Maker Grill and is a franchisor and owner operator of Muscle Maker Grill and Healthy Joe’s restaurants. As of September 30, 2020, the Company’s restaurant system included fifteen company-owned restaurants, and eighteen franchise restaurants. Three of the company-owned restaurants are delivery-only locations. 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. COVID-19 In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. In response to the COVID-19 outbreak, “shelter in place” orders and other public health measures have been implemented across much of the United States. 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 three and nine months ended September 30, 2020. 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. As a result of the pandemic the Company has limited its operations through limiting hours of operations, reduced its capacity and utilized a delivery only concept as mandated by each state and has temporarily closed five of our Company owned locations during the second quarter of 2020. In addition, the Company opened two new locations at the end of the third quarter on university campuses that were subsequently temporarily closed due to the impact of COVID-19 on students returning to campuses. Commencing in the second quarter of 2020 the Company provided royalty relief to its franchisees by deferring half of their royalties earned by the Company through July 2020 and the executive team has deferred a portion of their salaries which is still in effect as of date of the filing of this report. In addition, various franchisee locations had to take similar actions by temporarily closing their locations and limiting their operations as mandated by each state. As of the date of the filing of this report the Company re-opened three of the seven temporarily closed locations and closed down one location permanently. 7 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 September 30, 2020, the Company had a cash balance, a working capital surplus and an accumulated deficit of $6,063,811, $3,062,692, and $60,750,370, respectively. During the three and nine months ended September 30, 2020, the Company incurred a pre-tax net loss of $662,080 and $7,655,768, respectively. 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. 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 – REVERSE STOCK SPLIT Effective December 11, 2019, pursuant to authority granted by the board of directors of the Company, the Company implemented a 1-for-7 reverse split of the Company’s issued common stock (the “Third Reverse Split”). All share and per share information has been retroactively adjusted to reflect the Third Reverse Split for all periods presented. 8 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 3 – 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 September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019. The results of operations for the three and nine months ended September 30, 2020 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, 2019. The balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements. 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. 9 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued 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 September 30, 2020 and December 31, 2019. 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, 2020, 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, 2020. 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. 10 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 3 – 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, 2019, 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, 2020, 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. This amendment will be effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2020. 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. 11 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Revenue Recognition During the first quarter of 2019, the Company adopted Topic 606 “Revenue from Contracts with Customers” for revenue recognition related to contracts with customers and applied the guidance modified retrospectively. Under the new 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 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. The change between Topic 605 and Topic 606, primarily impacted the way the Company recognized franchise fees. Under Topic 605 franchise fees were recognized upon opening of a restaurant or granting of a new franchise term at a point in time while under Topic 606 franchise fees are recognized on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. The impact of the adoption of Topic 606 resulted in an adjustment of $875,902 in accumulated deficit and deferred revenues. 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 $887,922 and $2,785,288 during the three and nine months ended September 30, 2020, respectively. The Company recorded retail store revenues of $821,684 and $2,438,284 during the three and nine months ended September 30, 2019, 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 $88,059 and $261,838 during the three and nine months ended September 30, 2020, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company recorded revenue from royalties of $165,412 and $563,772 during the three and nine months ended September 30, 2019, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. 12 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Franchise Royalties and Fees, continued 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 $125,710 and $215,340, respectively, during the three and nine months ended September 30, 2020, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company recorded revenues from franchise fees of $16,132 and $342,649, respectively, during the three and nine months ended September 30, 2019, 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 $37,722 and $92,637 during the three and nine months ended September 30, 2020, respectively, which is included in franchise royalties and fees on the accompanying consolidated statements of operations. The Company recorded revenue from rebates of $71,200 and $220,120 during the three and nine months ended September 30, 2019, 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. 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 and nine months ended September 30, 2020, 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 $13,132 and $45,587, respectively, during the three and nine months ended September 30, 2020, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations. The Company recorded contributions from franchisees of $39,030 and $116,423, respectively, during the three and nine months ended September 30, 2019, which is included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations. Impacts on Financial Statements The following table summarized the impact of the adoption of the new revenue standard on the Company’s previously reported consolidated financial statements: December 31, 2018 New Revenue Standard Adjustment January 1, 2019 Deferred revenues $ 907,948 $ 875,902 $ 1,783,850 Accumulated deficit 23,833,656 875,902 24,709,588 Advertising Advertising costs are charged to expense as incurred. Advertising costs were approximately $26,001 and $154,736 for the three and nine months ended September 30, 2020, and approximately $14,624 and $18,237 for the three and nine months ended September 30, 2019 respectively, and are included in general and administrative expenses in the accompanying condensed consolidated statements of operations. 13 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 3 – 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 September 30, 2020 and 2019, respectively, because their inclusion would have been anti-dilutive: September 30, 2020 2019 Warrants 2,582,857 756,578 Options - 4,821 Convertible debt 32,350 1,120,264 Total potentially dilutive shares 2,615,207 1,881,663 Major Vendor The Company engages various vendors to distribute food products to their Company-owned restaurants. Purchases from the Company’s largest supplier totaled 85% and 84% of the Company’s purchases for the three and nine months ended September 30, 2020, respectively. Purchases from the Company’s largest supplier totaled 75% and 81% of the Company’s purchases for the three and nine months ended September 30, 2019, 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. 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. 14 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 4 - LOANS RECEIVABLE At September 30, 2020 and December 31, 2019, the Company’s loans receivable consists of the following: September 30, 2020 December 31, 2019 Loans receivable, net $ 128,580 $ 137,389 Less: current portion (35,911 ) (38,712 ) Loans receivable, non-current $ 92,669 $ 98,677 Loans receivable includes loans to franchisees and a former franchisee totaling, in the aggregate, $128,580 and $137,389, net of reserves for uncollectible loans of $46,900 and $55,000 at September 30, 2020 and December 31, 2019, respectively. The loans have original terms ranging up to 10 years, earn interest at rates ranging from 2% to 12%, and are being repaid on a weekly or monthly basis. NOTE 5 – PROPERTY AND EQUIPMENT, NET As of September 30, 2020 and December 31, 2019 property and equipment consists of the following: September 30, 2020 December 31, 2019 Furniture and equipment $ 882,208 $ 617,712 Leasehold improvements 1,671,419 1,518,293 2,553,627 2,136,005 Less: accumulated depreciation and amortization (620,211 ) (489,126 ) Property and equipment, net $ 1,933,416 $ 1,646,879 Depreciation expense amounted to $64,030 and $240,716 for the three and nine months ended September 30, 2020, respectively. Depreciation expense amounted to $42,950 and $142,914 for the three and nine months ended September 30, 2019, respectively. During the nine months ended September 30, 2020, the Company wrote off property and equipment with an original cost value of $151,111 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 $41,480 after accumulated depreciation of $109,631 in the unaudited condensed consolidated statement of operations. 15 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 Total Intangible assets, net at December 31, 2019 $ 2,524,000 $ 514,815 $ 3,038,815 Amortization expense (47,899 ) (47,899 ) Impairment of intangible assets - (100,000 ) (100,000 ) Intangible assets, net at September 30, 2020 $ 2,524,000 $ 366,916 $ 2,890,916 Weighted average remaining amortization period at September 30, 2020 (in years) 7.3 Amortization expense related to intangible assets amounted to $16,083 and $47,899 for the three and nine months ended September 30, 2020, respectively. Amortization expense related to intangible assets amounted to $16,083 and $47,723 for the three and nine months ended September 30, 2019, respectively. The Company sustained operating and cash flow losses from inception which formed a basis for performing an impairment test of its Intangible Assets. The Company performed a recoverability test on the franchise agreements based on its projected future undiscounted cashflows. As a result of a failed recoverability test the Company proceeded to measure the fair value of those assets based on the future discounted cash flows and recorded an impairment charge in the amount of $100,00 during the three and nine months ended September 30, 2020. The key assumptions used in the estimates of projected cash flows utilized in both the test and measurement steps of the impairment analysis were projected revenues and royalty payments. These forecasts were based on actual revenues and take into account recent developments as well as the Company’s plans and intentions. NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payables and accrued expenses consist of the following: September 30, 2020 December 31, 2019 Accounts payable $ 821,140 $ 857,846 Accrued payroll 108,388 139,320 Accrued professional fees 257,972 329,826 Accrued board members fees 47,608 59,864 Accrued rent expense 200,434 269,644 Accrued compensation expense (1) 233,000 - Sales taxes payable (2) 248,721 329,089 Accrued interest 24,930 520,682 Accrued interest, related parties - 79,523 Other accrued expenses 43,615 45,154 Total Accounts Payable and Accrued Expenses $ 1,985,808 $ 2,630,948 (1) Included within accrued compensation expense is a liability of $42,000 related to 200,000 stock options to be issued by the Company and a liability of $191,000 related to the 100,000 warrants that were rescinded by the Company in exchange for the 100,000 options to be issued upon the approval of the 2020 Equity Incentive Plan. See Note 11 – Commitments and Contingencies – Consulting Agreements for details related to the Options and the cancelled warrants. (2) See Note 11 – Commitments and Contingencies –Taxes for detailed related to delinquent sales taxes. NOTE 8 – DEFERRED REVENUE At September 30, 2020 and December 31, 2019, deferred revenue consists of the following: September 30, 2020 December 31, 2019 Franchise fees $ 997,199 $ 1,210,719 Unearned vendor rebates 33,630 64,953 Less: Unearned vendor rebates, current (33,630 ) (64,953 ) Less: Franchise fees, current (42,020 ) (57,744 ) Deferred revenues, non-current $ 955,179 $ 1,152,975 NOTE 9 – OTHER CURRENT LIABILITIES Other current liabilities consist of the following: September 30, 2020 December 31, 2019 Gift card liability $ 90,269 $ 88,673 Co-op advertising fund liability 294,439 298,662 Advertising fund liability 267,921 265,308 $ 652,629 $ 652,643 16 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 September 30, 2020, the Company had an amount of $82,458 in convertible notes payable to Former Parent outstanding. 15% Senior Secured Convertible Promissory Notes During the nine months ended September 30, 2020, the Company repaid an aggregate of $450,000 in 15% senior secured convertible promissory notes. 12% Secured Convertible Note During the nine months ended September 30, 2020, the Company repaid the $75,000 12% secured convertible promissory note. Other Convertible Notes During the nine months ended September 30, 2020, the Company repaid a $25,000 other convertible note payable. As of September 30, 2020 and December 31, 2019, 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 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. The current term of the PPP Loan is two years with a maturity date of May 9, 2022 and contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan will be deferred for the first ten months of the term of the PPP Loan. Principal and interest are payable monthly and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during the eight-week period following the funding of the PPP Loan. The Company believes that it has been using the proceeds of the PPP Loan, for Qualifying Expenses. As of the date of filing this report the Company submitted their application for forgiveness of the PPP Loan. However, no assurance is provided that the Company will be able to obtain forgiveness of the PPP Loan in whole or in part. On May 14, 2019, the Company issued a $91,000 promissory note to a related party. The note has a stated interest rate of 15% over the original term of one year with monthly interest payments. The note becomes due in one year or the first day the Company trades publicly on an exchange. This note was repaid in full during the first quarter of 2020. On October 10, 2019, the Company issued a $300,000 five-year promissory note to a former franchisee with an eight percent interest rate. During the three and nine months ended September 30, 2020, the Company repaid $13,377 and $38,246, respectively, of the five-year promissory note. During December 2019, the Company issued a note payable in the principal amount of $300,000. The note has an original issue discount of 20%. The note become due in full on or before February 21, 2020. The note has been repaid during the first quarter of 2020. On February 3, 2020, the Company issued a note payable in the principal amount of $150,000. The note has an original issue discount of 20%. The note become due in full on or before February 21, 2020. The note has been repaid during the first quarter of 2020. As of September 30, 2020, the Company had an aggregate amount of $1,119,860 and $0 in other notes payable and other notes payable, related party, respectively. The notes had interest rates ranging between 1% - 8% per annum, due on various dates through October 10, 2024. The maturities of other notes payable as of September 30, 2020, are as follows: Principal Repayments due as of Amount 09/30/2021 $ 486,574 09/30/2022 493,638 09/30/2023 64,141 09/30/2024 69,465 09/30/2025 6,043 $ 1,119,861 17 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 11 – COMMITMENTS AND CONTINGENCIES Consulting Agreements On February 18, 2020, the Company entered into a professional services agreement with a company to provide advice on business development of food stores and delivery kitchen operations. In addition, they will review and advise the Company on potential acquisition targets, including financial analytics for post-merger entities and provide assistance in preparing pro-forma financial information. The term of the agreement commences from the effective date on February 18, 2020 and expires on February 18, 2021. Pursuant to the terms of the agreement, the Company agreed to issue 300,000 shares of the Company’s common stock and 100,000 three-year cashless warrants with an exercise price of $5.00 per share upon signing of the agreement as payment. The grant date fair value of the warrants of $191,000 was recorded in general and administrative expense as stock-based compensation. The Company rescinded the issuance of 100,000 warrants and 300,000 shares of the Company’s common stock in July 2020 that were issued in the first quarter of 2020, pursuant to a consulting agreement. Although the shares were duly authorized and validly issued, the Company rescinded the stock and warrants as it did not have the required amount of equity authorized under its 2019 Incentive Stock Plan. Following the rescission of the warrants and shares of common stock, the consultant threatened to commence legal proceedings against the Company and demanded the Company to re-issue the 300,000 shares of common stock and 100,000 warrants and to provide the Consultant registration rights. In order to settle and avoid the time commitment and expense associated with potential litigation, the Company and the Consultant entered into a Settlement Agreement (“Settlement Agreement”) on August 11, 2020 whereby the Company agreed to issue 300,000 shares of common stock within 5 five days of entering into the Settlement Agreement. These shares are not subject to any equity plan. The Company agreed to register the shares of common stock in consideration of a release by the Consultant. In addition, as part of the Settlement Agreement the Company will issue 100,000 stock options upon the approval of the 2020 Equity Incentive Plan. On February 24, 2020, the Company entered into a Consulting Agreement with consultants with experience in the area of corporate finance, investor communication and financial and investor public relations. The term of the agreement is for two months from the effective date on February 27, 2020 and expires on April 27, 2020. Pursuant to the terms of the agreement, the Company agreed to pay $215,000 in cash and to issue 10,000 shares of the Company’s common stock. In the event the Company elects to not extend the term of the agreement, it is to notify the consultants within five days of the conclusion of the 60-day term. The Company did not extend the term of the original agreement. As of September 30, 2020, the company issued the 10,000 shares of common stock and paid the $215,000 in cash pursuant to the terms of the agreement. On April 8, 2020, the Company entered into a professional service agreement with a consultant to provide advice on investor outreach and institutional engagements. The Consultants will also provide continuous market insight and interpret our trading activity. The term of the agreement commenced from the execution date and ends on April 1, 2021. Pursuant to the terms, the Company agreed to pay the consultant in the form of non-qualified stock options to acquire 200,000 shares of the Company’s common stock, exercisable at $2.50 per share for a period of one year. The Options are fully vested upon the signing of this agreement. In addition, the option is callable by the Company in the event the market price of its shares close above $3.50 per share for five consecutive dates upon which the consultant will have three days to elect to exercise or forfeit the options. The Company has not issued the options pursuant to the original terms of the agreement and on August 11, 2020, the Company and the consultant entered into an amendment and agreed that the 200,000 non-qualified stock options shall be issued upon the Company’s shareholders approval of its 2020 Incentive Stock Plan. See Note 12 – Equity – Warrants and Options Valuation for details related to the accrued compensation expense recognized in connection with the liability. On July 28, 2020, the Company entered into a Consulting Agreement with consultants with experience in the area of corporate finance, investor communication and financial and investor public relations. The term of the agreement is for one month from the effective date on July 28, 2020 and expires on August 28, 2020. Pursuant to the terms of the agreement, the Company agreed to pay $253,500 in cash and to issue 15,000 shares of the Company’s common stock. As of September 30, 2020, the Company issued the 15,000 shares of common stock and paid the $253,500 in cash pursuant to the terms of the agreement. Litigations, Claims and Assessments In 2017, Limestone Associates LLC (“Limestone”) filed a complaint against ARH in the Civil Court of the City of New York, County of New York, #78549/2017 for commercial non-payment of rent for the amount of $25,748 plus cost and disbursements of this proceeding. In May 2018, Limestone filed a complaint against ARH and Robert E. Morgan (the former CEO of the Company) in the Supreme Court of the State of New York, County of New York, index # 154469 seeking $1,357,243 in damages for rent, interest and other expenses. In May 2018, the Company, Former Parent and Mr. Morgan were listed as defendants to a lawsuit filed by Crownhall Realty, LLC (“Crownhall”) in the Supreme Court of the State of New York county of New York, #154467. Crownhall is seeking $1,034,087 in damages for rent, interest and other expenses. On October 3, 2018, the Company, ARH and Mr. Morgan entered into a settlement agreement with Crownhall and Limestone agreeing to forfeit all security deposits, pay an upfront amount of $25,000 and an additional $175,000 to be paid over 20 months. This agreement settles litigation surrounding two closed locations, which the plaintiffs were seeking a total of $2,391,330 in past damages for rent, interest and other expenses. As of the date of the filing of these condensed consolidated financial statements the settlement has been paid in full. 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 September 30, 2020, the Company has accrued for the liability in convertible notes payable in the amount of $100,000 and accrued interest of $22,039 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 September 30, 2020, the Company has accrued for the liability in accounts payable and accrued expenses. 18 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 11 – COMMITMENTS AND CONTINGENCIES, continued Litigations, Claims and Assessments, continued On December 12, 2018, the Company was listed as a defendant to a lawsuit filed by a landlord in the Superior Court of the State of California. Fountain Valley is seeking approximately $121,000 in damages for rent, interest and other expenses. On February 15, 2019, the Company entered into a settlement agreement and payment plan in the amount of $85,000. The Company agreed to make the following payments (i) $15,000 on or before March 15, 2019, and (ii) ten monthly installments of $7,000 commencing on April 15, 2019 and continuing monthly on the 15th day of each month though January 15, 2020. The company has accrued for the liability in accounts payable and accrued expenses and has been making repayments pursuant to the settlement agreement. As of January 15, 2020, the Company has met all their obligations and the full amount has been paid. 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 September 30, 2020, 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 September 30, 2020, 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. Operation Lease On June 26, 2020, the Company was informed that one of their leases for a future military location was terminated due to the current economic environment as a result of COVID-19. Corporate Address Change During October 2020, the Company relocated its corporate office address from 308 East Renfro Street, Suite 101, Burleson, Texas, 76028 to 2600 South Shore Blvd. Suite 300, League City, Texas, 77573. Kitchen Service Agreement On February 26, 2020, the Company entered into a Kitchen Services Agreement with a major delivery-only kitchen concept. The Kitchen Services Agreement provides for five initial locations starting in the Chicago market. In addition, the Company has placed deposits for an additional five locations to be determined. The Kitchen Services Agreement provide the Company with access to the delivery-only locations for a one-year term with an automatic one-year renewal unless terminated by either party. The delivery-only locations are set up for third party delivery and provide that the Company must pay monthly license fees, processing service fees and storage service fees. The monthly license fees for the five initial locations range from $3,000 to $4,000. The monthly license fees become due 14 days after the Company is granted access to the location. As of the date of filing this report the Company has opened four of the five initial locations agreed upon in the Chicago market and entered into additional agreements for two location in the Philadelphia market, one location in the Miami market, one location in the Providence market and one location in the New York City market. 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. The Company had accrued $248,721 and $329,089 which includes penalties and interest as of September 30, 2020 and December 31, 2019, respectively, related to this matter. 19 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 12 – EQUITY 2019 Equity Incentive Plan The Company’s board of directors and shareholders approved and adopted on October 28, 2019 the 2019 Equity Incentive Plan (“2019 Plan”), effective on October 28, 2019 under which stock options and restricted stock may be granted to officers, directors, employees and consultants in the form of non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock Units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Under the 2019 Plan, the Company reserved 214,286 shares of common stock for issuance. As of September 30, 2020, 188,524 shares have been issued under the 2019 Plan. See Note 13 – Subsequent Events – 2020 Equity Incentive Plan for details of the new plan that was adopted and upon adoption of the new plan the Company will no longer issue shares under the 2019 Plan, but any existing grants under the 2020 Plan will remain outstanding. Common Stock On February 17, 2020 the Company authorized the issuance of an aggregate of 25,616 shares of common stock to the members of the board of directors as compensation earned through the end of the fourth quarter of 2019. On March 31, 2020, the Company issued 75,000 shares of common stock of the Company to a consultant that assisted the Company in the area of investor relations and capital introduction. On April 21, 2020, the Company issued an aggregate of 51,105 shares of common stock in exchange for accrued interest related to convertible notes that where converted in 2019 in the amount of $357,735. On June 1, 2020, the Company issued 5,000 shares of common stock of the Company to a consultant with an aggregate fair value of $10,150. On June 5, 2020, the Company issued 15,000 shares of common stock of the Company to a digital marketing consultant with an aggregate fair value of $46,050. On June 24, 2020 the Company authorized the issuance of an aggregate of 4,340 shares of common stock to the members of the board of directors as compensation earned through the end of the first quarter of 2020. On August 21, 2020, the Company issued an aggregate of 53,571 shares of common stock of the Company to various consultants with an aggregate fair value of $200,705. See Note 11 – Commitments and Contingencies – Consulting Agreements for details related to additional stock issuances during the nine months ended September 30, 2020. Closing of Offerings On February 12, 2020, the Company priced its initial public offering of 1,540,000 shares of common stock at a price of $5.00 per share. The Company started trading on the Nasdaq Capital Market on February 13, 2020 under the ticker symbol “GRIL”. The Company closed on the offering on February 18, 2020, yielding proceeds of $6,780,000, net of underwriters and other fees of $920,000. Upon closing of the offering the Company issued 123,200 warrants to the underwriters as part of their agreement. On September 10, 2020, the Company priced its public offering (“September Offering”) of 3,294,118 shares of common stock at a price of $1.70 per share. The Company closed on the September Offering on September 15, 2020, yielding net proceeds of $4,940,001, net of underwriters and other fees of $660,000. Upon closing of the September Offering the Company issued 263,529 warrants to the underwriters as part of their agreement. See Note 13 – Subsequent Events – Closing of September Offering – Over-Allotment for the closing on the over-allotment option that was granted to the underwriters. Restricted Common Stock On February 18, 2020, the Company issued an aggregate of 216,783 shares of restricted common stock of the Company, with an aggregate value fair value of $1,083,915, to the executive team pursuant to their employment agreements as part of completing the initial public offering. On August 11, 2020, the executive team entered into an agreement individually with the Company to cancel an aggregate of 216,783 vested shares of restricted common stock of the Company previously issued in the first quarter of 2020 and acknowledge that no further compensation is due under their employment agreements during the quarter ended September 30, 2020. As a result of the cancelled restricted common stock, the Company reversed $1,083,893 in stock-based compensation during the quarter ended September 30, 2020, that was originally recorded during the three months ended March 31, 2020, within general and administrative expenses related to the cancelled shares in the unaudited condensed consolidated statement of operations. At September 30, 2020, the unrecognized value of the restricted common stock was $20,235. The unamortized amount will be expensed over a weighted average period of 0.25 years. A summary of the activity related to the restricted common stock for the nine months ended September 30, 2020 is presented below: Weighted Average Grant Total Date Fair Value Outstanding at January 1, 2020 2,426 $ 65.33 Granted 216,783 5.00 Forfeited - - Vested (218,009) (5.34 ) Outstanding at September 30, 2020 1,200 $ 65.33 Stock-Based Compensation Expense Stock-based compensation related to restricted stock issued to employees, directors and consultants and warrants issued to consultants amounted to ($1,005,698) and $2,619,522 for the three and nine months ended September 30, 2020, respectively, of which ($1,006,656) and $2,617,460, respectively, was recorded in general and administrative expenses and $958 and $2,062, respectively, was recorded in labor expense within restaurant operating expenses. Stock-based compensation related to restricted stock issued to employees, directors and consultants amounted to $431,631 and $613,333 for the three and nine months ended September 30, 2019, respectively, of which $429,315 and $611,191 was recorded in general and administrative expenses and $2,316 and $2,142 was recorded in labor expense within restaurant operating expenses. 20 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 12 – EQUITY, continued Warrant and Options Valuation The Company has computed the fair value of warrants granted and options accrued for as accrued compensation expense using the Black-Scholes option pricing model. The expected term used for warrants and options issued to non-employees is the contractual life. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. The options accrued for in accrued compensation expense had a grant date fair value of $46,000 on April 8, 2020. The Company recorded a mark to market fair value adjustment of $(100,000) and $4,000 on the consolidated statement of operations during the three and nine months ended September 30, 2020. The Company has estimated the fair value of the options using the Black-Scholes model using the following assumptions: expected volatility of 66.77-112.17%, risk-free rate of 0.12-0.23%, expected term of 1 year, expected dividends of 0%, and stock price of $1.42 – 2.71. Options On July 27, 2017, the Company issued stand-alone non-qualified stock options, not pursuant to a plan, to purchase an aggregate of 4,821 shares of the Company’s common stock to its franchisees that expires three years from the date of issuance. The options were forfeited during the third quarter of 2020. Warrants See Note 12 – Equity – Closing of Offerings for details related to additional warrants issuances during the nine months ended September 30, 2020. A summary of warrants activity during the nine months ended September 30, 2020 is presented below: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Life In Years Outstanding, December 31, 2019 2,450,287 $ 5.51 3.7 Issued 486,729 3.65 - Exercised - - - Forfeited/cancelled (354,159 ) 6.74 - Outstanding, September 30, 2020 2,582,857 $ 4.08 3.6 Exercisable, September 30, 2020 2,582,857 $ 4.08 3.6 The grant date fair value of warrants granted during the three and nine months ended September 30, 2020 and 2019 was determined on the date of issuance using the Black-Scholes option pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company calculates the expected volatility using the historical volatility of comparable companies over the most recent period equal to the expected term and evaluates the extent to which available information indicates that future volatility may differ from historical volatility. The expected dividend rate is zero as the Company does not expect to pay or declare any cash dividends on common stock. The risk-free rates for the expected terms of the stock warrants are based on the U.S. Treasury yield curve in effect at the time of the grant. The Company has not experienced significant exercise activity on warrants. Due to the lack of historical information, the Company determined the expected term of its warrant awards issued using the simplified method. In applying the Black-Scholes option pricing model, the Company used the following assumptions: For the Three Months Ended For the Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Risk free interest rate - % 1.61 - 2.32 % 1.37 % 10.61 - 2.62 % Contractual term (years) - 5.00 3.00 5.00 Expected volatility - % 58.24 - 88.10 % 55.33 % 52.64 - 88.10 % Expected dividend - % 0.00 % 0.00 % 0.00 % 21 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 13 – SUBSEQUENT EVENTS Delivery-only location Subsequent to September 30, 2020, the Company opened one more delivery-only location pursuant to the Kitchen Services Agreement. Election of Directors On October 27, 2020, the Company held its annual shareholders meeting and the shareholders voted on the directors to serve on the Company’s board of directors. The shareholders elected Stephan Spanos, A.B. Southall III, Paul L. Menchik, Peter Petrosian, Jeff Carl, Major General (ret) Malcom Frost and Phillip Balatsos to serve on the Company’s board of directors. Authorized Capital On October 27, 2020, the shareholders approved to amend the Company’s articles of incorporation to increase the number of authorized shares of common stock from 14,285,714 to 25,000,000 shares of $0.0001 par value share common stock. 2020 Equity Incentive Plan The Company’s board of directors and shareholders approved and adopted on October 27, 2020 the 2020 Equity Incentive Plan (“2020 Plan”), effective on October 27, 2020 under which stock options and restricted stock may be granted to officers, directors, employees and consultants in the form of non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Under the 2020 Plan, the Company reserved 1,750,000 shares of common stock for issuance. As of the date of the issuance of these consolidated financial statements 1,744,056 shares of common stock were outstanding under the 2020 Plan. Closing of September Offering – Over-Allotment Pursuant to the underwriting agreement for the September Offering the Company granted the underwriters an option to exercise for 45 days, to purchase up to an additional 494,177 shares of common stock to cover the over-allotment. On October 27, 2020, the Company closed on the over-allotment yielding proceeds of $764,399, net of underwrites and other fees of $75,600. Operation Lease Due to the economic effect of COVID-19 the Company made the decision to close one of their Company owned stores permanently during the quarter ended September 30, 2020. As a result the Company was able to negotiate a sublease on October 29, 2020, for the remainder of the lease term in which the subtenant agreed to make lease payments to the Company until the lease terminates on February 28, 2021. Chelsea Acquisition On October 19, 2020, the Company acquired a franchisee store in Chelsea, New York, as a corporate store (the “Chelsea Acquisition”). The purchase price of the store was $68,292, of which $34,146 related to equipment purchased and the remaining $34,146 was attributed to leasehold improvements. The Company agreed to forgive a promissory note in the amount of $68,292 in exchange for the purchase of the location. In addition, the Company became obligated for payments pursuant to a five year lease, exclusive of options to renew. M onthly rent payments pursuant to lease agreement range from $11,000 to $16,105 with a straight line rent expense of $13,431 per month. Philadelphia Acquisition On November 2, 2020, the Company acquired a franchisee store in Philadelphia, Pennsylvania, as a corporate store (the “Philadelphia Acquisition”). The purchase price of the store was $250,000, of which $125,000 related to equipment purchased and the remaining $125,000 relates to leasehold improvements. The Company paid cash of $75,000 to the seller on the closing date and agreed to a $175,000 7% promissory note over the next sixty months with the first payment being due and payable on December 2, 2020. As part of the acquisition the Company agreed to a lease assignment and assumed all the liability under the lease upon the closing date. Common Stock On November 10, 2020 the Company authorized the issuance of an aggregate of 5,944 shares of common stock to the members of the board of directors as compensation earned for the second and third quarter of 2020. 22 ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of the results of operations and financial condition of Muscle Maker, Inc. (“Muscle Maker”), together with its subsidiaries (collectively, the “Company”) as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to Muscle Maker. “Muscle Maker Grill” refers to the name under which our corporate and franchised restaurants do business. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “forecast,” “model,” “proposal,” “should,” “may,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. For a detailed discussion of risk factors affecting us, see “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. OVERVIEW We operate under the name Muscle Maker Grill as a franchisor and owner-operator of Muscle Maker Grill restaurants. As of September 30, 2020, our restaurant system included fifteen Company-owned restaurants and eighteen franchised restaurants. Muscle Maker Grill 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, burgers, wraps and flat breads. In addition, we feature freshly prepared entrée salads and an appealing selection of sides, protein shakes and fruit smoothies. We operate in the approximately $47 billion fast casual restaurant segment, which we believe has created significant recent disruption in the restaurant industry and is rapidly gaining market share from adjacent restaurant segments, resulting in significant growth opportunities for healthier restaurant concepts such as Muscle Maker Grill. We believe our healthier restaurant concept delivers a highly differentiated customer experience by combining the quality and hospitality that customers commonly associate with our full service and fast casual restaurant competitors with the convenience and value customers generally expect from traditional fast food restaurants. The foundation of our brand is based on our core values of quality, empowerment, respect, service and value. As of September 30, 2020, we had an accumulated deficit of $60,750,370 and expect to continue to incur operating and net losses for the foreseeable future. In its report on our consolidated financial statements for the fiscal year ended December 31, 2019, our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern. See “Liquidity and Capital Resources – Availability of Additional Funds and Going Concern” and Note 1 – Business Organization and Nature of Operations, Going Concern and Management’s Plans to Notes to Consolidated Financial Statements for additional information describing the circumstances that led to the inclusion of this explanatory paragraph. 23 Key Financial Definitions Total Revenues Our revenues are derived from three primary sources: company restaurant sales, franchise revenues and vendor rebates from Franchisees. Franchise revenues are comprised of franchise royalty revenues collected based on 5% of franchisee net sales and other franchise revenues which include initial and renewal franchisee fees. Vendor rebates are received based on volume purchases or services from franchise owned locations. Food and Beverage Costs Food and beverage costs include the direct costs associated with food, beverage and packaging of our menu items at company-operated restaurants partially offset by vendor rebates from company-owned stores. The components of food, beverages and supplies are variable in nature, change with sales volume, are affected by menu mix and are subject to fluctuations in commodity costs. Labor Restaurant labor costs, including preopening labor, consists of company-operated restaurant-level management and hourly labor costs, including salaries, wages, payroll taxes, workers’ compensation expense, benefits and bonuses paid to our company-operated restaurant-level team members. Like other cost items, we expect restaurant labor costs at our company-operated restaurants to increase due to inflation and as our company restaurant revenues grow. Factors that influence labor costs include minimum wage and employer payroll tax legislation, mandated health care costs and operational productivity established by the management team. Rent Restaurant rent, including preopening rental charges, consist of company-operated restaurant-level rental or lease payments applicable to executed rental or lease agreements. In many cases these rental payments may include payments for common area maintenance as well as property tax assessments. Our rent strategy mostly consists of a variable rent structure calculated on net sales of the restaurant. While this can have a negative effect on higher volume locations where we cannot leverage a fixed rent, it provides downside protection for lower volume locations. While we cannot guarantee a favorable variable rent expense in all future leases, we have forecasted average rental costs as a percentage of total sales at 8%. Other restaurant operating expenses Other restaurant operating expenses, including preopening operating expenses, consist of company-operated restaurant-level ancillary expenses not inclusive of food and beverage, labor and rent expense. These expenses are generally marketing, advertising, merchant and bank fees, utilities, leasehold and equipment repairs, insurance and maintenance. A portion of these costs are associated with third party delivery services such as Uber Eats, Grub Hub, DoorDash, Seamless, and others. The fees associated with these third-party delivery services can range up to 25% of the total order being delivered. Management believes delivery is a critical component of our business model and industry trends will continue to push consumers towards delivery. Our cost structure will need to be adjusted to reflect a different pricing model, portion sizes, menu offerings, and other considerations to potentially offset these rising costs of delivery. 24 Other Expenses Incurred for Closed Locations Other expenses incurred for closed locations consists primarily of restaurant operating expenses incurred subsequent to store closures as the Company still has to certain obligations to vendors due to signed agreements. Depreciation and Amortization Depreciation and amortization primarily consist of the depreciation of property and equipment and amortization of intangible assets. General and Administrative Expenses General and administrative expenses include expenses associated with corporate and administrative functions that support our operations, including wages, benefits, travel expense, stock-based compensation expense, legal and professional fees, training, and other corporate costs. We expect to incur incremental general and administrative expenses as a result of becoming a public listed company on the Nasdaq capital market. A certain portion of these expenses are related to the preparation of an initial stock offering and should be considered one-time expenses. Other Income (Expense), net Other expenses primarily consist of amortization of debt discounts on the convertible notes payable and interest expense related to other notes payable and convertible notes payable. Income Taxes Income taxes represent federal, state, and local current and deferred income tax expense. 25 Consolidated Results of Operations Three Months Ended September 30, 2020 Compared with Three Months Ended September 30, 2019 The following table represents selected items in our condensed consolidated statements of operations for the three months ended September 30, 2020 and 2019, respectively: For the Three Months Ended September 30, 2020 2019 Revenues: Company restaurant sales, net of discounts $ 887,922 $ 821,684 Franchise royalties and fees 251,491 252,744 Franchise advertising fund contributions 13,132 39,030 Total Revenues 1,152,545 1,113,458 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 346,808 339,454 Labor 420,804 347,786 Rent 184,309 96,832 Other restaurant operating expenses 286,689 113,292 Total restaurant operating expenses 1,238,610 897,364 Depreciation and amortization 80,113 59,033 Impairment of intangible asset 100,000 - Franchise advertising fund expenses 13,132 39,030 General and administrative expenses 457,282 1,514,123 Total Costs and Expenses 1,889,137 2,509,550 Loss from Operations (736,592 ) (1,396,092 ) Other Income (Expense): Other (expense) income, net (5,360 ) 112,673 Interest expense, net (20,128 ) (614,100 ) Change in fair value of accrued compensation 100,000 - Amortization of debt discounts - (451,310 ) Total Other Income (Expense), Net 74,512 (952,737 ) Loss Before Income Tax (662,080 ) (2,348,829 ) Income tax provision - - Net Loss $ (662,080 ) $ (2,348,829 ) 26 Revenues Company total revenues totaled $1,152,545 for the three months ended September 30, 2020 compared to $1,113,458 for the three months ended September 30, 2019. The $39,087 increase was primarily attributable to an increase in restaurant sales due to new store opening compared to the prior year partially offset by a decrease in franchise royalties and fees due to fewer franchisee stores. We generated restaurant sales, net of discounts, of $887,922 for the three months ended September 30, 2020 compared to $821,684, for the three months ended September 30, 2019. This represented an increase of $66,238 which is primarily due to new store opening and store acquired subsequent to the prior period. Franchise royalties and fees for the three months ended September 30, 2020 and 2019 totaled $251,491 compared to $252,744, respectively. The $1,253 decrease is primarily attributable to a decrease in royalty income of $77,353 due to fewer franchisee locations and the fact that the Company purchased two franchisee location resulting in lower royalty income, lower sales volumes and temporary closures of franchised locations due to Covid-19 and a decrease in vendor rebates of $33,478, partially offset by an increase in in initial franchise fees of $109,578 compared to the prior period due to an increase in franchisee agreement terminations in the current period. Franchise advertising fund contributions for the three months ended September 30, 2020 and 2019 totaled $13,132 compared to $39,030, respectively. Operating Costs and Expenses Operating costs and expenses primarily consist of restaurant food and beverage costs, restaurant labor expense, restaurant rent expense, other restaurant operating expenses, depreciation and amortization expenses and general and administrative expenses. Restaurant food and beverage costs for the three months ended September 30, 2020 and 2019 totaled $346,808, or 39.1%, as a percentage of restaurant sales, and $339,454, or 41.3% as a percentage of restaurant sales, respectively. The $7,345 increase was primarily due to the three new cloud kitchens opened and the acquisition of the two franchisee location compared to the prior period partially offset due to the temporary closure of two corporate owned stores and the decrease in restaurant sales during period due to the impact of Covid-19. Restaurant labor for the three months ended September 30, 2020 and 2019 totaled $420,804, or 47.4%, as a percentage of restaurant sales, and $347,786, or 42.3%, as a percentage of restaurant sales, respectively. The $73,018 increase as a percentage of restaurant sales is a direct result of inefficiencies that is typically attributed to opening or acquiring new locations as it takes time to establish operational efficiencies and due to the impact of Covid-19 limiting our operations at our restaurants to maintain social distancing ordinances. Restaurant rent expense for the three months ended September 30, 2020 and 2019 totaled $184,309, or 20.8%, as a percentage of restaurant sales, and $96,832, or 11.8%, as a percentage of restaurant sales, respectively. Other restaurant operating expenses for the three months ended September 30, 2020 and 2019 totaled $286,689, or 32.3% as a percentage of restaurant sales, and $113,292, or 13.8% as a percentage of restaurant sales, respectively. The $173,397 increase is attributed mainly attributed to marketing expenses of $71,755 incurred to promote the new cloud kitchen, and various increased expenses incurred due to the impact of Covid-19. Depreciation and amortization expense for the three months ended September 30, 2020 and 2019 totaled $80,113 and 59,033, respectively. The $21,080 increase is primarily attributable to depreciation expense related to additional property and equipment acquired for new store build outs and the remodeling of an existing company owned restaurant compared to the prior period. 27 Impairment of intangible asset expense for the three months ended September 30, 2020 totaled $100,000. The impairment was mainly attributed due to the acquisition of franchisee stores to be Company owned stores which reduce future cash flows. In addition, the permanent closures of various franchisee store that were included in the original valuation of the intangible asset also resulted in reduced future cash flows which attributed to the impairment being recognized. General and administrative expenses for the three months ended September 30, 2020 and 2019 totaled $457,282, or 39.7% of total revenues, and $1,514,123, or 136% of total revenues, respectively. The $1,056,841 decrease is primarily attributable to the reversal in stock-based compensation expense of $1,083,893 during the current quarter that was recognized in the first quarter of 2020 as a result of 216,783 shares of restricted stock that were cancelled by the executive team on August 11, 2020 in exchange for no further compensation by the Company. Loss from Operations Our loss from operations for the three months ended September 30, 2020 and 2019 totaled $736,592 or 63.9% of total revenues and $1,396,092 or 125.4% of total revenues, respectively. The decrease of $659,500 in loss from operations is primarily attributable to a decrease in total costs and expenses of approximately $620,413 and an increase in total revenues of approximately $39,087. Other Income (Expense), net Other income (expense), net for the three months ended September 30, 2020 and 2019 totaled $74,512 and ($952,737), respectively. The $1,027,249 decrease in other expense was primarily attributable to a decrease in amortization of debt discounts of $451,310, a $593,972 decrease in interest expense, net as the majority of the convertible notes where converted as of Q4 2019 therefore no further interest expense is being incurred, partially offset by an increase in other expense of $118,033, an increase in a gain on change in fair value of accrued compensation expense of $100,000. Net Loss Our net loss for the three months ended September 30, 2020 decreased by $1,686,749 to ($662,080) as compared to ($2,348,829) for the three months ended September 30, 2019, resulting from a decrease in other expense, net partially offset by an increase in our loss from operations. 28 Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019 The following table represents selected items in our condensed consolidated statements of operations for the Nine Months ended September 30, 2020 and 2019, respectively: For the Nine Months Ended September 30, 2020 2019 Revenues: Company restaurant sales, net of discounts $ 2,758,288 $ 2,438,284 Franchise royalties and fees 569,815 1,126,541 Franchise advertising fund contributions 45,587 116,423 Total Revenues 3,400,690 3,681,248 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 1,067,831 915,063 Labor 1,350,247 966,020 Rent 468,590 283,667 Other restaurant operating expenses 719,601 367,611 Total restaurant operating expenses 3,606,269 2,532,361 Preopening expenses 46,764 - Depreciation and amortization 288,615 190,637 Impairment of intangible asset 100,000 - Other expenses incurred for closed locations - 27,519 Franchise advertising fund expenses 45,587 116,423 General and administrative expenses 6,800,536 3,584,698 Total Costs and Expenses 10,887,771 6,451,638 Loss from Operations (7,487,081 ) (2,770,390 ) Other (Expense) Income: Other (expense) income, net (18,908 ) 3,680 Interest expense, net (114,861 ) (1,262,521 ) Gain on change in fair value of accrued compensation 4,000 - Amortization of debt discounts (38,918 ) (1,345,683 ) Total Other Expense, Net (168,687 ) (2,604,524 ) Loss Before Income Tax (7,655,768 ) (5,374,914 ) Income tax provision - - Net Loss $ (7,655,768 ) $ (5,374,914 ) 29 Revenues Company total revenues totaled $3,400,690 for the nine months ended September 30, 2020 compared to $3,681,248 for the nine months ended September 30, 2019. The $280,558 decrease is attributed to a decrease in franchise royalties and fees, partially offset by an increase in restaurant sales. We generated restaurant sales, net of discounts, of $2,758,288 for the nine months ended September 30, 2020 compared to $2,438,284, for the nine months ended September 30, 2019. This represented an increase of $347,004, or 14.2%, which is attributable to an increase of approximately $1,769,696 in restaurants sales due to additional stores that were open in current period compared to prior period, partially offset by a decrease of approximately $1,422,692 in restaurant sales which resulted from the temporary and permanent closure of one corporate owned stores in the current period as compared to the prior period due to Covid-19. Franchise royalties and fees for the nine months ended September 30, 2020 and 2019 totaled $569,815 compared to $1,126,541, respectively. The $556,726 decrease is primarily attributable to a decrease in initial franchise fees of $127,309 as there were fewer franchisee agreement terminations in the current period as compared to the prior period, a decrease in royalty income of $301,934 due to fewer franchisee locations, due to the impact of Covid-19 that resulted in lower sales and temporary and permanent closures of franchised locations and a decrease in vendor rebates of $127,483 due to lower sales and fewer franchisees in the current period compared to the prior period. Franchise advertising fund contributions for the nine months ended September 30, 2020 and 2019 totaled $45,587 compared to $116,423, respectively. Operating Costs and Expenses Operating costs and expenses primarily consist of restaurant food and beverage costs, restaurant labor expense, restaurant rent expense, other restaurant operating expenses, depreciation and amortization expenses and general and administrative expenses. Restaurant food and beverage costs for the nine months ended September 30, 2020 and 2019 totaled $1,067,831, or 38.3%, as a percentage of restaurant sales, and $915,063, or 37.5%, as a percentage of restaurant sales, respectively. The $152,768 increase primarily is due to a higher store count during the period as compared to the prior period resulting in higher sales and a slight increase in restaurant and food beverage cost as a percentage of sales. Restaurant labor for the nine months ended September 30, 2020 and 2019 totaled $1,350,247, or 48.5%, as a percentage of restaurant sales, and $966,020, or 39.6%, as a percentage of restaurant sales, respectively. The $384,227 increase results primarily due a higher store count during the period as compared to the prior period as the Company opened and acquired more stores as compared to the prior period. In addition, the increase in labor as a percentage of sales is a direct result of inefficiencies that is typically attributed to opening or acquiring new locations as it takes time to establish operational efficiencies. Restaurant rent expense for the nine months ended September 30, 2020 and 2019 totaled $468,590, or 16.8%, as a percentage of restaurant sales, and $283,667, or 11.6%, as a percentage of restaurant sales, respectively. The increase of $184,923 is directly attributed to the acquisition of the two franchise locations and the opening of three cloud kitchen in the current period as compared to the prior period. Other restaurant operating expenses for the nine months ended September 30, 2020 and 2019 totaled $719,601, or 25.8% as a percentage of restaurant sales, and $367,611, or 15.1% as a percentage of restaurant sales, respectively. The $351,990 increase is primarily due to higher third party merchant fees, utility fees and insurance expenses attributed to a higher store count during the period as compared to the prior period as the Company opened three cloud kitchens and acquired more franchisee stores as compared to the prior period. Preopening expense for the nine months ended September 30, 2020, totaled $46,764 resulted from expense incurred prior to the opening of our Company owned store that opened during the second and third quarter of 2020. Depreciation and amortization expense for the nine months ended September 30, 2020 and 2019 totaled $288,615 and $190,637, respectively. The $97,978 increase is primarily attributable to depreciation expense related to additional property and equipment acquired for new store build outs and the remodeling of an existing company owned restaurant compared to the prior period. 30 Impairment of intangible asset expense for the nine months ended September 30, 2020 totaled $100,000. The impairment was mainly attributed due to the acquisition of franchised store to be Company owned stores which reduces future discounted cash flows. In addition, the permanent closures of store included in the original valuation of the intangible asset due to the impact of COVID-19 attributed to the impairment being recognized. General and administrative expenses for the nine months ended September 30, 2020 and 2019 totaled $6,800,536, or 200.0% of total revenues, and $3,584,698, or 97.4% of total revenues, respectively. The $3,215,838 increase is primarily attributable to an increase in salaries and wages of approximately $500,000 which is due to cash bonus earned by employees of approximately $295,000, an increase in consulting expense of approximately $2,064,000 which is mainly attributed to stock-based compensation expense for stock issued to various consultants, an increase in advertising expense of approximately $136,000, $41,480 in write offs of property and equipment for a closed location, an increase in insurance expenses related to being a public company listed on a national exchange of approximately $207,000 and an increase in one-time professional fees of approximately $408,000 mainly due to fees incurred in connection with the Company’s offerings. Loss from Operations Our loss from operations for the nine months ended September 30, 2020 and 2019 totaled $7,487,081 or 220.2% of total revenues and $2,770,390 or 75.3% of total revenues, respectively. The increase of $4,716,691 in loss from operations is primarily attributable to an increase in total costs and expenses of approximately $3,216,000, partially offset by the increase in total revenues of approximately $280,000. The increase in total costs and expenses of approximately $4,717,000 is primarily due to one-time expenses of incurred in connection with our offerings in March and September of 2020, of which approximately $2,126,000 of the expenses consisted of non-cash expenses in the form of stock-based compensation. See details above for more information related to the changes included within total cost and expenses and total revenues. Other Income (Expense), net Other income (expense), net for the nine months ended September 30, 2020 and 2019 totaled ($168,687) and ($2,604,524), respectively. The $2,435,837 decrease in expense was primarily attributable to a decrease in amortization of debt discounts of $1,306,765, a $1,147,660 decrease in interest expense, net as the majority of the convertible notes where converted as of Q4 2020 therefore no further interest expense is being incurred and a $22,588 decrease in other expense, net, partially offset by an increase of $4,000 in the gain on change in fair value of accrued compensation. Net Loss Our net loss for the nine months ended September 30, 2020 increased by $2,280,854 to $7,655,768 as compared to $5,374,914 for the nine months ended September 30, 2019, resulting from an increase in our loss from operations partially offset by an decrease in other expense, net as discussed above. 31 Liquidity and Capital Resources Liquidity We measure our liquidity in a number of ways, including the following: September 30, 2020 December 31, 2019 Cash $ 6,063,811 $ 478,854 Working Capital Surplus (Deficiency) $ 3,062,692 $ (3,707,541 ) Convertible notes payable, net of debt discount of $0 and $38,918, respectively $ 182,458 $ 693,540 Other notes payable, including related party $ 1,119,860 $ 682,807 Availability of Additional Funds and Going Concern Although we have a working capital surplus of $3,062,692, we presently have an accumulated deficit of $60,750,370, as of September 30, 2020, and we utilized $5,462,173 of cash in operating activities during the nine months ended September 30, 2020, therefore we require additional equity and/or debt financing to continue our operations. These conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date of this filing. Our principal source of liquidity to date has been provided by loans and convertible loans from related and unrelated third parties, (ii) the sale of common stock through private placements and the (iii) and the recent closed public offering. The pandemic novel coronavirus (COVID-19) outbreak, federal, state and local government responses to COVID-19 and our Company’s responses to the outbreak have all disrupted and will continue to disrupt our business. In the United States, individuals are being encouraged to practice social distancing, restricted from gathering in groups and in some areas during the first quarter of 2020 continuing through the third quarter of 2020. As a result of the disruption and volatility in the global capital markets, we have seen an increase in the cost of capital which adversely impacts access to capital. On May 9, 2020, the Company entered into 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. The term of the PPP Loan is two years with a maturity date of May 9, 2022 and contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the term of the PPP Loan until November 9, 2020. Principal and interest are payable monthly and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during the eight-week period following the funding of the PPP Loan. The Company believes that it has been using the proceeds of the PPP Loan, for Qualifying Expenses. However, no assurance is provided that the Company will be able to obtain forgiveness of the PPP Loan in whole or in part. We expect 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, we may be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund our liabilities, or (d) seek protection from creditors. In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company. If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties. 32 Our condensed consolidated financial statements included elsewhere in this 10-Q document have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation 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 consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Sources and Uses of Cash for the nine month ended September 30, 2020 and September 30, 2019 During the nine months ended September 30, 2020 and 2019, we used cash of $5,462,173 and $3,296,114, respectively, in operations. Our net cash used in operating activities for the nine months ended September 30, 2020 was primarily attributable to our net loss of $7,655,768, adjusted for net non-cash items in the aggregate amount of $3,100,449 and $906,854 of net cash provided by changes in the levels of operating assets and liabilities. During the nine months ended September 30, 2020, net cash used in investing activities was $559,924, of which $568,733 was used to purchase property and, partially offset by $8,809 of loans collections from franchisees. During the nine months ended September 30, 2019, net cash used in investing activities was $932,422, of which $864,451 was used to purchase property and equipment, $60,186 was used to issue a loan to a former franchisee and $35,116 was used to acquire a former franchisee location, partially offset by $27,331 of loans repayments by franchisees and a related party. Net cash provided by financing activities for the nine months ended September 30, 2020 was $11,607,054 of which an aggregate of $11,720,001 proceeds from the offerings, net of underwriter’s discount and offering costs, $150,000 proceeds from other note payable, $866,300 proceeds from the PPP loan, partially offset by repayments of various convertible notes of $550,000 and $579,247 of repayments of other notes payables, including a related party. Net cash provided by financing activities for the nine months ended September 30, 2019 was $5,854,000 of which an aggregate of $200,000 proceeds from convertible notes, related party and notes payable from other related party and $6,373,000 proceeds from convertible notes to various parties, partially offset by repayments of various convertible notes, including related parties, of $150,000 and $560,000 of repayments of other notes payables, including related parties. 33 Critical Accounting Policies 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. 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 as well as franchise agreements which are amortized over their estimated useful lives of 13 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, we perform 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. 34 Revenue Recognition During the first quarter 2019, the Company adopted Topic 606 “Revenue from Contracts with Customers” for revenue recognition related to contracts with customers and applied the guidance modified retrospectively. Under the new 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 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. The change between Topic 605 and Topic 606, primarily impacted the way the Company recognized franchise fees. Under Topic 605 franchise fees were recognized upon opening of a restaurant or granting of a new franchise term at a point in time while under Topic 606 franchise fees are recognized on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. The impact of the adoption of Topic 606 resulted in an adjustment of $875,902 in accumulated deficit and deferred revenues. 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 $887,922 and $2,785,288 during the three and nine months ended September 30, 2020, respectively. The Company recorded retail store revenues of $821,684 and $2,438,284 during the three and nine months ended September 30, 2019, 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 recognize revenues from gift cards as restaurant revenues once the Company performs 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 Revenue 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 $88,059 and $261,838 during the three and nine months ended September 30, 2020, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company recorded revenue from royalties of $165,412 and $563,772 during the three and nine months ended September 30, 2019, 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 $125,710 and $215,340, respectively, during the three and nine months ended September 30, 2020, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company recorded revenues from franchise fees of $16,132 and $342,649, respectively, during the three and nine months ended September 30, 2019, 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 $37,722 and $92,637 during the three and nine months ended September 30, 2020, respectively, which is included in franchise royalties and fees on the accompanying consolidated statements of operations. The Company recorded revenue from rebates of $71,200 and $220,120 during the three and nine months ended September 30, 2019, 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. 35 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 recoded in other current liabilities on the condensed consolidated balance sheet. For the three and nine months ended September 30, 2020, 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 $13,132 and $45,587, respectively, during the three and nine months ended September 30, 2020, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations. The Company recorded contributions from franchisees of $39,030 and $116,423, respectively, during the three and nine months ended September 30, 2019, which is included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations. Income Taxes We account 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 carryforwards 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. 36 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 our 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. Our policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the condensed consolidated statements of operations. Recently Issued Accounting Pronouncements See Note 3 to our condensed consolidated financial statements for the nine months ended September 30, 2020. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . Not applicable. ITEM 4. CONTROLS AND PROCEDURES . Evaluation of Disclosure Controls and Procedures Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting that existed as of September 30, 2020, as discussed below. As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, we identified the following material weaknesses: ● The Company does not have written documentation of our internal control policies and procedures. ● The Company does not have sufficient resources in its accounting function, which restricts the Company’s ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. ● The Company has inadequate controls to ensure that information necessary to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. ● The Company has significant deficiencies in the design and implementation of IT controls, specifically in the following areas: data center and network operations, access security and change management. As a company with limited resources, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of the financial statements. This action, in addition to future improvements identified above, will minimize any risk of a potential material misstatement occurring. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 37 PART II - OTHER INFORMATION Item 1. Legal Proceedings. From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. We record legal costs associated with loss contingencies as incurred and have accrued for all probable and estimable settlements. We are currently involved in material pending legal proceedings that have been previously disclosed in our filings with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended. Below is a summary of the material legal proceedings that have become a reportable event or which have had material developments during the quarter ended September 30, 2020. In 2017, Limestone Associates LLC (“Limestone”) filed a complaint against ARH in the Civil Court of the City of New York, County of New York, #78549/2017 for commercial non-payment of rent for the amount of $25,748 plus cost and disbursements of this proceeding. In May 2018, Limestone filed a complaint against ARH and Robert E. Morgan (the former CEO of the Company) in the Supreme Court of the State of New York, County of New York, index # 154469 seeking $1,357,243 in damages for rent, interest and other expenses. In May 2018, the Company, Former Parent and Mr. Morgan were listed as defendants to a lawsuit filed by Crownhall Realty, LLC (“Crownhall”) in the Supreme Court of the State of New York county of New York, #154467. Crownhall is seeking $1,034,087 in damages for rent, interest and other expenses. On October 3, 2018, the Company, ARH and Mr. Morgan entered into a settlement agreement with Crownhall and Limestone agreeing to forfeit all security deposits, pay an upfront amount of $25,000 and an additional $175,000 to be paid over 20 months. This agreement settles litigation surrounding two closed locations, which the plaintiffs were seeking a total of $2,391,330 in past damages for rent, interest and other expenses. As of the date of the filing of these condensed consolidated financial statements, the settlement has been paid in full. 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 September 30, 2020, the Company has accrued for the liability in convertible notes payable in the amount of $100,000 and accrued interest of $22,039 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 September 30, 2020, the Company has accrued for the liability in accounts payable and accrued expenses. On December 12, 2018, the Company was listed as a defendant to a lawsuit filed by a landlord in the Superior Court of the State of California. Fountain Valley is seeking approximately $121,000 in damages for rent, interest and other expenses. On February 15, 2019, the Company entered into a settlement agreement and payment plan in the amount of $85,000. The Company agreed to make the following payments (i) $15,000 on or before March 15, 2019, and (ii) ten monthly installments of $7,000 commencing on April 15, 2019 and continuing monthly on the 15th day of each month though January 15, 2020. The Company has accrued for the liability in accounts payable and accrued expenses and has been making repayments pursuant to the settlement agreement. As of January 15, 2020, the Company has met all their obligations and the full amount has been paid. 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 September 30, 2020, 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 September 30, 2020, the Company has accrued for the liability in accounts payable and accrued expenses. 38 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, 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 or its subsidiaries 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 $248,721 and $329,089 which includes penalties and interest as of September 30, 2020 and December 31, 2019, respectively, related to this matter. The Company has completed or is in discussions on payment plans with the various state or local entities for these past owed amounts. Item 1A. Risk Factors. Not applicable. See, however, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results and Financial Condition”) of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on May 29, 2020. We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, 2019. In addition to our discussion in the MD&A, and other sections of this report, to address effects of the COVID-19 pandemic, we have provided an additional risk factor regarding COVID-19 below. The impact of COVID-19 can also exacerbate other risks discussed in the “Risk Factors” sections of our Form 10-K for the year ended December 31, 2019 and this Report, which could in turn have a material adverse effect on us. The risks discussed below and in the “Risk Factors” section in our Form 10-K for the year ended December 31, 2019 do not identify all risks that we face—our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The COVID-19 pandemic has affected our business and could materially adversely affect our financial condition and results of operations and ability to continue as a going concern. In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. In response to the COVID-19 outbreak, “shelter in place” orders and other public health measures have been implemented across much of the United States. 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 quarter ended September 30, 2020. 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. As a result of the pandemic the Company has limited its operations through limiting hours of operations, reduced its capacity and utilized a delivery only concept as mandated by each state and has temporarily closed five of our Company owned locations during the second quarter of 2020. Commencing in the second quarter of 2020 the Company provided royalty relief to its franchisees by deferring half of their royalties earned by the Company through July 2020 and the executive team has deferred a portion of their salaries which is still in effect as of date of the filing of this report. In addition, various franchisee locations had to take similar actions by temporarily closing their locations and limiting their operations as mandated by each state. As of the date of the filing of this report the Company re-opened three of the five temporarily closed locations and closed down one location permanently. 39 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. On February 18, 2020, the Company entered into a professional services agreement with a company to provide advice on business development of food stores and delivery kitchen operations. In addition, they will review and advise the Company on potential acquisition targets, including financial analytics for post-merger entities and provide assistance in preparing pro-forma financial information. The term of the agreement commences from the effective date on February 18, 2020 and expires on February 18, 2021. Pursuant to the terms of the agreement, the Company agreed to issue 300,000 shares of the Company’s common stock and 100,000 three-year cashless warrants with an exercise price of $5.00 per share upon signing of the agreement as payment. The grant date fair value of the warrants of $191,000 was recorded in general and administrative expense as stock-based compensation. The Company rescinded the issuance of 100,000 warrants and 300,000 shares of the Company’s common stock in July 2020 that were issued in the first quarter of 2020, pursuant to a consulting agreement. Although the shares were duly authorized and validly issued, the Company rescinded the stock and warrants as it did not have the required amount of equity authorized under its 2019 Incentive Stock Plan. Following the rescission of the warrants and shares of common stock, the consultant threatened to commence legal proceedings against the Company and demanded the Company to re-issue the 300,000 shares of common stock and 100,000 warrants and to provide the Consultant registration rights. In order to settle and avoid the time commitment and expense associated with potential litigation, the Company and the Consultant entered into a Settlement Agreement (“Settlement Agreement”) on August 11, 2020 whereby the Company agreed to issue 300,000 shares of common stock within 5 five days of entering into the Settlement Agreement. The Company issued these shares and the shares are not issued subject to any equity plan. The Company agreed to register the shares of common stock in consideration of a release by the Consultant. In addition, as part of the Settlement Agreement the Company will issue 100,000 stock options upon the approval of the 2020 Equity Incentive Plan On February 24, 2020, the Company entered into a Consulting Agreement with consultants with experience in the area of corporate finance, investor communication and financial and investor public relations. The term of the agreement is for two months from the effective date on February 27, 2020 and expires on April 27, 2020. Pursuant to the terms of the agreement, the Company agreed to pay $215,000 in cash and to issue 10,000 shares of the Company’s common stock. In the event the Company elects to not extend the term of the agreement, it is to notify the consultants within five days of the conclusion of the 60-day term. The Company did not extend the term of the original agreement. As of September 30, 2020, the company issued the 10,000 shares of common stock and paid the $215,000 in cash pursuant to the terms of the agreement. On April 8, 2020, the Company entered into a professional service agreement with a consultant to provide advice on investor outreach and institutional engagements The Consultants will also provide continuous market insight and interpret our trading activity. The term of the agreement commenced from the execution date and ends on April 1, 2021. Pursuant to the terms, the Company agreed to pay the consultant in the form of non-qualified stock options to acquire 200,000 shares of the Company’s common stock, exercisable at $2.50 per share for a period of one year. The Options are fully vested upon the signing of this agreement. In addition, the option is callable by the Company in the event the market price of its shares close above $3.50 per share for five consecutive dates upon which the consultant will have three days to elect to exercise of forfeit the options. On August 11, 2020, the Company and the consultant entered into an amendment and agreed that the 200,000 non-qualified stock options shall be issued upon the Company’s shareholders approval of its 2020 Incentive Stock Plan. On April 21, 2020 the Company authorized the issuance of an aggregate of 25,616 share of common stock to the members of the board of directors as compensation earned through the end of the fourth quarter of 2019. On April 21, 2020, the Company issued an aggregate of 51,105 shares of common stock in exchange for accrued interest earned on convertible debt with an aggregate fair value of $357,735. On June 1, 2020, the Company issued 5,000 shares of common stock of the Company to a consultant. On June 5, 2020, the Company issued 15,000 shares of common stock of the Company to a digital marketing consultant in exchange for certain services with an aggregate fair value of $46,050. On June 24, 2020 the Company authorized the issuance of an aggregate of 4,340 share of common stock to the members of the board of directors as compensation earned through the end of the first quarter of 2020. On August 21, 2020, the Company issued an aggregate of 53,571 shares of common stock of the Company to various consultants with an aggregate fair value of $200,705. The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us. 40 Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. The Company rescinded the issuance of 100,000 warrants and 300,000 shares of the Company’s common stock in July 2020 that were issued in the first quarter of 2020, pursuant to a consulting agreement. Although the shares were duly authorized and validity issued, the Company rescinded the stock and warrants as it did not have the required amount of equity authorized under its 2019 Incentive Stock Plan. Following the rescission of the warrants and shares of common stock, the consultant threatened to commence legal proceedings against the Company and demanded the Company to re-issue the 300,000 shares of common stock and 100,000 warrants and to provide the Consultant registration rights. In order to settle and avoid the time commitment and expense associated with potential litigation, the Company and the Consultant entered into a Settlement Agreement (“Settlement Agreement”) on August 11, 2020 whereby the Company agreed to issue 300,000 shares of common stock within 5 five days of entering into the Settlement Agreement. These shares will not be issued subject to any equity plan. The Company agreed to register the shares of common stock in consideration of a release by the Consultant. In addition, as part of the Settlement Agreement the Company will issue 100,000 stock options upon the approval of the 2020 Equity Incentive Plan. On August 11, 2020, various members of the executive team entered into an agreement individually with the Company to cancel an aggregate of 216,783 shares of restricted common stock of the Company previously issued in the first quarter of 2020 and acknowledge that no further compensation is due under their employment agreements. 41 Item 6. Exhibits. Exhibit No. Exhibit Description 3.1 Certificate of amendment to Articles of Incorporation of Muscle Maker, Inc., a Nevada corporation 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document* 101.SCH XBRL Schema Document* 101.CAL XBRL Calculation Linkbase Document* 101.DEF XBRL Definition Linkbase Document* 101.LAB XBRL Label Linkbase Document* 101.PRE XBRL Presentation Linkbase Document* † Includes management contracts and compensation plans and arrangements *Filed herewith. +Previously filed. 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 16, 2020 MUSCLE MAKER, INC. By: /s/ Michael J. Roper Michael J. Roper Chief Executive Officer (Principal Executive Officer) By: /s/ Ferdinand Groenewald Ferdinand Groenewald Chief Financial Officer (Principal Financial and Accounting Officer) 43