Sadot Group Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Transactions in our common stock are currently reported under the symbol “GRIL” on the NASDAQ market as of April 15, 2021. Transfer Agent Our transfer agent is Computershare, Inc, 462 South 4th Street, Suite 1600, Louisville, KY 40202, and its telephone number is 1-877-373-6374. Holders As of April 15, 2021, there were 908 holders of record of our common stock. Dividends We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Warrants As of December 31, 2020, and 2019, we had warrants to purchase an aggregate of 2,582,857 and 2,450,287 shares of common stock, respectively, outstanding with a weighted average exercise price of $4.08 and $5.51 per share, respectively. Securities Authorized for Issuance Under Equity Compensation Plans Equity Compensation Plan Information The following table provides information, as of April 15, 2021 with respect to equity securities authorized for issuance under compensation plans: Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options under the Plan (a) Weighted-Average Exercise Price of Outstanding Options under the Plan (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in Column (a)) (c) Equity compensation plans approved by security holders 0 $ - 1,057,173 Equity compensation plans not approved by security holders 0 $ - - TOTAL 0 $ - 1,057,173 42 Unregistered Sales of Equity Securities and Use of Proceeds Issuance of Stock The Company rescinded the issuance of 100,000 warrants and 300,000 shares of the Company’s common stock in July 2020 that were issued in the first quarter of 2020, pursuant to a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 Although the shares were duly authorized and validity issued, the Company rescinded the stock and warrants as it did not have the required amount of equity authorized under its 2019 Incentive Stock Plan.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 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 $107,500 in cash per month 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. On February 17, 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 February 18, 2020, the Company issued an aggregate of 216,783 shares of common stock of the Company to the executive team pursuant to their employment agreements as part of completing the initial public offering. On August 11, 2020, the shares were returned to the Company for cancellation. On March 31, 2020, the Company issued 75,000 shares of common stock of the Company to a consultant that assisted the Company in area of investor relations and capital introduction. 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 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. On November 5, 2020, the Company issued 53,763 shares of common stock of the Company to a consultant with a fair value of $100,000. On November 30, 2020, the Company issued 82,500 shares of common stock of the Company to a consultant with a fair value of $176,138. 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. On February 3, 2021, the Company issued an aggregate of 20,000 shares of common stock of the Company to a digital marketing consultant with an aggregate fair value of $42,600. On February 3, 2021, the Company issued an aggregate of 16,126 shares of common stock of the Company to the members of the board of directors as compensation earned through the end of the fourth quarter of 2020. On February 7, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultant to provide the Company with business and marketing advice as needed. The term of the agreement is for five months from the effective date on February 7, 2021. Pursuant to the terms of the agreement the Company agreed to pay the consultant a total of 100,000 shares of the Company’s common stock. The Company issued 60,000 shares of common stock upon the effective date of the agreement with the remaining 40,000 to be issued upon the successful completion of the agreement. On February 11, 2021, the Company issued an aggregate of 221,783 shares of common stock the Company to various executives and an employee pursuant to the approval of the compensation committee under the 2020 Plan. On March 8, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultant to provide the Company with financial and business. The term of the agreement is for five months from the effective date on March 8, 2021. Pursuant to the terms of the agreement the Company agreed to pay the consultant a total of 100,000 shares of the Company’s common stock. The Company issued 70,000 shares of common stock upon the effective date of the agreement with the remaining 30,000 to be issued upon the successful completion of the agreement. On March 22, 2021, the Company entered into a Consulting Agreement with consultants with experience in the area of investor relations and capital introductions. The term of the agreement is for six months from the effective date on March 22, 2021. Pursuant to the terms of the agreement the Company agreed to pay $250,000 in cash for ancillary marketing, to be paid out at the Company’s discretion. In addition, the Company issued 150,000 shares of the Company’s common stock as a commencement incentive which is fully earned by entering into the agreement. On March 25, 2021, the Company entered into an asset purchase agreement with Superfit Foods, LLC a Florida limited liability company and Superfit Foods LLC, a Nevada limited liability company (the “Superfit Acquisition”). The purchase price of the assets and rights was $1,150,000. The purchase price is payable as follows: $475,000 that was paid at closing and the remaining $625,000 paid in 268,240 shares of common stock to be held for six months before being registered. On March 31, 2021, the Company authorized the issuance of an aggregate of 12,711 shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2021. On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4,115,227 shares of Common Stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of Common Stock (the “Pre-Funded Warrant”). Each share and accompanying Common Warrant is being sold together at a combined offering price of $2.43 per share and Common Warrant, and each Pre-Funded Warrant and accompanying Common Warrant is being sold together at a combined offering price of $2.42 per Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrant is immediately exercisable, at a nominal exercise price of $0.01 per share, and may be exercised at any time until the Pre-Funded Warrant is fully exercised. The Common Warrant will have an exercise price of $2.43 per share, are immediately exercisable and will expire five and one-half (5.5) years from the date of issuance. The Private Placement closed on April 9, 2021. Issuer Purchases of Equity Securities None. ITEM 6 . SELECTED FINANCIAL DATA . We are not required to provide the information required by this item because we are a smaller reporting company. 43 ITEM 7 . 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 December 31, 2020 and 2019 and for the years ended December 31, 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 Annual Report on Form 10-K following Item 16. 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 Annual 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 Annual 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. Reference is made to “Factors That May Affect Future Results and Financial Condition” in this Item 7 for a discussion of some of the uncertainties, risks and assumptions associated with these statements. OVERVIEW We operate under the name Muscle Maker Grill as a franchisor and owner-operator of Muscle Maker Grill and Healthy Joe’s restaurants. In addition to these restaurants, the Company also operates with the following brand names under our ghost kitchen model: Meal Plan AF, Muscle Maker Burger Bar, Bowls Deep, Burger Joe’s, Wrap It Up, Salad Vibes and Gourmet Sandwich. Our direct mail to consumer meal prep/plan program operates under the musclemakerprep.com website. As of December 31, 2020, our restaurant system included sixteen company-owned restaurants and sixteen franchised restaurants. In addition, the Company built four new location on university campuses but due to Covid-19 restrictions have not yet open these locations but incurred expenses during the twelve months ended December 31, 2021. 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, hamburgers, 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 healthy-inspired restaurant concepts such as Muscle Maker Grill. We believe our healthy-inspired 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. 44 As of December 31, 2020, we had an accumulated deficit of $63,193,707 and expect to continue to incur substantial operating and net losses for the foreseeable future. In its report on our consolidated financial statements for the fiscal year ended December 31, 2020, 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. 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 ten locations in total with four initial locations starting in the Chicago market, two locations in the Philadelphia market, one location in the Providence market, two locations in the Miami market and one location in the New York market. In addition, the Company has placed deposits for an additional five locations to be determined. The Kitchen Services Agreement provides 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 locations range from $3,000 to $6,000. 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 seven of the ten locations have been opened with the Miami and New York locations anticipated to be opened in 2021. The company continued its expansion into non-traditional locations within the military. The company opened a military location in May 2020 at the Marine base Camp Elmore. As part of the non-traditional location growth strategy, the Company entered into an agreement and announced on June 1, 2020, its expansion with the Northern Virginial Community College system to open 4 locations on various campus locations. These locations were built in 2020 with the anticipation of opening in the fall semester of 2020. However, due to covid-19 restrictions, these locations were temporarily closed and plan to re-open in summer of 2021 as students are allowed back on campus. These locations are based on a variable lease determined on monthly sales thus limiting the ongoing costs associated with these locations. The Company also has a lease agreement to build out a location on the Texas Tech Medical Center Campus in El Paso Texas. We anticipate building this location in 2021. On November 11, 2020, the company announced an agreement with Happy Meal Prep to offer Muscle Maker meal prep/plans to consumers via direct- to-consumer shipments of over 40 meal prep/plan options. This program allows shipments of up to a 250-mile radius around participating locations increasing the total number of potential consumers who can enjoy Muscle Maker Grill meals. The company plans on making a greater push in the direct-to-consumer market meal prep/plan strategy in 2021 as an alternate, non-traditional approach to delivering or products to consumers. The company purchased two franchise locations in 2020. One location was in Philadelphia and one location was in the Chelsea area of New York. The company will continue to expand ghost kitchen options within existing Muscle Maker Grill restaurants to better leverage labor, equipment, ingredients, etc. This expansion allows greater consumer options and relies strictly on third-party delivery options. This approach is distinctly different than the stand along ghost kitchen model in that these ghost kitchens are ran through an existing Muscle Maker Grill location versus opening a stand along ghost kitchen. 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 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 issued 100,000 stock options upon the approval of the 2020 Equity Incentive. 45 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. 46 Depreciation and Amortization Depreciation and amortization primarily consist of the depreciation of property and equipment and amortization of intangible assets. Other Expenses Incurred for Closed Locations Other expenses incurred for closed locations consists primarily of restaurant operating expenses incurred subsequent to store closures, relating to ongoing obligations to vendors under signed agreements. 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 the 2020 IPO, the secondary offering and the added cost associated with being a public company. A certain portion of these expenses are related to the preparation of an initial and second stock offering and should be considered one-time expenses. Other (Expense) Income Other (expenses) income consists of amortization of debt discounts on the convertible notes, interest expense related to convertible notes payable, inducement expense and warrant modification expense related to the conversion of convertible notes payable which was incurred by the Company in order to induce various note holders to convert approximately $9.5 million dollars of debt on our books into our common stock. Income Taxes Income taxes represent federal, state, and local current and deferred income tax expense. 47 Consolidated Results of Operations The following table represents selected items in our consolidated statements of operations for the years ended December 31, 2020 and 2019, respectively: For the Years Ended December 31, 2020 2019 Revenues: Company restaurant sales, net of discounts $ 3,672,944 $ 3,466,553 Franchise royalties and fees 739,450 1,352,944 Franchise advertising fund contributions 61,053 139,508 Total Revenues 4,473,447 4,959,005 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 1,467,799 1,275,894 Labor 1,955,088 1,587,889 Rent 691,986 449,384 Other restaurant operating expenses 1,099,831 634,532 Total restaurant operating expenses 5,214,704 3,947,699 Depreciation and amortization 422,546 280,955 Impairment of intangible assets 100,000 - Franchise advertising fund expenses 61,053 139,508 Preopening expenses 56,362 - General and administrative expenses 8,576,231 4,244,848 Total Costs and Expenses 14,430,896 8,613,010 Loss from Operations (9,957,449 ) (3,654,005 ) Other Expenses: Other income 27,143 839 Interest expense, net (115,881 ) (1,576,547 ) Change in fair value of accrued compensation (14,000 ) - Inducement expense related to convertible notes - (15,102,206 ) Warrant modification expense - (5,405,770 ) Amortization of debt discounts (38,918 ) (2,647,355 ) Total Other Expenses, net (141,656 ) (24,731,039 ) Net Loss Before Income Tax (10,099,105 ) (28,385,044 ) Income tax provision - - Net Loss $ (10,099,105 ) $ (28,385,044 ) 48 Year Ended December 31, 2020 Compared with Year Ended December 31, 2019 Revenues Our revenues totaled $4,473,447 for the year ended December 31, 2020 compared to $4,959,005 for the year ended December 31, 2019. The $485,558.66 decrease is attributed to a decrease in franchise royalties and fees, partially offset by an increase in restaurant sales. We generated company restaurant sales, net of discounts, of $3,672,944 for the year ended December 31, 2020 compared to $3,466,553, for the year ended December 31, 2019. This represented an increase of $206,391, or 6.0%, which is attributable to restaurants sales from additional stores that were open during the current year ended compared to the prior year, partially offset by a decrease in restaurant sales which resulted from the temporary and permanent closure of two corporate owned stores during the current year as compared to the prior year due to Covid-19. Franchise royalties and fees for the year ended December 31, 2020 and December 31, 2019 totaled $739,450 compared to $1,352,944, respectively. The $613,494 decrease is primarily attributable to a decrease in initial franchise fees of $113,351 as there were fewer franchisee agreement terminations in the current year as compared to the prior year, a decrease in royalty income of $356,614 and a decrease in vendor rebates of vendor rebates of $143,529 due to fewer franchisee locations, primarily as a result of the impact of Covid-19 which resulted in lower sales and temporary and permanent closures of franchised locations current year compared to the prior year. Franchise advertising fund contributions for the years ended December 31, 2020 and 2019 totaled $61,053 compared to $139,508, 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 year ended December 31, 2020 and December 31, 2019 totaled $1,467,799 or 40.00% as a percentage of company restaurant net sales, and $1,275,894 or 36.81%, as a percentage of company restaurant net sales, respectively. The $191,905 increase resulted from higher store count during the current year as compared to the prior year resulting in higher sales and a slight increase in restaurant and food beverage cost as a percentage of sales. The percentage increase is attributable to rising food costs, lower rebates and operational inefficiencies attributed to opening or acquiring new locations as it takes time to establish operational efficiencies. In addition, food waste increased as sales decreased due to the impact of Covid-19 on overall restaurants sales. Restaurant labor for the year ended December 31, 2020 and December 31, 2019 totaled $1,955,088, or 53.20%, as a percentage of company restaurant net sales, and $1,587,889, or 45.81%, as a percentage of company restaurant net sales, respectively. The $367,199 increase resulted primarily due a higher store count during the current year as compared to the prior year 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. 49 Restaurant rent expense for the year ended December 31, 2020 and December 31, 2019 totaled $691,986, or 18.8% as a percentage of restaurant sales, and $449,384, or 12.96%, as a percentage of restaurant sales, respectively. The increase of $242,602 is directly attributed to the acquisition of the two franchise locations and the opening of four cloud kitchen in the current year as compared to the prior year. In addition, rent as a percentage of sales increased due to the temporary closure of restaurants due to Covid-19 while rent payments were still made as per various leases. Other restaurant operating expenses for the year ended December 31, 2020 and December 31, 2019 totaled $1,099,831, or 29.90% as a percentage of restaurant sales, and $634,532, or 18.30% as a percentage of restaurant sales, respectively. The $465,299 increase is due to higher third-party merchant fees resulting from an increase in delivery orders and a higher sore count during the year as compared to the prior year resulting in an increase in utility fees and insurance expenses. Depreciation and amortization expense for the year ended December 31, 2020 and December 31, 2019 totaled $422,546 and $280,955, respectively. The $141,591 increase is attributable to depreciation expense related to additional property and equipment acquired for new store build outs and the remodeling of an existing and acquired company owned restaurant compared to the prior year. Impairment of intangible assets for the year ended December 31, 2020 totaled $100,000. The impairment of the franchisee agreement was attributed due to the acquisition of franchised stores, initially included in the valuation of the franchisee agreement intangible, 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. Preopening expense for the years ended December 31, 2020, totaled $56,362 resulted from expense incurred prior to the opening of our new Company owned store that opened during the year ended December 31, 2020. General and administrative expenses for the year ended December 31, 2020 and December 31, 2019 totaled $8,576,231, or 191.70% of total revenue, and $4,244,848, or 85.60% of total revenue, respectively. The $4,331,383 increase is attributable to an increase in salaries and wages of approximately $822,000 which is due to cash bonus earned by employees of approximately $295,000, an increase in consulting expense of approximately $2,196,000 which is mainly attributed to stock-based compensation expense for stock issued to various consultants for services, an increase in advertising expense of approximately $141,000 to promote our new and existing locations, $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 $289,000 and an increase in one-time professional fees of approximately $982,000 mainly due to fees incurred in connection with the Company’s offerings. Partially offset by a decrease in various other expenses incurred during the current year as compared to the prior year. 50 Loss from Operations Our loss from operations for the year ended December 31, 2020 and December 31, 2019 totaled $9,957,449, or 222.6% of total revenues and $3,654,005, or 73.68% of total revenue, respectively. The increase of $6,303,444 in loss from operations is primarily attributable to an increase in total costs and expenses of approximately $5,818,000, partially offset by the increase in total revenues of approximately $486,000. The increase in total costs and expenses of approximately $5,818,000 is primarily due to one-time expenses incurred in connection with our offerings in March and September of 2020, of which approximately $2,196,000 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 Expense Other expense for the year ended December 31, 2020 and December 31, 2019 totaled $141,656 and $24,731,039, respectively. The $24,589,383 decrease in expense was primarily to a decrease in inducement expense related to the convertible notes payables of approximately $15,102,000 that was incurred by the Company in order to induce various note holders to convert approximately $9.5 million dollars of debt on our books into our common stock in the prior year as compared to the current period. In addition, due to a decrease in warrant modification expense of approximately $ 5,406,000 as part of the amendments to induce the note holders to convert their notes into our common stock in the prior year as compared to the current period. The remaining decrease in expense is attributed to a decrease in amortization of debt discount of $2,608,437, a decrease of $1,460,666 in interest expense, net as the majority of the convertible notes were converted during the prior year therefore no further interest expense is being incurred in the current year. Net Loss Our net loss for the year ended December 31, 2020 decreased by $18,285,939 to $10,099,105 as compared to $28,385,044 for the year ended December 31, 2019, resulting from an increase in our loss from operations offset by a decrease in other expense as discussed above. Liquidity and Capital Resources Liquidity We measure our liquidity in a number of ways, including the following: December 31, 2020 December 31, 2019 Cash $ 4,195,932 $ 478,854 Working Capital Surplus (Deficiency) $ 1,383,568 $ (3,707,541 ) Convertible notes payable, including related parties and Former Parent, net of debt discount of $0 and $38,918, respectively $ 182,458 $ 693,540 Other notes payable, including related parties $ 1,276,692 $ 682,807 51 Availability of Additional Funds and Going Concern Although we have a working capital surplus of $1,383,568, we presently have an accumulated deficit of $63,193,707, as of December 31, 2020, and we utilized $7,785,873 of cash in operating activities during the year ended December 31, 2020. 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 fourth 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 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. 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 and the Company issued the 494,177 shares of common stock. 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 ten months of the term of the PPP Loan if the Company did not apply for forgiveness on 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 intends to use the proceeds of the PPP Loan, when received, 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. The company has filed for loan forgiveness but as of the date of this filing has not received a response. The expenses to qualify for the PPP loans are recorded in the 2020 financials as the company made efforts to employ personnel as per the PPP program intentions. The corresponding loan amount of $866,300 was not recognized as other income until the PPP loans are deemed forgivable. 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. 52 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. Our audited consolidated financial statements included elsewhere in this 10K 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 Years Ended December 31, 2020 and December 31, 2019 For the year ended December 31, 2020 and 2019, we used cash of $7,785,873 and $4,504,226, respectively, in operations. Our cash used for the year ended December 31, 2020 was primarily attributable to our net loss of $10,099,105, adjusted for net non-cash income in the aggregate amount of $3,556,516, partially offset by $1,243,284 of net cash provided by changes in the levels of operating assets and liabilities. Our cash used for the year ended December 31, 2019 was primarily attributable to our net loss of $28,385,044, adjusted for net non-cash income in the aggregate amount of $24,270,492, partially offset by $389,674 of net cash provided by changes in the levels of operating assets and liabilities. During the year ended December 31, 2020, cash used in investing activities was $850,334, of which $781,041 was used to purchase property and equipment, $75,000 used in connection with the acquisition of a new company stores from former franchisees and $5,707 was collected from loans to franchisees and related parties net of loan issuances. During the year ended December 31, 2019, cash used in investing activities was $1,520,569, of which $1,161,625 was used to purchase property and equipment, $60,186 which was used for the issuances of loans receivables, $335,116 used in connection with the acquisition of two new company stores from former franchisees and $36,358 was collected from loans to franchisees and related parties net of loan issuances. Net cash provided by financing activities for the year ended December 31, 2020 was $11,720,001 proceeds from the offerings, net of underwriter’s discount and offering costs, $764,399 proceeds from the over-allotment, 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 $597,415 of repayments of other notes payables, including a related party. Net cash provided by financing activities for the year ended December 31, 2019 was $6,145,807 of which $100,000 proceeds were from convertible notes from other related parties, $6,373,000 proceeds from convertible notes to various parties, $300,000 proceeds from other notes payable, offset by $718,193 repayments of convertible notes payable and other note payable. 53 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 issued in connection with notes payable; ● 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 franchise agreements which are amortized on a straight-line basis 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. 54 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 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 $3,672,944 and $3,466,553 during the years ended December 31, 2020 and 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 $331,694 and $688,308 during the years ended December 31, 2020 and 2019, respectively, which is included in franchise royalties and fees on the accompanying consolidated statements of operations. The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for the multi-unit development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee, these fees are then recognized as franchise fee revenue on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. The Company recorded revenue from franchise fees of $277,255 and $390,606 during the years ended December 31, 2020 and 2019, respectively, which is included in franchise royalties and fees on the accompanying consolidated statements of operations. 55 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 $130,501 and $274,030 during the years ended December 31, 2020 and 2019, respectively, which is included in franchise royalties and fees on the accompanying consolidated statements of operations. Rebates earned on purchases by Company owned stores are recorded as a reduction of food and beverage costs during the period in which the related food and beverage purchases are made. Other Revenues Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption. Gift card liability is recorded in other current liabilities on the consolidated balance sheet. For the years ended December 31, 2020 and 2019, 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 $61,053 and $139,508, respectively, during the years ended December 31, 2020 and 2019, which are included in franchise advertising fund contributions on the accompanying 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. 56 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 consolidated statements of operations. Recently Issued Accounting Pronouncements See Note 3 to our consolidated financial statements for the year ended December 31, 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 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . Not applicable.