Sadot Group Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES . (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), as of the end of the period covered by this Annual Report. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were not effective because of a material weakness in our internal control over financial reporting as discussed below. 57 Notwithstanding this material weaknesses, our Chief Executive Officer and Chief Financial Officer have concluded that the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019 and the consolidated results of operations and cash flows for each of the fiscal years presented herein in conformity with U.S. generally accepted accounting principles. (b) Management’s Annual Report on Internal Control Over Financial Reporting Our management assessed the effectiveness of the Company’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), as of December 31, 2020. The framework used by management in making the assessment was the criteria set forth in the document entitled “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of December 31, 2020, the Company’s internal control over financial reporting was not effective for the purpose for which it is intended and determine there to be a material weakness. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404(a). The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Principal Executive Officer and Principal Financial Officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with United States generally accepted accounting principles. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with US GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, we identified the following material weaknesses in our internal control over financial reporting as of December 31, 2020: ● 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. 58 Remediation of Material Weaknesses in Internal Control over Financial Reporting 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. (c) Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter of the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None. 59 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . Board of Directors and Executive Officers Our directors hold office until their successors are elected and qualified, or until their deaths, resignations or removals. Our executive officers hold office at the pleasure of our board of directors, or until their deaths, resignations or removals. As of April 15, 2021, our current directors and executive officers and their ages are: Name Age Principal Positions Held With Us Kevin Mohan 47 Chief Investment Officer and Chairman of the Board Michael J. Roper 56 Chief Executive Officer, Secretary Kenneth Miller 51 Chief Operating Officer Ferdinand Groenewald 36 Chief Financial Officer Aimee Infantee 33 Chief Marketing Officer Stephen A. Spanos* 58 Director A.B. Southall III 59 Director Paul L. Menchik 73 Director Peter S. Petrosian 68 Director Jeff Carl 65 Director Major General (Ret) Malcolm B. Frost+ 54 Director Philip Balatsos+ 43 Director *Appointed to the Board of Directors on February 6, 2020 +Appointed to the Board of Directors on October 27, 2020 Executive Officers Kevin Mohan. Mr. Mohan has served as Chairman of the Board and a director of Muscle Maker, Inc. since April, 2018. From April, 2018 through May, 2018, he also served as our Interim President. He has also served as the Chief Investment Officer since May, 2018. From June 2012 through January, 2018, Mr. Mohan served as the VP of Capital Markets for American Restaurant Holdings, Inc., a company focused on acquiring and expanding fast casual restaurant brands. Based on his experience we have deemed Mr. Mohan fit to serve on the Board and as Chairman of the Board. Michael J. Roper. Mr. Roper has served as Chief Executive Officer, of Muscle Maker, Inc. since May 1, 2018. Mr. Roper has unique experience ranging from owning and operating several franchise locations through the corporate executive levels. From May 2015 through October 2017, Mr. Roper served as Chief Executive Officer of Taco Bueno where he was responsible for defining strategy and providing leadership to 162 company-owned and operated locations along with 23 franchised locations. From March 2014 through May 2015, Mr. Roper served as the Chief Operating Officer of Taco Bueno and from July 2013 through March 2014 as the Chief Development and Technology Officer of Taco Bueno. Prior to joining Taco Bueno, Mr. Roper was a franchise owner and operator of a IMS Barter franchise and held several roles with Quiznos Sub from 2000 to 2012 starting as a franchise owner and culminating in his appointment as the Chief Operating Officer/Executive Vice President of Operations in 2009. Mr. Roper received a Bachelor of Science in Business and General Management from Northern Illinois University. 60 Based on his education and extensive experience in the restaurant/franchise industry, we have deemed Mr. Roper fit to serve as our principal executive officer. Kenneth Miller. Mr. Miller has served as Chief Operating Officer of Muscle Maker, Inc. since September 2018. Mr. Miller has served in the restaurant business for an extensive portion of his career. Prior to joining us as Chief Operating Officer in September, 2018, Mr. Miller served as the Senior Vice President of Operations for Dickey’s BBQ Restaurant from April 2018 through September 2018 and in various capacities with Taco Bueno Restaurants, LP from October 2013 through April 2018 culminating in the position of Senior Vice President of Operations. Mr. Miller received a Bachelor of Arts in Business/Exercise Science from Tabor College in 1991. Based on his education and extensive experience in the restaurant/franchise industry, we have deemed Mr. Miller fit to serve as our Chief Operating Officer. Ferdinand Groenewald. Mr. Groenewald has served as the Chief Financial Officer of Muscle Maker, Inc. since September 2018. Mr. Groenewald had previously served as our Vice President of Finance, Principal Financial Officer and Principal Accounting Officer, Muscle Maker Development, LLC and Muscle Maker Corp., LLC from January 25, 2018 through May 29, 2018. In addition, Mr. Groenewald has served as our controller from October 2017 through May 29, 2018. Mr. Groenewald is a certified public accountant with significant experience in finance and accounting. From July 2018 through August 2018, Mr. Groenewald serves as senior financial reporting accountant of Wrinkle Gardner & Company, a full service tax, accounting and business consulting firm. From February 2017 to October 2017, Mr. Groenewald served as Senior Financial Accounting Consultant at Pharos Advisors, Inc. serving a broad range of industries. From November 2013 to February 2017, he served as a Senior Staff Accountant at Financial Consulting Strategies, LLC where he provided a broad range of accounting, financial reporting, and pre-auditing services to various industries. From August 2015 to December 2015, Mr. Groenewald served as a Financial Reporting Analyst at Valley National Bank. Mr. Groenewald holds a Bachelor of Science in accounting from the University of South Africa. Based on his education and extensive experience in the financial and accounting industries, we have deemed Mr. Groenewald fit to serve as our Chief Financial Officer. Aimee Infante. Ms. Infante has served in various roles with us since 2014 starting as Marketing and Communications Manager in October 2014 and then as a Marketing Director from February 2015 through April 2016. Ms. Infante was then promoted to Vice President of Marketing in April 2016 prior to her appointment as Chief Marketing Officer in May 2019. Prior to joining us, Ms. Infante served in various marketing roles including Regional Marketing Manager for Qdoba Mexican Grill from November 2010 through April 2014. Ms. Infante holds a Bachelor of Science in Marketing from Rider University. Stephen A. Spanos. Mr. Spanos has served as director of Muscle Maker, Inc. since February 2020. Since 2013, Mr. Spanos has provided financial and accounting consulting services for both privately held and public companies. From 2009 to 2013, Mr. Spanos served as the Chief Financial Officer of Orion Seafood International, Inc., a marketer of frozen lobster products, and as the Controller of Reef Point Systems, a provider of security solutions for converged wireless and wireline networks in the United States, from 2005 to 2013. Mr. Spanos served as an audit manager for BDO USA, LLP and as an auditor for Ernst & Young. Mr. Spanos received his MBA and BS in Business Administration, Accounting and Financing in 1995 and 1985, respectively, from Boston University. Based on his education and extensive experience in financial and accounting matters, we have deemed that Mr. Spanos is fit to serve on the Board. 61 A.B. Southall III. Mr. Southall has served as director of Muscle Maker, Inc. since February 2017. He has over 35 years of experience managing construction and land developing businesses. From December 1997 until December 2017 he was the President of a custom home building company. From March 2011 to current, Mr. Southall has been the President of Third Generation Builders, Inc. In addition, since 2001, Mr. Southall has been the President of Southall Landings Marina, Inc., a 189 boat slip marina complex. His involvement in the marina business led him to co-found a local Waterway Association. He has diversely invested across multiple sectors including private placements, oil & gas, real estate, restaurant businesses and commodities. Mr. Southall is an advocate of a healthy approach to the food industry and the restaurant business. Based on his vast business and financial experience with real estate and restaurants, we have deemed Mr. Southall fit to serve on the Board. Paul L. Menchik. Mr. Menchik has served as director of Muscle Maker, Inc. since February 2017. Since 1986, Mr. Menchik has been Professor of Economics at Michigan State University where he has been Department chairperson and Director of Graduate Programs. He has served as Senior Economist for Economic Policy for the White House Office of Management and Budget (where among other matters he worked on Social Security solvency issues) and served as Visiting Scholar at the Tax Analysis Division of the Congressional Budget Office. Menchik has also been on the faculty of Rutgers University and the University of Wisconsin and has served as visiting faculty at University of Pennsylvania, London School of Economics, University College London, and Victoria University in Wellington New Zealand. Over the years he has advised three state governments and five United States government agencies. He holds a Ph.D. from the Wharton School of Finance and Commerce at the University of Pennsylvania. He has over 40 publications including a book on household and family economics, made over 85 paper presentations at other universities and conferences around the world and has refereed for over 20 academic journals and is currently a member of the editorial board for the Journal of Income Distribution. He is a member of Who’s Who in Economics and Who’s Who in America. Based on his education and extensive experience in economic and financial matters, we have deemed Mr. Menchik fit to serve on the Board. Peter S. Petrosian. Mr. Petrosian has served as director of Muscle Maker, Inc. since May 2018. Mr. Petrosian is a senior level food service executive with diversified leadership experience in casual dining, contract management, quick service and quick casual segments with a background in growth and turnaround situations, demonstrated expertise in operations, mergers and acquisitions, profit improvement, strategic planning and business development. Since 2005 to the present, Mr. Petrosian owned and operated PSP Management Consulting providing interim executive support in areas of organizational development, business, franchise and operational planning and valuation assistance to private equity firms in the restaurant industry. From November 2013 to January 2017, Mr. Petrosian served as the Chief Development Officer of Franchise Sports Concepts, LLC, a franchisor of Beef ‘O’ Brady’s and the Brass Tap. From April, 2007 to November, 2013, Mr. Petrosian was the Chief Operation Officer of Steak-Out Franchising, Inc., a franchisor of a char-broiled steak and full meal delivery concept. Prior to 2007, Mr. Petrosian held various positions with McAlister’s Corporation, AFC Enterprises (Church’s Chicken), Service America Corporation (wholly owned subsidiary of GE Capital) and Marriott Corporation. Based on his experience with various restaurant concepts and senior executive level positions, we have deemed Mr. Petrosian fit to serve on the Board. Jeff Carl. Mr. Carl has served as director of Muscle Maker, Inc. since September 3, 2019. Since February, 2017, Mr. Carl has served as Executive Director of Nice & Company, an ad agency with a focus on print, TV, digital, experiential and mobile, and as an independent consultant to the restaurant industry. From June, 2013 to January, 2017, Mr. Carl served as the Chief Marketing Officer for Taco Bueno Restaurants and from 2009 to 2013 as the Chief Marketing Officer of Tavistock Restaurants LLC. Mr. Carl received a BA from Wake Forest University in 1977 and a MBA from University of North Carolina Chapel Hill in 1979. Based on his experience within the restaurant industry and due to the fact that he has held senior level executive positions with a focus on advertising and marketing, we have deemed Mr. Carl a fit to serve on the Board. 62 Major General (Ret) Malcolm B. Frost. Maj. Gen (Ret) Frost has 31 years of military experience providing large-scale strategic and operational leadership and oversight in the Indo-Asia-Pacific, Middle East, Europe, and the United States for the United States Army - successfully leading the evolution of soldier training programs in peace and war from platoon through 2-star command level. Maj. Gen. (Ret) Frost has been deployed to combat several times in a variety of leadership and command positions. Since 2019, Maj. Gen. (Ret) Frost served as Executive Consultant for Fortune 500 and larger corporations through Malcolm Frost and Associates LLC. From 2015 through 2019, Maj. Gen. (Ret) Frost served as the Commanding General for the US Army Training and Doctrine Command located at Fort Eustis, Virginia and as the Chief of Public Affairs for the US Army Headquarters based in Washington, DC. Maj. Gen. (Ret) Frost also served as the Deputy Commanding General for Support for the US Army, Deputy Director of Operations for the US Department of Defense and the Director of Operations for the US Army Pacific Headquarters. He deployed to Bosnia-Hercegovina as a company commander in 1995 and deployed twice to Iraq as commander of an 800 person Cavalry Squadron operating in Tal Afar during the Surge in 2006-7, and as commander of a 5K person Stryker Brigade Combat Team operating in Diyala, Salah ad Din, and Kirkuk provinces in 2010-11. Additionally, he deployed as Director of Operations of a 4,000 person airborne brigade task force in Afghanistan in 2002-3. In addition to a Bachelor of Science Degree in Human Resources Management from the United States Military Academy at West Point, Maj. Gen. (Ret) Frost holds advanced degrees from Webster University and the U.S. Army War College in Human Resources Development and National Security Strategy, respectively. He is the recipient of the Distinguished Service Medal x2, Defense Superior Service Medal, Legion of Merit x3, Bronze Star Medal x3, Air Medal, Army Commendation Medal x6 including one for Valor, Combat Infantryman Badge, Master Parachutist Badge and Ranger Tab. He is a Certified Project Director and is the recipient of the U.S. Department of State Meritorious Honor Award for reconstruction, civic and humanitarian achievements while serving in Iraq. Based on his vast business and financial experience with the military as well as his business experience, we have deemed Maj. Gen (Ret) Frost a fit to serve on the Board. Philip Balatsos. Since 2016, Mr. Balatsos has worked in the restaurant and hospitality industries. In 2018, Mr. Balatsos founded and has served as the owner operator of LAPH Hospitality which operates a café/catering business and also serves as a consultant providing financial, purchasing and usage analysis as well as rollout services pertaining to ordering, invoicing and inventorying systems. From 2016 through 2018, Mr. Balatsos held various positions with Barteca Restaurant Group including Assistant General Manager and Purchasing Manager. Prior to 2016, Mr. Balatsos held various position on Wall Street for 16 years including Vice President, Foreign Exchange Sales/Trading for Credit Suisse, Director, Foreign Exchange Hedge Fund Sales for Barclays Capital and Financial Advisor for Stifel Nicolaus & Co. Mr. Balatsos graduated from Skidmore College in 1999 with a Bachelor of Science in Business Administration and from Institute of Culinary Education in 2016. Family Relationships There are no family relationships among any of our executive officers and directors. Corporate Governance Board of Directors and Board Committees Our stock (symbol: GRIL) is listed on the NASDAQ capital market. Under the rules of Nasdaq, “independent” directors must make up a majority of a listed company’s board of directors. In addition, applicable Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable Nasdaq rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Our board of directors currently consists of eight (8) members. Our board of directors has determined that Stephen Spanos, A.B. Southall III, Paul L. Menchik, Peter S. Petrosian, Malcolm Frost, Philip Baltasos and Jeff Carl, qualify as independent directors in accordance with the Nasdaq Capital Market, or Nasdaq listing requirements. Kevin Mohan is not considered independent. Nasdaq’s independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three (3) years, one of our employees and that neither the director nor any of his or her family members has engaged in various types of business dealings with us. In addition, as required by Nasdaq rules, our board of directors has made a subjective determination as to each independent director that no relationships exist that, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers. 63 As required under Nasdaq rules and regulations and in expectation of listing on Nasdaq, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present. Board Leadership Structure and Board’s Role in Risk Oversight Kevin Mohan is the Chairman of the Board. The Chairman has authority, among other things, to preside over the Board meetings and set the agenda for the Board meetings. Accordingly, the Chairman has substantial ability to shape the work of our Board. We currently believe that separation of the roles of Chairman and Chief Executive Officer ensures appropriate oversight by the Board of our business and affairs. However, no single leadership model is right for all companies and at all times. The Board recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, the Board may periodically review its leadership structure. In addition, following the qualification of the offering, the Board will hold executive sessions in which only independent directors are present. Our Board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into two categories, financial and product commercialization. The audit committee oversees management of financial risks; our Board regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The Board regularly reviews plans, results and potential risks related to our system-wide restaurant growth, brand awareness and menu offerings. Our Compensation Committee is expected to oversee risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on the Company. Committees of the Board of Directors The Board of Directors has already established an audit committee (the “Audit Committee”), a Compensation Committee (the “Compensation Committee”) and a Nominating and Corporate Governance Committee (“Governance Committee”). The composition and function of each committee are described below. Audit Committee The Audit Committee has three members, including Messrs. Spanos, Balatsos and Petrosian. Mr. Spanos serves as the chairman of the Audit Committee and satisfies the definition of “audit committee financial expert”. Our audit committee is authorized to: ● approve and retain the independent auditors to conduct the annual audit of our financial statements; ● review the proposed scope and results of the audit; ● review and pre-approve audit and non-audit fees and services; ● review accounting and financial controls with the independent auditors and our financial and accounting staff; ● review and approve transactions between us and our directors, officers and affiliates; ● recognize and prevent prohibited non-audit services; and ● establish procedures for complaints received by us regarding accounting matters; oversee internal audit functions, if any. 64 Compensation Committee The Compensation Committee has two members, including Messrs. Carl and Southall. Mr. Carl serves as the chairman of the Compensation Committee. Our Compensation Committee is authorized to: ● review and determine the compensation arrangements for management; ● establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals; ● administer our stock incentive and purchase plans; and ● review the independence of any compensation advisers. Nominating and Corporate Governance Committee The Governance Committee has three members, including Messrs. Menchik, Southall and Carl. Mr. Menchik serves as the chairman of the Governance Committee. The functions of our Governance Committee, among other things, include: ● identifying individuals qualified to become board members and recommending director; ● nominees and board members for committee membership; ● developing and recommending to our board corporate governance guidelines; ● review and determine the compensation arrangements for directors; and ● overseeing the evaluation of our board of directors and its committees and management. Our goal is to assemble a Board that brings together a variety of skills derived from high quality business and professional experience. Compensation Committee Interlocks and Insider Participation None of the members of our Compensation Committee, at any time, has been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers on our Board of Directors or Compensation Committee. For a description of transactions between us and members of our Compensation Committee and affiliates of such members, please see “Certain Relationships and Related Party Transactions”. 65 Code of Business Conduct and Ethics We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Section 16(a) Beneficial Ownership Reporting Compliance Our directors, executive officers, and any persons holding more than ten percent of our Common Stock became obligated to comply with such rules upon the March 29, 2018 filing of our Form 8-A12B registering our class of Common Stock. ITEM 11. EXECUTIVE COMPENSATION . Summary Compensation Table The following Summary Compensation Table sets forth all compensation earned in all capacities during the fiscal years ended December 31, 2020 and 2019 by (i) our principal executive officer, (ii) our two most highly compensated executive officers, other than our principal executive officer, who were serving as executive officers as of December 31, 2020 and whose total compensation for the 2020 fiscal year, as determined by Regulation S-K, Item 402, exceeded $100,000, (iii) a person who would have been included as one of our two most highly compensated executive officers, other than our principal executive officer, but for the fact that he was not serving as one of our executive officers as of December 31, 2020 (the individuals falling within categories (i), (ii) and (iii) are collectively referred to as the “Named Executive Officers”): Summary Compensation Table Year Salary Bonus Stock Award Option Awards Non-Equity Incentive Plan Compensation Non-Qualified Deferred Compensation Earnings All Other Compensation Total Michael J. Roper 2020 $ 360,503 $ 180,288 $ - $ - $ - $ - $ - $ 540,791 Chief Executive Officer of Muscle Maker, Inc. 2019 $ 271,946 $ - $ - $ - $ - $ - $ - $ 271,946 Ferdinand Groenewald 2020 $ 171,634 $ 77,885 $ - $ - $ - $ - $ - $ 249,519 Chief Financial Officer of Muscle Maker, Inc. 2019 $ 151,749 $ 10,000 $ - $ - $ - $ - $ - $ 161,749 Kenneth Miller 2020 $ 256,442 $ 53,846 $ - $ - $ - $ - $ - $ 310,288 Chief Operating Officer of Muscle Maker, Inc. 2019 $ 202,298 $ - $ - $ - $ - $ - $ - $ 202,298 Kevin Mohan 2020 $ 185,077 $ 78,000 $ - $ - $ - $ - $ 72,327 $ 335,404 Chief Operating Officer of Muscle Maker, Inc. 2019 $ 142,940 $ - $ - $ - $ - $ - $ - $ 142,940 Employment Agreements Michael Roper On October 26, 2018, the Company entered into an Employment Agreement with Michael Roper, which replaced his employment agreement from May 2018. Pursuant to the Employment Agreement, Mr. Roper will continue to be employed as Chief Executive Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the agreement. The Employment Agreement will be automatically extended upon listing the Company on a national exchange and raising $3,000,000 (the “Public Offering”). During the term of the Employment Agreement, Mr. Roper will be entitled to a base salary at the annualized rate of $250,000, which was increased to $275,000 upon achieving various milestones required by the Investors that participated in the September 2018 Offering and will be increased to $350,000 upon the Company completing the Public Offering. Mr. Roper will be eligible for a discretionary performance bonus to be paid in cash or equity, provided, however, no cash bonus will be paid until the closing of the Public Offering. Mr. Roper was paid a $100,000 bonus upon closing of the Public Offering. Mr. Roper was also issued 14,285 shares of our common stock upon the closing of the Public Offering. In addition, pursuant to board approval on June 29, 2019, Mr. Roper was issued 35,714 shares of our restricted common stock awards upon closing of the Public Offering. In addition, upon the closing of the Public Offering Mr. Roper received 14,285 shares of common stock pursuant to his employment agreement. Mr. Roper was issued an additional 35,714 pursuant to his employment agreement upon the closing of the Public Offering of at least $5 million. Mr. Roper’s common stock was issued on February 18, 2020 and his bonus was paid, subsequent to completing our Public Offering. On August 11, 2020, Mr. Roper agreed to cancel 100,000 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. . 66 Ferdinand Groenewald On September 26, 2018, the Company rehired Ferdinand Groenewald as Chief Financial Officer of the Company and entered into an Employment Agreement with Mr. Groenewald. Pursuant to the agreement, Mr. Groenewald will be employed as Chief Financial Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Mr. Groenewald will be entitled to a base salary at the annualized rate of $150,000 and will be eligible for a discretionary performance cash bonuses which will include $10,000 upon completion of the audit for the year ended December 31, 2017 and $25,000 and up to 1,428 shares of common stock upon completion of a public offering of not less than $3 million together with listing on a national exchange (the “Public Offering”), which may be increased to 3,571 in the event $5 million is raised. Mr. Groenewald’s salary will increase to $175,000 upon closing of the Public Offering. Mr. Groenewald is also eligible to participate in employee benefits plans as the Company may institute from time to time that are available for full-time employees. Mr. Groenewald was paid a discretionary performance cash and equity bonuses including cash of $25,000 and 19,285 upon completion of the Public Offering. On August 11, 2020, Mr. Groenewald agreed to cancel 19,285 shares of the Company’s common stock previously issued and waved all rights to the equity compensation provided under his employment agreement. Kenneth Miller On September 26, 2018, the Company appointed Kenneth Miller as Chief Operating Officer of the Company and entered into an Employment Agreement with Mr. Miller. Pursuant to the agreement, Mr. Miller will be employed as Chief Operating Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Mr. Miller will be entitled to a base salary at the annualized rate of $200,000, which will be increased to $275,000 upon successful closing of the Public Offering. Mr. Miller was issued 14,285 shares of the Company’s common stock upon closing of the Public Offering. In addition, Mr. Miller was paid a discretionary performance cash and equity bonuses including cash of $50,000 and 17,857 shares of common stock upon completion of the Public Offering. Mr. Miller is also eligible to participate in employee benefits plans as we may institute from time to time that are available for full-time employees. On August 11, 2020, Mr. Miller agreed to cancel 32,142 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. Kevin Mohan On October 26, 2018, we entered into an Employment Agreement with Kevin Mohan. Pursuant to the Employment Agreement, Mr. Mohan will be engaged as our Chief Investment Officer for a period of two years unless earlier terminated pursuant to the terms of the agreement. The Employment Agreement will be automatically extended upon the IPO. During the term of the Employment Agreement, Mr. Mohan will be entitled to a base salary at the annualized rate of $156,000, which will be increased to $175,000 upon the IPO. Mr. Mohan will be eligible for a discretionary performance bonus to be paid in cash following the closing of the IPO. Mr. Mohan was paid $50,000 bonus upon closing of the IPO. Mr. Mohan was also issued 28,571 shares of our common stock upon the closing of the IPO. In addition, pursuant to board approval on June 29, 2019, Mr. Mohan was issued 35,714 shares of our restricted common stock awards upon closing of the IPO. Mr. Mohan’s common stock was issued on February 18, 2020 and his bonus was paid, subsequent to completing our IPO. On August 11, 2020, Mr. Mohan agreed to cancel 64,285 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. Elements of Compensation Base Salary Messrs. Roper, Groenewald, Miller and Mohan received a fixed base salary in an amount determined in accordance with their then employment agreement with Muscle Maker Inc., and based on a number of factors, including: ● The nature, responsibilities and duties of the officer’s position; ● The officer’s expertise, demonstrated leadership ability and prior performance; ● The officer’s salary history and total compensation, including annual cash bonuses and long-term incentive compensation; and ● The competitiveness of the market for the officer’s services. Bonus Messrs. Roper, Groenewald, Miller and Mohan received a bonus in connection with completing our IPO pursuant to their employment agreement. In addition, discretionary performance based bonus was paid to Messrs. Roper, Groenewald, Miller and Mohan. 67 Stock Award In fiscal 2019 we did not issue any restricted shares of our common stock to our named executive officers. In fiscal 2020, we issued an aggregate of 216,783 shares of our restricted common stock, with an aggregate value fair value of $1,083,915, to our 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 us to cancel an aggregate of 216,783 vested shares of our restricted common stock previously issued in the first quarter of 2020 and acknowledge that no further compensation is due under their employment agreements. Equity Incentive Plans 2017 Plan Our board of directors and shareholders approved the 2017 Stock Option and Stock Issuance Plan or the 2017 Plan on July 27, 2017 and September 21, 2017, respectively. Upon the adoption of our 2019 Equity Incentive Plan, we will no longer issue awards under the 2017 Plan, but any existing awards granted to our management team and Board of Directors will remain outstanding under the 2017 Plan. The 2017 Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options and non-qualified stock options. We no longer utilize the 2017 Plan. Of these shares, approximately 4,591 shares were issued to the directors (765 shares per director) under the 2017 Plan by the Board of Directors on September 21, 2017. 2019 Plan Our board of directors and shareholders approved the 2019 Equity Incentive Plan or the 2019 Plan. Our shareholders approved the plan on October 28, 2019. The 2019 Plan provides incentives to eligible employees, officers, directors 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. We have reserved a total of 214,286 shares of common stock for issuance under the 2019 Plan. As of the date of the issuance of these consolidated financial statements 188,527 shares have been issued under the 2019 Plan. Upon the adoption of our 2020 Equity Incentive Plan, we no longer issue awards under the 2019 Plan, but any existing awards granted to our management team and Board of Directors will remain outstanding under the 2019. 2020 Plan Our board of directors and shareholders approved and adopted on September 16, 2020 the 2020 Equity Incentive Plan (“2020 Plan”), effective on September 16, 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 we reserved 1,750,000 shares of common stock for issuance. As of the date of the issuance of these consolidated financial statements 178,333 shares have been issued under the 2020 Plan. The administrator, which is the Compensation Committee or another committee of at least two persons or the Board, has the authority, without limitation (i) to designate participants to receive awards, (ii) determine the types of awards to be granted to participants, (iii) determine the number of shares of common stock to be covered by awards, (iv) determine the terms and conditions of any awards granted under the 2020 Plan, (v) determine to what extent and under what circumstances awards may be settled in cash, shares of common stock, other securities, other awards or other property, or cancelled, forfeited or suspended, (vi) determine whether, to what extent, and under what circumstances the delivery of cash, common stock, other securities, other awards or other property and other amounts payable with respect to an award shall be made; (vii) interpret, administer, reconcile any inconsistency in, settle any controversy regarding, correct any defect in and/or complete any omission in the 2020 Plan and any instrument or agreement relating to, or award granted under, the 2019 Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the administrator shall deem appropriate for the proper administration of the 2020 Plan; (ix) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, awards; (x) reprice existing awards with shareholder approval or to grant awards in connection with or in consideration of the cancellation of an outstanding award with a higher price; and (xi) make any other determination and take any other action that the administrator deems necessary or desirable for the administration of the 2020 Plan. The administrator will have full discretion to administer and interpret the 2019 Plan and to adopt such rules, regulations and procedures as it deems necessary or advisable and to determine, among other things, the time or times at which the awards may be exercised and whether and under what circumstances an award may be exercised. 68 The administrator will be authorized to grant options to purchase Common Stock that are either “qualified,” meaning they satisfy the requirements of Code Section 422 for Incentive Stock Options, or “non-qualified,” meaning they do not satisfy the requirements of Section 422 of the Code. Options granted under the 2020 Plan will be subject to the terms and conditions established by the administrator. Under the terms of the 2020 Plan, unless the administrator determines otherwise in the case of an option substituted for another option in connection with a corporate transaction, the exercise price of the Options will not be less than the fair market value (as determined under the 2020 Plan) of the shares of common stock on the date of grant. Options granted under the 2020 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of an option granted under the 2019 Plan will be ten years from the date of grant (or five years in the case of an Incentive Stock Option granted to a 10% stockholder). Payment in respect of the exercise of an option may be made in cash or by check, by surrender of unrestricted shares of Common Stock (at their fair market value on the date of exercise) that have been held by the participant for any period deemed necessary by us to avoid an additional compensation charge or have been purchased on the open market, or the administrator may, in its discretion and to the extent permitted by law, allow such payment to be made through a broker-assisted cashless exercise mechanism, a net exercise method, or by such other method as the administrator may determine to be appropriate. The administrator will be authorized to award Stock Appreciation Rights (or SARs) under the 2020 Plan. SARs will be subject to such terms and conditions as established by the administrator. A SAR is a contractual right that allows a participant to receive, either in the form of cash, shares or any combination of cash and shares, the appreciation, if any, in the value of a share over a certain period of time. A SAR granted under the 2020 Plan may be granted in tandem with an option and SARs may also be awarded to a participant independent of the grant of an Option. SARs granted in connection with an Option shall be subject to terms similar to the Option which corresponds to such SARs. SARs shall be subject to terms established by the administrator and reflected in the award agreement. The administrator will be authorized to award Restricted Stock under the 2020 Plan. Unless otherwise provided by the administrator and specified in an award agreement, restrictions on Restricted Stock will lapse after three years of service with us. The administrator will determine the terms of such Restricted Stock awards. Restricted Stock are shares of common stock that generally are non-transferable and subject to other restrictions determined by the administrator for a specified period. Unless the administrator determines otherwise or specifies otherwise in an award agreement, if the participant terminates employment or services during the restricted period, then any unvested restricted stock will be forfeited. The administrator will be authorized to award Restricted Stock Unit awards. Unless otherwise provided by the administrator and specified in an award agreement, Restricted Stock Units will vest after three years of service with us. The administrator will determine the terms of such Restricted Stock Units. Unless the administrator determines otherwise or specifies otherwise in an award agreement, if the participant terminates employment or services during the period of time over which all or a portion of the units are to be earned, then any unvested units will be forfeited. At the election of the administrator, the participant will receive a number of shares of common stock equal to the number of units earned or an amount in cash equal to the fair market value of that number of shares at the expiration of the period over which the units are to be earned or at a later date selected by the administrator. The administrator will be authorized to grant Awards of unrestricted shares of common stock or other Awards denominated in shares of common stock, either alone or in tandem with other Awards, under such terms and conditions as the administrator may determine. 69 Equity Compensation Plan Information The following table provides information, as of December 31, 2020, 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 $ - 1,607,793 Equity compensation plans not approved by security holders 0 $ - - TOTAL 0 $ - 1,607,793 Director Compensation On September 21, 2017, Muscle Maker granted 765 shares of common stock under our Muscle Maker 2017 Stock Option and Stock Issuance Plan to each of our six directors of Muscle Maker (4,591 shares of common stock in the aggregate) at a value of $65.31 per share. Such share grants are subject to graduated vesting in the following installments on each of the following dates: (i) 66.666% as of the date of grant and (ii) 8.333% as of (a) October 1, 2017, (b) November 1, 2017, (c) December 1, 2017, and (d) January 1, 2018 During 2018, the directors did not receive any compensation. On July 16, 2019, the board of directors approved a board compensation plan that would compensate the board members for their deferred compensation for 2019, 2018 and 2017. The board members are eligible for cash compensation of $4,500 or $9,000 per year. To be paid as follows: (i) directors serving on the board during 2018 and 2017, will be granted shares is lieu of payment as the letter agreements set forth certain terms pursuant to which the directors will serve as directors of the Company. In addition, on an ongoing basis pursuant to the approved board compensation plan each director will receive 1,428 shares of common stock per year for service as director, 185 shares of common stock per year for service on each committee and 142 shares of common stock per year for service as chair for such committee. The shares of common stock for committee service will be limited to two committees. The Company issued shares of common stock upon the occurrence of the public offering and up listing on a national exchange as follows, which was prorated for a partial year: (i) directors that served as directors during the year ended December 31, 2017 each received 714 shares of common stock, (ii) directors that served as directors during the year ended December 31, 2018 each received 1,428 shares of common stock and (iii) directors that served as directors during the year ended December 31, 2019 each received 1,428 shares of common stock. 70 The directors did not received compensation for services prior to the Company being up listed on a national exchange, the Company agreed to provide equity in lieu of cash compensation and equity compensation for services rendered during 2017, 2018 and 2019. For past director services in lieu of cash unpaid to date: (i) directors that served as directors during the year ended December 31, 2017 each received shares of common stock valued at $4,500 priced at the price per share of the Company’s public offering in connection with its uplisting (the “Uplisting Offering”), (ii) directors that served as directors during the year ended December 31, 2018 each received shares of common stock valued at $9,000, which was prorated for a partial year of service, and priced at the price per share of the Uplisting Offering and (iii) directors that served as directors during the year ended December 31, 2019 through the date of the Uplisting Offering each received shares of common stock valued at $9,000, which was prorated for a partial year of service, priced at the price per share of the Uplisting Offering. On December 4, 2020, the board of directors approved a new board compensation plan that would compensate the board members for their deferred compensation for the fourth quarter 2020 through the third quarter of 2021. The board members are eligible for cash compensation of $12,000 per year to be paid quarterly within 30 days of the close of each quarter. In addition, on an ongoing basis pursuant to the approved board compensation plan each director will receive $8,000 in value of common stock per year for service as director, $6,000 in value of shares of common stock per year for service on each committee and $4,000 in value of shares of common stock per year for service as chair for such committee. The number of shares to be issued would be based upon the closing price of the last trading date of each calendar quarter. The shares of common stock for committee service will be limited to two committees. Kevin Mohan is an employee-director and does not receive compensation for serving in his role as a director. Executive Compensation Philosophy Our Board of Directors determines the compensation given to our executive officers in their sole determination. Our Board of Directors reserves the right to pay our executives or any future executives a salary, and/or issue them shares of common stock issued in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock-based compensation to certain executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, while our Board of Directors has not granted any performance base stock options to date, the Board of Directors reserves the right to grant such options in the future, if the Board in its sole determination believes such grants would be in the best interests of the Company. Incentive Bonus The Board of Directors may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the Board of Directors believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives. Long-Term, Stock Based Compensation In order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award our executives and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our Board of Directors. 71 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS . The following table sets forth information about the beneficial ownership of our common stock at April 15, 2021, for: ● each person, or group of affiliated persons, whom we know to beneficially own more than 5% of our common stock; ● each of our named executive officers; ● each of our directors; and ● all of our executive officers and directors as a group. We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants or upon conversion of a security that are either exercisable or convertible on or before a date that is 60 days after April 15, 2021. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws. Except as otherwise noted below, the address for persons listed in the table is c/o Muscle Maker, Inc., 2600 South Shore Blvd., Suite 300, League City, Texas 77573. The percentage ownership information shown in the column labeled “Percentage of Shares Outstanding” is based upon 13,826,734 shares of common stock outstanding as of April 15, 2021. Name of Beneficial Owner Number of Shares Beneficially Owned (1) Percentage of Shares Outstanding Prior to Offering (1) 5% Stockholders: Catalytic Holdings 1 LLC (2) 1,996,638 13.60 % Thoroughbred Diagnostics, LLC (2) 1,709,000 11.85 % Armistice Capital Master Fund LTD (3) 1,395,588 9.99 % Directors and Named Executive Officers: Kevin Mohan (4) 147,251 1.06 % Michael J. Roper (5) 100,000 * Ferdinand Groenewald (6) 19,285 * Kenneth Miller (7) 32,142 * Stephen Spanos (8) 6,701 * A.B. Southall, III (9) 114,095 * Paul L. Menchik (10) 62,930 * Peter S. Petrosian (11) 10,022 * Jeff Carl (12) 8,713 * Major General (ret) Malcolm Frost (13) 1,692 * Philip Balatsos (14) 3,206 * All executive officers and directors as a group (12 persons) 508,639 3.68 % * denotes less than 1% 72 (1) Beneficial ownership as reported in the above table has been determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, and is not necessarily indicative of beneficial ownership for any other purpose. The number of shares of common stock shown as beneficially owned includes shares of common stock issuable upon (i) the exercise of stock options that will become exercisable within sixty (60) days of April 15, 2021, (ii) the conversion of the convertible promissory notes into shares of our common stock, and (iii) the exercise of warrants that will become exercisable within sixty (60) days of April 15, 2021. Shares of common stock issuable pursuant to the foregoing methods are deemed outstanding for purposes of calculating the percentage of beneficial ownership of the person or entity holding such securities. Accordingly, the total percentages of beneficial ownership are in excess of one hundred percent (100%). (2) Catalytic Holdings, LLC beneficially owns (i) 1,145,888 shares of common stock of the Company (ii) 850,750 shares of Common Stock of the Company which are subject to presently exercisable purchase warrants. The natural person with voting and investment control for Catalytic Holdings, LLC is Dmitriy Shapiro. Thoroughbred Diagnostics, LLC beneficially owns (i) 1,109,000 shares of Common Stock of Muscle Maker (ii) 600,000 shares of Common Stock of Muscle Maker which are subject to presently exercisable purchase warrants. The natural person with voting and investment control for Thoroughbred Diagnostics, LLC is Joey Giamichael. (3) Armistice Capital Master Fund LTD beneficial owns (i) 1,250,000 shares of the common stock of the Company (ii) 4,115,227 shares of common stock of the Company which are subject to presently exercisable purchase warrants and (iii) 2,865,227 shares of common stock of the Company which are subject to presently exercisable pre-funded purchase warrants. There is a beneficial ownership limitation on the warrants and prefunded warrants owned by the holder that limits beneficial ownership of the holder to 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon exercise of the warrant at any time. The beneficial ownership limitation can be increase by the holder by giving written notice to the Company, but this will not take effect until 61 days after the delivery of the notice to the Company. Armistice Capital Master Fund LTD is managed by Armistice Capital, LLC, its investment manager. Steven Boyd, the managing member of Armistice Capital, LLC has the sole voting and investment power over the securities held by Armistice Capital Master Fund LTD. (4) Kevin Mohan beneficially owns (i) indirectly 5,574 shares of Common Stock of Muscle Maker through various family members that reside in the same household as Kevin Mohan and (ii) directly 130,963 shares of common stock of Muscle Maker of which 10,714 are subject to presently exercisable purchase warrants issued to Kevin Mohan. (5) Michael J. Roper beneficial owns directly 100,000 shares of common stock of the Company for serving as the Chief Executive Officer of the Company. (6) Ferdinand Groenewald beneficial owns directly 19,285 shares of common stock of the Company for serving as the Chief Financial Officer of the Company. (7) Kenneth Miller beneficial owns directly 32,142 shares of common stock of the Company for serving as Chief Operating Officer of the Company. (8) Stephen Spanos beneficially owns directly 6,701 shares of common stock of the Company for serving as a director through the second quarter of 2020. (9) A.B. Southall III beneficially owns (i) directly 104,095 shares of Common Stock of Muscle Maker, and (ii) directly 10,000 shares of Common Stock of Muscle Maker subject to presently exercisable purchase warrants issued to A.B. Southall. (10) Paul L. Menchik beneficially owns (i) directly 52,930 shares of Common Stock of Muscle Maker, and (ii) directly 10,000 shares of Common Stock of Muscle Maker subject to presently exercisable purchase warrants issued to Paul L. Menchik. (11) Peter S. Petrosian beneficially owns directly 10,022 shares of Common Stock of Muscle Maker issued for services rendered as a board of director. (12) Jeff Carl beneficially owns directly 8,713 shares of Common Stock of Muscle Maker for services rendered as a board of director. (13) Major General (ret) Malcolm Frost beneficially owns directly 1,692 shares of Common Stock of Muscle Maker for services rendered as a board of director. (14) Philip Balatsos beneficially owns directly 3,206 shares of Common Stock of Muscle Maker for services rendered as a board of director. 73 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies and Procedures for Related Party Transactions Following this offering, pursuant to the written charter of our Audit Committee, the Audit Committee will be responsible for reviewing and approving, prior to our entry into any such transaction, all related party transactions and potential conflict of interest situations involving: ● any of our directors, director nominees or executive officers; ● any beneficial owner of more than 5% of our outstanding stock; and ● any immediate family member of any of the foregoing. Our Audit Committee will review any financial transaction, arrangement or relationship that: ● involves or will involve, directly or indirectly, any related party identified above and is in an amount greater than $0; ● would cast doubt on the independence of a director; ● would present the appearance of a conflict of interest between us and the related party; or ● is otherwise prohibited by law, rule or regulation. The Audit Committee will review each such transaction, arrangement or relationship to determine whether a related party has, has had or expects to have a direct or indirect material interest. Following its review, the Audit Committee will take such action as it deems necessary and appropriate under the circumstances, including approving, disapproving, ratifying, canceling or recommending to management how to proceed if it determines a related party has a direct or indirect material interest in a transaction, arrangement or relationship with us. Any member of the Audit Committee who is a related party with respect to a transaction under review will not be permitted to participate in the discussions or evaluations of the transaction; however, the Audit Committee member will provide all material information concerning the transaction to the Audit Committee. The Audit Committee will report its action with respect to any related party transaction to the board of directors. Transactions with American Restaurants, LLC or American Restaurant Holdings, Inc. On January 23, 2015, in connection with the acquisition of Muscle Maker Brands, we issued two promissory notes payable in the amount of $400,000 (“MM Note”) and $204,000 (“MMB Note”), respectively. MM Note includes interest imputed at the rate of 0.41% per annum and is payable in three installments with the final installment due eighteen months after the closing date of the Acquisition of Muscle Maker Brands. MMB Note was secured by the assets of Colonia, bore no stated interest and was due on March 9, 2015. 74 On January 23, 2015, Muscle Maker issued 619,897 shares of Common Stock to American Restaurant Holdings in exchange for cash of $3,645,000 and an obligation to repay an aggregate of $604,000 of principal due under MM Note and MMB Note. On March 9, 2015, the American Restaurant Holdings repaid MMB Note in full. On July 21, 2015, January 23, 2016 and July 23, 2016, installments of $100,000, $150,000 and $150,000 were repaid on the balance of MM Note by the American Restaurant Holdings. As of July 23, 2016, there is no balance outstanding related to MM Note. On December 31, 2015, we issued a promissory note in the amount of $1,082,620 to American Restaurant (the “2015 ARH Note”). The note bore no stated interest or maturity date and was convertible into shares of Common Stock of Muscle Maker at a conversion price of $32.69 per share. On March 14, 2017, American Restaurant Holdings elected to convert the 2015 ARH Note in the principal amount of $1,082,620 into 33,141 shares of Common Stock of Muscle Maker at a conversion price of $32.69 per share. During the period from January 1 through December 15, 2016, we received $2,621,842 of advances from the American Restaurant Holdings. The payable due to the American Restaurant Holdings as a result of these advances was exchanged for a convertible promissory note in the amount of $2,621,842 (the “2016 ARH Note”). The 2016 ARH Note had no stated interest rate or maturity date and was convertible into shares of the Common Stock of Muscle Maker at a conversion price of $26.11 per share at a time to be determined by the lender. The 2016 American Restaurant Holdings Note included a three-year warrant for the purchase of 35,113 shares of our common stock at an exercise price of $65.31 per share. On March 14, 2017, the American Restaurant Holdings elected to convert the 2016 ARH Note into 100,325 shares of Common Stock of Muscle Maker. On February 15, 2017, we issued a promissory note in the amount of $980,949 (the “First 2017 ARH Note”) and on March 15, 2017, MMI issued a promissory note in the amount of $338,834 (the “Second 2017 ARH Note”), both to ARH. The First 2017 ARH Note and the Second 2017 ARH Note bear no stated interest rate or maturity date and are convertible into 37,536 and 10,372 shares of our common stock at a conversion price of $26.11 per share and $32.69 per share, respectively, at a time to be determined by the Former Parent. On March 14, 2017, the American Restaurant Holdings elected to convert the First 2017 ARH Note into 37,536 shares of our common stock. The First 2017 ARH Note and the Second 2017 ARH note include a three-year warrant for the purchase of 13,137 and 2,256 shares, respectively, of Muscle Maker common stock at an exercise price of $65.31 per share. The warrants issued in connection with the First 2017 ARH Note and the Second 2017 ARH note had a grant date value of $122,820 and $23,120, respectively. Muscle Maker allocated the proceeds to the First 2017 ARH Note and the Second 2017 ARH and related warrants based on the relative fair values at the time of issuance, resulting in an effective conversion price of $22.89 and $30.45 per share, respectively. The fair value of Muscle Maker common stock on the dates the notes were issued was $50.05 per share, creating an intrinsic value of $27.16 and $19.60 per share, respectively. On March 14, 2017, American Restaurant Holdings elected to convert aggregate principal of $4,685,411 under the 2015 ARH Note, the 2016 ARH Note and the First 2017 ARH Note into an aggregate 171,003 shares of Muscle Makers common stock. On July 18, 2017, we issued a convertible promissory note (the “Third 2017 ARH Note”) to American Restaurant Holdings in exchange for cash proceeds of $336,932. The Third 2017 ARH Note has no stated interest rate or maturity date and is convertible into shares of our common stock at a conversion price of $52.29 per share at a time to be determined by the lender. The Third 2017 ARH Note includes a three-year warrant for the purchase of 2,256 shares of our common stock at an exercise price of $65.31 per share. On September 19, 2017, American Restaurant Holdings elected to convert aggregate principal of $675,766 under the Second 2017 ARH Note and the Third 2017 Note into an aggregate 16,818 shares of Muscle Makers common stock. 75 On April 6, 2018, we issued a $475,000 convertible promissory note (the “2018 ARH Note”) to American Restaurant Holdings. The 2018 ARH Note has no stated interest rate or maturity date and is convertible into shares of Muscle Makers common stock at a conversion price of $3.50 per share at a time to be determined by the lender. On April 11, 2018, American Restaurant Holdings elected to partially convert the 2018 ARHI Note for the principal of $392,542 into 112,154 shares of our common stock. The 2015 ARH Note, 2016 ARH Note, First 2017 ARH Note, Second 2017 ARH Note, Third 2017 ARH Note and 2018 ARH Note are together, the “ARH Notes”. Transactions with Officers, Directors and Executives of Muscle Maker On September 21, 2017, we granted 765 shares of common stock under our Muscle Maker 2017 Stock Option and Stock Issuance Plan to each of our six directors of Muscle Maker (4,591 shares of common stock in the aggregate) at a value of $65.31 per share. Such share grants are subject to graduated vesting in the following installments on each of the following dates: (i) 66.666% as of the date of grant and (ii) 8.333% as of (a) October 1, 2017, (b) November 1, 2017, (c) December 1, 2017, and (d) January 1, 2018. On May 1, 2018, Muscle Maker board of directors agreed to issue 14,285 shares of common stock upon a Public Offering of at least $3,000,000, to Michael Roper, our Chief Executive Officer, as part of his initial employment agreement. Mr. Roper is also eligible to receive 14,285 restricted common stock awards on each anniversary of his employment date during the employment contract period as well as up to 35,714 additional restricted common stock awards upon the successful completion of an initial public offering of at least $5,000,000. In addition, pursuant to board approval on June 29, 2019, Mr. Roper is entitled to 35,714 shares of our common stock that will be issued upon a Public Offering of at least $3,000,000. During April 2019, we repaid other notes payable in the aggregate principal amount of $710,000, of which $435,000 belong to related parties. In addition, we issued 84,427 of our common stock as payment for the interest incurred on the other notes payable repaid in the aggregate amount of $590,989. On May 14, 2019, we 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 our common stock trades publicly on an exchange. On June 29, 2018, Muscle Maker board of directors agreed to issue Kevin Mohan and Michael Roper an additional 35,714 restricted common stock awards. These stock awards was issued upon the successful completion of an initial public offering. On September 26, 2018, we rehired Ferdinand Groenewald as our Chief Financial Officer and entered into an Employment Agreement with Mr. Groenewald. Pursuant to the agreement, Mr. Groenewald will be employed as our Chief Financial Officer for a period of two years unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Mr. Groenewald will be entitled to a base salary at the annualized rate of $150,000 and will be eligible for a discretionary performance cash bonuses which will include $10,000 upon completion of the audit for the year ended December 31, 2017 and $25,000 and up to 1,428 shares of common stock upon completion of a public offering of not less than $3 million together with listing on a national exchange (the “Public Offering”), which may be increased to 3,571 shares of common stock in the event $5 million is raised. Mr. Groenewald’s salary will increase to $175,000 upon closing of the Public Offering. Mr. Groenewald is also eligible to participate in employee benefits plans as we may institute from time to time that are available for full-time employees. In addition, pursuant to board approval, Mr. Groenewald was issued 15,714 shares of our common stock upon closing of the IPO. On August 11, 2020, Mr. Groenewald agreed to cancel 19,285 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. 76 On September 26, 2018, we appointed Kenneth Miller as our Chief Operating Officer and entered into an Employment Agreement with Mr. Miller. Pursuant to the agreement, Mr. Miller will be employed as our Chief Operating Officer for a period of two years unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Mr. Miller will be entitled to a base salary at the annualized rate of $200,000, which will be increased to $275,000 upon successful closing of the Public Offering. Mr. Miller is also entitled to 14,285 shares of our common stock that will be issued upon a Public offering of at least $3,000,000. Mr. Miller is eligible for a discretionary performance cash and equity bonuses which will include cash of $50,000. Mr. Miller was issued 14,285 shares of our common stock upon closing of the IPO. In addition, Mr. Miller was paid a discretionary performance cash and equity bonuses including cash of $50,000 and 17,857 shares of common stock upon completion of the IPO. Mr. Miller is also eligible to participate in employee benefits plans as we may institute from time to time that are available for full-time employees. On August 11, 2020, Mr. Miller agreed to cancel 32,142 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement On October 26, 2018, we entered into an Employment Agreement with Michael Roper, which replaced his employment agreement from May 2018. Pursuant to the Employment Agreement, Mr. Roper will continue to be employed as our Chief Executive Officer for a period of two years unless earlier terminated pursuant to the terms of the agreement. The Employment Agreement will be automatically extended upon listing our common stock on a national exchange and raising $3,000,000 (the “IPO”). During the term of the Employment Agreement, Mr. Roper will be entitled to a base salary at the annualized rate of $250,000, which was increased to $275,000 upon achieving various milestones required by the Investors that participated in the September 2018 Offering and will be increased to $350,000 upon our completing the IPO. Mr. Roper will be eligible for a discretionary performance bonus to be paid in cash or equity, provided, however, no cash bonus will be paid until the closing of the IPO. Mr. Roper was paid $100,000 bonus upon closing of the IPO. Mr. Roper was also issued 14,285 shares of our common stock upon the closing of the IPO. In addition, pursuant to board approval on June 29, 2019, Mr. Roper was issued 35,714 shares of our restricted common stock awards upon closing of the IPO. In addition, upon the closing of the IPO Mr. Roper received 14,285 shares of common stock pursuant to his employment agreement. Mr. Roper was issued an additional 35,714 pursuant to his employment agreement upon the closing of the IPO of at least $5 million. Mr. Roper’s common stock was issued on February 18, 2020 and his bonus was paid, subsequent to completing our IPO. On August 11, 2020, Mr. Roper agreed to cancel 100,000 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. On October 26, 2018, we entered into an Employment Agreement with Kevin Mohan. Pursuant to the Employment Agreement, Mr. Mohan will be engaged as our Chief Investment Officer for a period of two years unless earlier terminated pursuant to the terms of the agreement. The Employment Agreement will be automatically extended upon the IPO. During the term of the Employment Agreement, Mr. Mohan will be entitled to a base salary at the annualized rate of $156,000, which will be increased to $175,000 upon the IPO. Mr. Mohan will be eligible for a discretionary performance bonus to be paid in cash following the closing of the IPO. Mr. Mohan was paid $50,000 bonus upon closing of the IPO. Mr. Mohan was also issued 28,571 shares of our common stock upon the closing of the IPO. In addition, pursuant to board approval on June 29, 2019, Mr. Mohan was issued 35,714 shares of our restricted common stock awards upon closing of the IPO. Mr. Mohan’s common stock was issued on February 18, 2020 and his bonus was paid, subsequent to completing our IPO. On August 11, 2020, Mr. Mohan agreed to cancel 64,285 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. We have entered into indemnification agreements with each of our directors and entered into such agreements with certain of our executive officers. These agreements require us, among other things, to indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of our company or that person’s status as a member of our Board of Directors to the maximum extent allowed under Nevada law. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . [OPEN] Marcum LLP has served as our independent registered public accountants for the years ended December 31, 2020 and 2019. 77 The following is a summary of the fees billed or expected to be billed to us by Marcum LLP, our independent registered public accountants, for professional services rendered with respect to the fiscal years ended December 31, 2020 and 2019: 2020 2019 Audit fees (1) $ 312,390 $ 238,075 Audit-related fees (2) - - Tax fees (3) - - All other fees (4) - - $ 312,390 $ 238,075 (1) Audit Fees consist of fees billed and expected to be billed for services rendered for the audit of our consolidated financial statements for the fiscal years ended December 31, 2020 and 2019 and in connection with the filing of multiple Forms S-1. (2) Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit of our financial statements and are not reported under “Audit Fees.” (3) Tax Fees consist of fees billed for professional services related to preparation of our U.S. federal and state income tax returns and tax advice. (4) All Other Fees consist of fees billed for products and services provided by our independent registered public accountants, other than those disclosed above. The Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent registered public accountants and approves in advance any services to be performed by the independent registered public accountants, whether audit-related or not. The Audit Committee reviews each proposed engagement to determine whether the provision of services is compatible with maintaining the independence of the independent registered public accountants. The fees shown above were pre-approved either by our Board or our Audit Committee. 78 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . Exhibit No. Exhibit Description 3.1 Articles of Incorporation of Muscle Maker, Inc., a Nevada corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 14, 2019) 3.2 Bylaws of Muscle Maker, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 14, 2019) 3.3 Certificate of Change Pursuant to NRS 78.209 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 11, 2019) 3.4 Certificate of Amendment to Articles of Incorporation of Muscle Maker, Inc., a Nevada corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 16, 2020) 4.1 Form of Warrants to Purchase Common Stock – September 2018 Offering (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on November 6, 2018) 79 4.2 Form of Warrants to Purchase Common Stock - April 2019 Offering (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on April 17, 2019) 4.3† Form of Representative’s Warrant (Incorporated by reference to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on November 26, 2019) 4.4 2019 Equity Incentive Plan (Incorporated by reference to the Amendment No. 3 to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on January 10, 2020) 4.5 2020 Equity Incentive Plan 10.1† Muscle Maker 2017 Stock Option and Stock Issuance Plan and form of award agreements (incorporated by reference to Exhibit 6.1 to Amendment No 1 to the Offering Statement Report on Form 1-A/A filed on September 21, 2017) 10.2† Form of Restricted Stock Agreement under Muscle Maker 2017 Stock Option and Stock Issuance Plan (incorporated by reference to Exhibit 6.5 to Amendment No 1 to the Offering Statement Report on Form 1-A/A filed on September 21, 2017) 10.3 Assignment and Assumption Agreement, dated August 25, 2017, between Muscle Maker Brands Conversion, Inc. and Muscle Maker Development, LLC (incorporated by reference to Exhibit 6.7 to Amendment No 1 to the Offering Statement Report on Form 1-A/A filed on September 21, 2017) 10.4 Agreement of Conveyance, Transfer and Assigning of Assets and Assumptions of Obligations, dated September 15, 2017, between Muscle Maker, Inc. and Muscle Maker Corp., LLC (incorporated by reference to Exhibit 6.8 to the Registrant’s Amendment No 1 to the Offering Statement Report on Form 1-A/A filed on September 21, 2017) 10.5† Employment Agreement, between Muscle Maker and Ferdinand Groenewald (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 22, 2018) 10.6† Employment Agreement, between Muscle Maker and Ken Miller (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 22, 2018) 10.7† Employment Agreement between Michael Roper and Muscle Maker, Inc. dated October 26, 2018 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on November 6, 2018) 80 10.8† Employment Agreement between Kevin Mohan and Muscle Maker, Inc. dated October 26, 2018 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on November 6, 2018) 10.9† Employment Agreement between Aimee Infante and Muscle Maker, Inc. dated May 6, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 10, 2019) 10.10† Form of Director Agreement dated July 16, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 10, 2019) 10.11± Master Distribution Agreement between Muscle Maker Franchising LLC and Sysco Corporation dated June 1, 2011 (Incorporated by reference to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on November 26, 2019) 10.12± Amendment to Master Distribution Agreement between Muscle Maker Franchising LLC and Sysco Corporation dated October 17, 2017 (Incorporated by reference to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on November 26, 2019) 10.13 Form of Conversion Agreement (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 10, 2019) 10.14 Form of Addendum to Conversion Agreement (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 10, 2019) 21.1+ List of Subsidiaries (Incorporated by reference to the Form S-1 Registration Statement filed with the Securities and Exchange Commission on November 26, 2019) 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. 81 ITEM 16. FORM 10-K SUMMARY. Not applicable. 82 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. MUSCLE MAKER, INC By: /s/ Michael J. Roper Michael J. Roper Dated: April 15, 2021 Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title /s/ Michael J. Roper Chief Executive Officer, and Michael J. Roper Secretary (Principal Executive Officer) /s/ Ferdinand Groenewald Chief Financial Officer Ferdinand Groenewald (Principal Financial Officer and Principal Accounting Officer) /s/ Kevin Mohan Chief Investment Officer and Chairman of the Board Kevin Mohan /s/ Stephen A. Spanos Director Stephen A. Spanos /s/ A.B. Southall III Director A.B. Southall III /s/ Paul L. Menchik Director Paul L. Menchik /s/ Jeff Carl Director Jeff Carl /s/ Peter S. Petrosian Director Peter S. Petrosian /s/ Malcolm Frost Director Major General (Ret) Malcolm B. Frost /s/ Philip Balatsos Director Philip Balatsos 83 MUSCLE MAKER, INC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements Balance Sheets as of December 31, 2020 and 2019 F-3 Statements of Operations for the years ended December 31, 2020 and 2019 F-4 Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2020 and 2019 F-5 Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-7 Notes to Consolidated Financial Statements F-9 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Muscle Maker, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet s of Muscle Maker, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and net cash used in operations and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2016. Melville, NY April 15, 2021 F- 2 MUSCLE MAKER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2020 2019 Assets Current Assets: Cash $ 4,195,932 $ 478,854 Accounts receivable, net of allowance for doubtful accounts of $75,000 as of December 31, 2020 and December 31, 2019, respectively 140,305 136,477 Inventory 113,824 78,422 Current portion of loans receivable, net of allowance of $106,900 and $55,000 at December 31, 2020 and December 31, 2019, respectively 2,394 38,712 Prepaid expenses and other current assets 40,903 48,064 Total Current Assets 4,493,358 780,529 Property and equipment, net 2,342,723 1,646,879 Goodwill 656,348 656,348 Intangible assets, net 2,878,278 3,038,815 Loans receivable, non-current 996 98,677 Security deposits and other assets 131,916 39,462 Total Assets $ 10,503,619 $ 6,260,710 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable and accrued expenses $ 1,500,935 $ 2,630,948 Convertible note payable to Former Parent 82,458 82,458 Convertible notes payable, net of debt discount of $0 and $38,918 at December 31, 2020 and December 31, 2019 100,000 536,082 Other notes payable 701,552 351,512 Other notes payable, related party - 91,000 Deferred revenue, current 62,858 122,697 Deferred rent, current 20,569 20,730 Other current liabilities 641,418 652,643 Total Current Liabilities 3,109,790 4,488,070 Convertible notes payable - 75,000 Other notes payable 575,140 240,295 Deferred revenue, non-current 944,271 1,152,975 Deferred rent, non-current 79,290 58,608 Total Liabilities 4,708,491 6,014,948 Commitments and Contingencies Stockholders’ Equity: Common stock, $0.0001 par value, 25,000,000 shares authorized, 11,725,764 and 5,714,464 shares issued and outstanding as of December 31, 2020, and December 31, 2019, respectively 1,172 571 Additional paid-in capital 68,987,663 53,339,793 Accumulated deficit (63,193,707 ) (53,094,602 ) Total Stockholders’ Equity 5,795,128 245,762 Total Liabilities and Stockholders’ Equity $ 10,503,619 $ 6,260,710 See Notes to the Consolidated Financial Statements F- 3 MUSCLE MAKER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 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 Impairment of intangible asset 100,000 - Depreciation and amortization 422,546 280,955 Preopening expenses 56,362 - Franchise advertising fund expenses 61,053 139,508 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 ) Loss Before Income Tax (10,099,105 ) (28,385,044 ) Income tax provision - - Net Loss $ (10,099,105 ) $ (28,385,044 ) Net Loss Per Share: Basic and Diluted $ (1.33 ) $ (17.58 ) Weighted Average Number of Common Shares Outstanding: Basic and Diluted 7,579,905 1,614,405 See Notes to the Consolidated Financial Statements F- 4 MUSCLE MAKER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Additional 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 35,900 4 149,817 - 149,821 Common stock issued as compensation for services 594,834 60 2,457,983 - 2,458,043 Common stock issued in exchange for accrued interest 51,105 5 357,730 - 357,735 Restricted common stock cancelled by executive team (216,783 ) (22 ) (1,083,893 ) - (1,083,915 ) Common stock issued as compensation for services as part of settlement 300,000 30 - - 30 Common stock cancelled by consultant issued for prior services (300,000 ) (30 ) - - (30 ) 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 Over-allotment exercised on October 27, 2020, net of underwriter’s discount and offering cost of $75,600 494,117 49 764,350 - 764,399 Stock-based compensation: Restricted common stock - - 80,472 - 80,472 Warrants – Issued as compensation for services - - 191,000 - 191,000 Warrants – Cancelled by consultant for prior services - (191,000 ) (191,000 ) Options - - 118,000 - 118,000 Net loss - - - (10,099,105 ) (10,099,105 ) Balance - December 31, 2020 11,725,764 $ 1,172 $ 68,987,663 $ (63,193,707 ) $ 5,795,128 See Notes to the Consolidated Financial Statements F- 5 MUSCLE MAKER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY 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 61,426 6 429,994 - 430,000 Beneficial conversion feature - Convertible Notes - - 548,020 - 548,020 Warrants issued and recorded as debt discount in connection with convertible notes payable - - 548,354 - 548,354 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 Common stock issued as compensation to board of directors 20,754 1 151,849 - 151,850 Common stock issued as compensation for services 500 - 3,500 - 3,500 Conversion of convertible notes payable into common stock 4,055,683 406 24,589,800 - 24,590,206 Warrant modification - - 5,405,770 - 5,405,770 Stock-based compensation Amortization of restricted common stock - - 81,154 - 81,154 Net loss - - - (28,385,044 ) (28,385,044 ) Balance - December 31, 2019 5,714,464 $ 571 $ 53,339,793 $ -53,094,602 $ 245,762 See Notes to the Consolidated Financial Statements F- 6 MUSCLE MAKER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 2019 Cash Flows from Operating Activities Net loss $ (10,099,105 ) $ (28,385,044 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 422,546 280,955 Stock-based compensation 2,806,336 666,504 Inducement expense related to convertible notes - 15,102,206 Warrant modification expense - 5,405,770 Impairment of intangible asset 100,000 - Amortization of debt discounts 38,918 2,647,355 Change in fair value of compensation 14,000 - Write off of property and equipment 41,480 - Bad debt expense 112,715 147,922 Deferred rent 20,521 19,780 Changes in operating assets and liabilities: Accounts receivable (56,543 ) (103,925 ) Inventory (35,402 ) (33,355 ) Prepaid expenses and other current assets 7,161 (31,652 ) Security deposits and other assets (92,454 ) (5,930 ) Accounts payable and accrued expenses (786,278 ) 248,209 Deferred revenue (268,543 ) (508,178 ) Other current liabilities (11,225 ) 45,157 Total Adjustments 2,313,232 23,880,818 Net Cash Used in Operating Activities (7,785,873 ) (4,504,226 ) Cash Flows from Investing Activities Purchases of property and equipment (781,041 ) (1,161,625 ) Issuance of loans receivable - (60,186 ) Cash paid in connection with the acquisition of Midtown - (35,116 ) Cash paid in connection with the acquisition of Bronx - (300,000 ) Cash paid in connection with the acquisition of Philadelphia (75,000 ) - Collections from loans receivable 5,707 35,708 Collections from loans receivable - related party - 650 Net Cash Used in Investing Activities (850,334 ) (1,520,569 ) 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 over-allotment, net of underwriter’s discount and offering costs of $75,600 764,399 - Proceeds from PPP loan 866,300 - Repayments of convertible note payable (550,000 ) (50,000 ) Proceeds from other notes payable - related party - 91,000 Proceeds from convertible notes payable - 6,373,000 Proceeds from convertible notes payable - related parties - 100,000 Repayments of convertible notes payable - related party - (100,000 ) Repayments of other notes payable - related parties (91,000 ) (335,000 ) Repayments of other notes payables (506,415 ) (233,193 ) Proceeds from other notes payable 150,000 300,000 Net Cash Provided by Financing Activities 12,353,285 6,145,807 Net Increase in Cash 3,717,078 121,012 Cash - Beginning of Period 478,854 357,842 Cash - End of Period $ 4,195,932 $ 478,854 See Notes to the Consolidated Financial Statements F- 7 MUSCLE MAKER, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED For the Years Ended December 31, 2020 2019 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 395,695 $ 1,093,261 Supplemental disclosures of non-cash investing and financing activities Beneficial conversion feature $ - $ 548,020 Warrants issued in connection with convertible debt $ - $ 548,354 Common stock issued in exchange for interest earned on convertible notes payable $ - $ 111,666 Issuance of restricted stock $ - $ 1 Common stock issued in exchange for interest earned on other notes payable $ - $ 479,323 Common stock issued in exchange for accrued interest $ 357,735 $ 9,488,000 Acquisition of Chelsea NY – loans receivables settled as consideration for the acquisition of Chelsea $ 68,292 - F- 8 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS, GOING CONCERN AND MANAGEMENT’S PLANS Muscle Maker, Inc. (“MMI”), a Nevada corporation was incorporated in Nevada on October 25, 2019. MMI was a wholly owned subsidiary of Muscle Maker, Inc (“MMI-Cal”), a California corporation incorporated on December 8, 2014, but the two merged on November 13, 2019 with MMI as the surviving entity. MMI wholly owns Muscle Maker Development, LLC (“MMD”), Muscle Maker Corp, LLC (“MMC”) and Muscle Maker USA, Inc (“Muscle USA”). MMD was formed on July 18, 2017, in the State of Nevada for the purpose of running our existing franchise operations and continuing to franchise the Muscle Maker Grill name and business system to qualified franchisees. MMC was formed on July 18, 2017, in the State of Nevada for the purpose of developing new corporate stores and operating new and existing corporate stores of MMI. Muscle USA was formed on March 14, 2019 in the State of Texas for the purpose of opening additional new corporate stores. Muscle Maker Development International. LLC, a directly wholly owned subsidiary, which was formed in Nevada on November 13, 2020 to franchise the Muscle Maker Grill name and business system to qualified franchisees internationally. MMI is a fast-casual restaurant concept that specializes in preparing healthy-inspired, high-quality, fresh, made-to-order lean, protein-based meals featuring chicken, seafood, pasta, hamburgers, wraps and flat breads. In addition, our restaurants feature freshly prepared entrée salads and an appealing selection of sides, protein shakes and fruit smoothies. MMI operates in the fast-casual restaurant segment. MMI is the owner of the trade name and service mark Muscle Maker Grill®, Healthy Joe’s and other trademarks and intellectual property we use in connection with the operation of Muscle Maker Grill® restaurants. We license the right to use the Muscle Maker Grill® and Healthy Joe’s trademarks and intellectual property to our wholly-owned subsidiaries, MMD, MMC and Muscle USA, and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® and Healthy Joe’s restaurants. 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 December 31, 2020, the Company’s restaurant system included sixteen company-owned restaurants, and sixteen franchise restaurants. In addition, the Company built four new locations on university campuses but due to Covid-19 restrictions have not yet opened these locations but incurred expenses during the twelve months ended December 31, 2020. Four 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 year ended December 31, 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. As of the date of the filing of this report the Company re-opened five of the seven temporarily closed locations and permanently closed two underperforming locations. Commencing in the second quarter of 2020 the Company provided royalty relief to its franchisee locations by deferring half of their royalties earned by the Company through July 2020. The Company has not attempted to collect the deferred royalties as of the date of the filing of this report as we provide time for franchise location to fully recover to pre-pandemic conditions. The executive team deferred a portion of their salaries in 2020 and some members continue to defer salary as of the 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 seven of the franchise locations have permanently closed. F- 9 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to 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 December 31, 2020, the Company had a cash balance, a working capital surplus and an accumulated deficit of $4,195,932, $1,383,568, and $63,193,707, respectively. During the year ended December 31, 2020, the Company incurred a pre-tax net loss of $10,099,105 and net cash used in operations of $7,785,873. 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 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 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 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 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. NOTE 2 – REVERSE STOCK SPLITS Effective December 11, 2019, pursuant to authority granted by the stockholders 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. F- 10 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and majority-owned subsidiary. 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. F- 11 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Use of Estimates, continued Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates include: ● the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets; ● the estimated useful lives of intangible and depreciable assets; ● estimates and assumptions used to value warrants and options; ● the recognition of revenue; and ● the recognition, measurement and valuation of current and deferred income taxes. Estimates and assumptions are periodically reviewed, and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions. Cash and Cash Equivalents The Company considers all highly-liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of December 31, 2020 or 2019. Inventory Inventories, which are stated at the lower of cost or net realizable value, consist primarily of perishable food items and supplies. Cost is determined using the first-in, first out method. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized, and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows: Furniture and equipment 5 - 7 years Leasehold improvements 1 – 10.33 years F- 12 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Intangible Assets The Company accounts for recorded intangible assets in accordance with ASC 350 “Intangibles - Goodwill and Other”. In accordance with ASC 350, the Company does not amortize intangible assets having indefinite useful lives. The Company’s 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, the Company performs an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income. Convertible Instruments The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument. If the instrument is determined not to be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the market price of the Company’s common stock as of the commitment date to the effective conversion price of the instrument. F- 13 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Convertible Instruments, continued As of December 31, 2020 and December 31, 2019, the Company did not have any derivative liabilities on its balance sheets. 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 as of January 1, 2019. 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 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. F- 14 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to 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 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. 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. F- 15 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Franchise Advertising Fund Contributions Under the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under 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. Advertising Advertising costs are charged to expense as incurred. Advertising costs were approximately $175,378 and $34,119 for the years ended December 31, 2020 and 2019, are included in general and administrative expenses in the accompanying consolidated statements of operations. 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. F- 16 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Net Loss per Share, continued The following securities are excluded from the calculation of weighted average diluted common shares at December 31, 2020 and 2019, respectively, because their inclusion would have been anti-dilutive: December 31, 2020 2019 Warrants 2,582,857 2,450,287 Options 300,000 4,821 Convertible debt 32,350 95,400 Total potentially dilutive shares 2,915,207 2,550,508 Major Vendor The Company engages various vendors to distribute food products to their Company-owned restaurants. Purchases from the Company’s largest supplier totaled 87% and 83% of the Company’s purchases for the years ended December 31, 2020 and 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 15 – Equity – Warrant and Options Valuation for details related to accrued compensation liability being fair valued using Level 1 inputs. Income Taxes The Company accounts for income taxes under Accounting Standards Codification (“ASC”) 740 Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit 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. 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. F- 17 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Income Taxes, continued Tax benefits claimed or expected to be claimed on a tax return are recorded in the Company’s financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Uncertain tax positions have had no impact on the Company’s financial condition, results of operations or cash flows. The Company does not expect any significant changes in its unrecognized tax benefits within years of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements of operations. Reclassifications Certain prior year balances have been reclassified in order to conform to current year presentation. These reclassifications have no effect on the previously reported results of operations or loss per share. Stock-Based Compensation The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally recorded on the grant date and re-measured on financial reporting dates and vesting dates until the service period is complete. The fair value amount of the award is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial statements and disclosures. F- 18 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES, continued Recent Accounting Pronouncements, continued In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different. ASU 2018-07 expands the scope of Topic 718, Compensation — Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than a Company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company is currently evaluating ASU 2018-07 and its impact on the consolidated financial statements. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for emerging growth companies for interim and annual reporting periods beginning after December 15, 2021, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company is currently assessing the impact this guidance will have on its consolidated financial statements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for emerging growth companies for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently assessing the impact this guidance will have on its 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, 2021 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 consolidated financial statements and financial statement disclosures. Subsequent Events The Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed in Note 17 – Subsequent Events. F- 19 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 4 – ACQUISITIONS Midtown Acquisition On August 22, 2019, the Company acquired a franchisee store in Midtown, New York, as a corporate store (the “Midtown Acquisition”). The purchase price of the store was $121,464, of which $35,116 related to equipment purchased and the remaining $86,348 was accounted for as goodwill. The Company paid cash of approximately $35,000 and also assumed a liability of approximately $86,000 which was recorded in accounts payable and accrued expenses. During the year ended December 31, 2019, the Company recorded sales revenues from this location of approximately $299,000 in company restaurant sales, net of discounts on the consolidated statement of operations. The unaudited pro-forma financial information in the table below summarizes the consolidated results of operations of the Company and the Midtown franchisee store as though the acquisition had occurred as of January 1, 2019. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results. Pro Forma (Unaudited) For the Year Ended December 31, 2019 Revenues $ 5,822,310 Restaurant operating expenses 4,740,650 Total cost and expenses 9,405,961 Loss from Operations (3,583,651 ) Bronx Acquisition On October 10, 2019, the Company acquired a former franchisee location in the Bronx, New York, as a corporate store (the “Bronx Acquisition”). The purchase price of the store was $600,000, of which $30,000 related to equipment purchased and the remaining $570,000 was accounted for as goodwill. The purchase price is payable as follows: $300,000 that was paid at closing and the remaining $300,000 is payable pursuant to a five-year promissory note with an eight percent interest rate. During the year ended December 31, 2019, the Company recorded sales revenues from this location of approximately $223,000 in company restaurant sales, net of discounts on the consolidated statement of operations. The unaudited pro-forma financial information in the table below summarizes the consolidated results of operations of the Company and the Bronx franchisee store as though the acquisition had occurred as of January 1, 2019. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results. Pro Forma (Unaudited) For the Year Ended December 31, 2019 Revenues $ 6,045,035 Restaurant operating expenses 4,912,302 Total cost and expenses 9,577,613 Loss from Operations (3,532,578 ) F- 20 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 4 – ACQUISITIONS, continued 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 that was owed from the franchisee 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. Monthly rent payments pursuant to this lease agreement range from $11,000 to $16,105 with a straight line rent expense of $13,431 per month. The unaudited pro-forma financial information in the table below summarizes the consolidated results of operations of the Company and the Chelsea franchisee store as though the acquisition had occurred as of January 1, 2019. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results. Pro Forma (Unaudited) For the Years Ended December 31, 2020 2019 Revenues $ 4,723,815 $ 6,099,929 Restaurant operating expenses 5,440,040 4,974,531 Total cost and expenses 14,650,196 9,639,842 Loss from Operations (9,926,382 ) (3,539,913 ) 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 the remaining commitment under the lease upon the closing date. The unaudited pro-forma financial information in the table below summarizes the combined results of operations of the Company and the Philadelphia franchisee store as though the acquisition had occurred as of January 1, 2019. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results. Pro Forma (Unaudited) For the Years Ended December 31, 2020 2019 Revenues $ 4,877,003 $ 5,571,792 Restaurant operating expenses 5,548,238 4,499,207 Total cost and expenses 14,758,430 9,164,518 Loss from Operations (9,881,427 ) (3,592,726 ) F- 21 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 5 - LOANS RECEIVABLE At December 31, 2020 and 2019, the Company’s loans receivable consists of the following: December 31, December 31, 2020 2019 Loans receivable, net $ 3,390 $ 137,389 Less: current portion (2,394 ) (38,712 ) Loans receivable, non-current $ 996 $ 98,677 During August 2019, the company advanced money to a former franchisee and issued a loan receivable in the amount of $60,186. The loan is payable in 120 monthly payments consisting of principal and interest of 12%, with the payments commencing as of December 1, 2019. Loans receivable includes loans to franchisees totaling, in the aggregate, $3,390 and $137,389, net of reserves for uncollectible loans of $106,900 and $55,000 at December 31, 2020 and December 31, 2019. 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 6 – PROPERTY AND EQUIPMENT, NET As of December 31, 2020, and 2019, property and equipment consist of the following: December 31, 2020 December 31, 2019 Furniture and equipment $ 1,143,320 $ 617,712 Leasehold improvements 1,940,907 1,518,293 3,084,227 2,136,005 Less: accumulated depreciation and amortization (741,504 ) (489,126 ) Property and equipment, net $ 2,342,723 $ 1,646,879 Depreciation expense amounted to $362,009 and $134,712 for the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 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 consolidated statement of operations. F- 22 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 7 – 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, 2018 $ 2,524,000 $ 578,621 $ 3,102,621 Amortization expense - (63,806 ) (63,806 ) Intangible assets, net at December 31, 2019 2,524,000 $ 514,815 $ 3,038,815 Amortization expense - (60,537 ) (60,537 ) Impairment of intangible asset - (100,000 ) (100,000 ) Intangible assets, net at December 31, 2020 $ 2,524,000 $ 354,278 $ 2,878,278 Weighted average remaining amortization period at December 31, 2020 (in years) 7.1 Amortization expense related to intangible assets was $60,537 and $63,806 for the years ended December 31, 2020 and 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 $100,000 during the year ended December 31, 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. The estimated future amortization expense is as follows: For the Year Ended December 31, Franchise Agreements 2021 $ 50,140 2022 50,140 2023 50,140 2024 50,140 2025 50,140 Thereafter 103,441 $ 354,141 As of December 31, 2020 and 2019, the Company performed the annual assessment for goodwill and determined that there was no impairment of Goodwill. F- 23 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 8 – ACCOUNTS PAYABLES AND ACCRUED EXPENSES Accounts payables and accrued expenses consist of the following: December 31, 2020 December 31, 2019 Accounts payable $ 692,966 $ 857,846 Accrued payroll 78,667 139,320 Accrued professional fees 224,028 329,826 Accrued board members fees 36,697 59,864 Accrued rent expense 171,266 269,644 Sales taxes payable (1) 231,177 329,089 Accrued interest 25,222 520,682 Accrued interest, related parties - 79,523 Other accrued expenses 40,912 45,154 $ 1,500,935 $ 2,630,948 (1) See Note 14 – Commitments and Contingencies –Taxes for detailed related to delinquent sales taxes. NOTE 9 – CONVERTIBLE NOTE PAYABLE TO FORMER PARENT On April 6, 2018, the Company issued a $475,000 convertible promissory note (the “2018 ARH Note”) to the Former Parent for services rendered and expense paid on behalf of the Company. The 2018 ARH Note has no stated interest rate or maturity date and is convertible into shares of the Company’s common stock at a conversion price of $3.50 per share at a time to be determined by the lender. On April 11, 2018, the Former Parent elected to partially convert the 2018 ARH Note for the principal of $392,542 into 112,154 shares of the Company’s common stock. The Company had an aggregate gross amount of $82,458, as of December 31, 2020 and 2019, respectively, in convertible notes payable to Former Parent outstanding. F- 24 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 –NOTES PAYABLE 15% Senior Secured Convertible Promissory Notes From September 12, 2018 through December 31, 2018, the Company entered into Securities Purchase Agreements (“SPAs”) with several accredited investors (the “Investors”) providing for the sale by the Company to the investors of 15% Senior Secured Convertible Promissory Notes (the “15% Notes”) in the aggregate amount of $2,165,000, which included $635,000 in other notes payable that were converted into 15% Notes. The Notes bear interest at 15% per annum paid quarterly and mature 18 months from issuance. In addition to the 15% Notes, the Investors also received 154,643 five year warrants to purchase common stock of the Company (the “Warrants”) that entitles the holder to purchase a number of shares equal to 50% of the conversion shares of common stock of the Company at an exercise price of $8.40. From January 1, 2019 through May 24, 2019, the Company entered into SPAs with several accredited Investors providing for the sale by the Company to the Investors of 15% Notes in the aggregate amount of $2,973,000, of which a $100,000 was to related parties. In addition to the 15% Notes, the Investors also received 212,354 five year warrants to purchase common stock of the Company (the “Warrants”) that entitles the holder to purchase a number of shares equal to 50% of the conversion shares of common stock of the Company at an exercise price of $8.40. The Investors may elect to convert all or part of the 15% Notes, plus accrued interest, at any time into shares of common stock of the Company at a conversion price of $7.00 (the “Fixed Conversion Price”); provided, however, in the event the per share price of a public offering multiplied by twenty-five percent (25%), as amended on April 10, 2019, at the time of the listing of the shares of common stock on an exchange (the “Listing Event”) is less than $7.00 (the “Discounted Public Offering Price”) then the conversion price shall be reset to equal the Discounted Public Offering Price. In the event the Investors are required to execute a Lock Up Agreement concurrent with a public offering at the time of the Listing Event, then the Fixed Conversion Price shall be $5.25 and the Discounted Public Offering Price shall be the public offering multiplied by seventeen and a half percent (17.50%), as amended on April 10, 2019, at the time of the Listing Event. Upon the occurrence of a Listing Event or the sale or license of all or substantially all of the Company’s assets (a “Liquidity Event”), the entire unpaid and outstanding principal amount and any accrued interest thereon under this Note shall automatically convert in whole without any further action by the Holder. The Investors to the 15% Notes, received an aggregate of 366,997 warrants (“Original Warrants”) to purchase common stock of the Company (the “Warrants”) that entitles the holder to purchase a number of shares equal to 50% of the conversion shares of common stock of the Company. The Warrants are exercisable for five years at an exercise price of $8.40. In the event the conversion price is adjusted as contemplated above, then the exercise price shall adjust to equal 120% of the adjusted conversion price. The Investors may exercise the Warrants on a cashless basis. The Securities Purchase Agreements require that until the Company’s stock is listed on a public exchange (“Listing Event”), a note holder holds the right to designate one member and one observer to the board of directors of the Company and that the Company shall engage an investor relations firm mutually agreed to by the Company and a note holder from the time of the Listing Event until six months after the Listing Event. The Company is also required to engage Insight Advisory as a consultant to provide business and financial advice. The Company granted the Investors piggyback registration rights with respect to the shares of common stock underlying the Notes and the Warrants. F- 25 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 –NOTES PAYABLE, continued 15% Senior Secured Convertible Promissory Notes, continued On December 5, 2019, an aggregate of $4,343,000 SPA Notes, were amended and converted, into 2,171,500 shares of our common stock with an amended conversion price of $2.00. In addition, per the amendments the Company modified the Original Warrants issued of 303,071 with an exercise price of $8.40 to warrants to acquire an aggregate of 1,085,750 shares of common stock of the Company with an exercise price of $2.40. On December 5, 2019, a $345,000 SPA Note, was amended and converted, into 138,000 shares of our common stock with an amended conversion price of $2.50. In addition, per the amendments the Company modified the Original Warrants issued of 24,643 with an exercise price of $8.40 to warrants to acquire an aggregate of 69,000 shares of common stock of the Company with an exercise price of $3.00. During the year ended December 31, 2020, the Company repaid an aggregate of $450,000 in 15% senior secured convertible promissory notes. 12% Secured Convertible Notes During April 2019, Muscle USA entered into security purchase agreement (“April 2019 SPA”) with the several accredited investors (“April 2019 Investors”) providing for the sale by the Company to the investors of 12% secured convertible notes (“April 2019 Notes”) in the aggregate amount of $3,500,000 (the “April 2019 Offering”). The April 2019 Notes bear interest at 12% per annum, paid quarterly, and mature 18 months from issuance. The April 2019 Investors may elect to convert all or part of the April 2019 Notes, plus accrued interest, at any time into shares of common stock of the Company at a conversion price of $14.00 per share (the “April 2019 Conversion Price”); provided, however, in the event the per share price of a public offering multiplied by fifty percent (50%) at the time of the Company listing on a national exchange (the “April 2019 Discounted Public Offering Price”) is less than $14.00 then the April 2019 Conversion Price shall be reset to equal the lesser of (i) April 2019 Discounted Public Offering Price or (ii) a price per share equal to a $20 million valuation. In addition to the April 2019 Notes, the Investors also received 125,000 warrants to purchase common stock of the Company (the “April 2019 Warrants”) that entitle the holders to purchase a number of shares equal to 50% of the conversion shares of common stock of the Company. The April 2019 Warrants are exercisable for five years at an exercise price of 115% of the conversion price. Upon the occurrence of the listing of the Company’s common stock on a national securities exchange, the sale of all or substantially all of the Company’s stock, the sale or licensing of all or substantially all of the Company’s assets or any combination of the foregoing, the entire unpaid and outstanding principal amount and any accrued interest thereon under the April 2019 Notes shall automatically convert in whole without any further action by the holders. As long as the April 2019 Notes remain outstanding, the Company has agreed that, among other items, it will only use proceeds from the sale of the April 2019 Notes and exercise of the April 2019 Warrants for specific corporate purposes as set forth in the April 2019 SPA, will not incur or permit indebtedness or liens unless permitted and will not enter into variable priced transactions. The Company and the April 2019 Investors entered into Security and Pledge Agreements providing that the obligations to the April 2019 Investors are secured by substantially all of Muscle USA’s assets. The Company granted the April 2019 Investors piggyback registration rights with respect to the shares of common stock underlying the April 2019 Notes and the April 2019 Warrants. F- 26 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 –NOTES PAYABLE, continued 12% Secured Convertible Notes, continued On December 5, 2019, an aggregate of $3,175,000 April 2019 Notes, were amended and converted, into 1,270,000 shares of our common stock with an amended conversion price of $2.50. In addition, per the amendments the Company modified the original warrants issued of 113,393 with an exercise price of $16.10 to warrants to acquire an aggregate of 635,000 shares of common stock of the Company with an exercise price of $2.88. On December 5, 2019, a $250,000 April 2019 Notes, was amended and converted, into 83,333 shares of our common stock with an amended conversion price of $3.00. In addition, per the amendment the Company modified the original warrants issued of 8,929 with an exercise price of $16.10 to warrants to acquire an aggregate of 41,667 shares of common stock of the Company with an exercise price of $3.45. During the year ended December 31, 2020, the Company repaid the $75,000 12% secured convertible promissory note. Other Convertible Notes On or about January 23, 2019, the Company and certain note holders, including related parties, agreed to extend the maturity date of the convertible notes payable, as amended and extended on or about August 2018, in the aggregate principal amount of $1,550,000, of which $400,000 was to related parties, to be upon the earlier of (a) January 24, 2020 or (b) the first day the company’s stock is publicly traded. All interest due and payable on the notes, shall be converted into shares of common stock at a conversion price of $1.00 per share. The Company reclassified $12,972 of convertible notes payable at December 31, 2018 to convertible notes payable related parties during the quarter ended September 30, 2019. During April 2019, the Company repaid convertible notes payable in the aggregate principal amount of $150,000, of which $100,000 belong to related parties. In addition, the company issued 15,952 of the company’s common stock as payment for the interest incurred on the convertible notes payable repaid in the aggregate amount of $111,666. On December 5, 2019, an aggregate of $1,375,000 of our original other covertible notes, were amended and converted, into 392,850 shares of our common stock with an amended conversion price of $3.50. In addition, per the amendments the Company modified the original warrants issued of 10,713 with an exercise price of $65.31 to warrants to acquire an aggregate of 200,000 shares of common stock of the Company with an exercise price of $3.50. During the year ended December 31, 2019, as discussed throughout this footnote, various convertible notes were amended and the note holders were induced to convert their notes and the Company incurred inducement expense related to the convertible notes of $15,102,206. The modification was a one time event that only applied to holders willing to convert and therefore was recorded as inducement expense. During the year ended December 31, 2019, as discussed throughout this footnote, various warrants terms where modified. As a result, the Company recorded warrant modification expense of $5,405,770. In applying the Black-Scholes option pricing model to value the warrants that where modified, the Company used the following assumptions: For the Year Ended December 31, 2019 Risk free interest rate 1.55 – 1.62 % Expected term (years) 0.28 – 4.79 Expected volatility 46.69- 52.54 % Expected dividends 0.00 % In accordance with ASC 470-20 “Debt with Conversion and other Options”, the intrinsic value related to the convertible notes results in a beneficial conversion feature which is recorded as a debt discount with a corresponding credit to additional paid in capital. The relative fair value of the warrants at the date of grant is also recorded as a debt discount. As of December 31, 2019, the Company has aggregate debt discounts on the convertible notes and convertible notes, related parties of $38,918 and $0, net of amortization expenses, related to the warrants and the beneficial conversion feature, respectively. For the year ended December 31, 2019, the Company recorded aggregate debt discounts of $548,354 and $548,020, related to the warrants and the beneficial conversion feature, respectively, on the convertible notes, which were amortized over the expected terms of the respective notes. During the year ended December 31, 2020, the Company repaid a $25,000 other convertible note payable. As of December 31, 2020 and 2019, the Company has another convertible note payable in the amount of $100,000 which is included within convertible notes payable. See Note 14 – Commitments and Contingencies – Litigation, Claims and Assessments for details related to the $100,000 other convertible note payable. F- 27 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 –NOTES PAYABLE, continued Other Notes Payable On or about January 23, 2019, the Company and certain note holders, including related parties, agreed to extend the maturity date of the notes payable, as amended and extended on or about August 2018, in the aggregate principal amount of $560,000 to be upon the earlier of (a) January 24, 2020 or (b) the first day the company’s stock is publicly traded. All interest due and payable on the notes, shall be converted into shares of common stock at a conversion price of $7.00 per share. During April 2019, the Company repaid other notes payable in the aggregate principal amount of $560,000, of which $335,000 belong to related parties. In addition, the company issued 68,475 of the company’s common stock as payment for the interest incurred on the other notes payable repaid in the aggregate amount of $479,323. 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. The note has been repaid during the year ended December 31, 2020. On October 10, 2019, the Company issued a note payable in connection with the acquisition of the franchisee location in the amount of $300,000. The note has a stated interest rate of 8% with monthly payments payable over 5 years. See Note 4 – Acquisitions – Bronx Acquisition for details regarding a note payable. 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 becomes due in full on or before February 21, 2020. The note has been repaid during the year ended December 31, 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 year ended December 31, 2020. 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 if the Company did not apply for forgiveness on the PPP Loan. Since the Company applied for loan forgiveness during the first ten months of the term, payments are deferred until the U.S. Small Business Administration determines the Company’s loan forgiveness amount. 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. F- 28 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 –NOTES PAYABLE, continued As of December 31, 2020, the Company had an aggregate gross amount of $182,458 in convertible notes payable outstanding, (net of debt discount in the amount of $0 and a net balance of $182,458 included within convertible notes payable, net of debt discount). As of December 31, 2019, the Company had an aggregate gross amount of $732,458 in convertible notes payable outstanding (net of debt discount in the amount of $38,918 with a net balance of $693,540 included within convertible notes payable, net of debt discount). As of December 31, 2020, the Company had an aggregate amount of $1,276,692 and $0 in other notes payable and other notes payable, related party, respectively. As of December 31, 2019, the Company had an aggregate amount of $591,807 and $91,000 in other notes payable and other notes payable, related party , respectively. The maturities of other notes payable as of December 31, 2020, are as follows: Principal Repayments due as of Amount 12/31/2021 $ 701,552 12/31/2022 341,635 12/31/2023 100,466 12/31/2024 96,223 12/31/2025 36,816 $ 1,276,692 NOTE 11 – DEFERRED REVENUE At December 31, 2020 and 2019, deferred revenue consists of the following: December 31, 2020 December 31, 2019 Franchise fees $ 983,958 $ 1,210,719 Unearned vendor rebates 23,171 64,953 Less: Unearned vendor rebates, current (23,171 ) (64,953 ) Less: Franchise fees, current (39,687 ) (57,744 ) Deferred revenues, non-current $ 944,271 $ 1,152,975 Deferred revenue of $277,255 at December 31, 2019 was recognized in revenue in 2020 within franchise royalties and fees on the consolidated statement of operations. Deferred revenue of $39,687 at December 31, 2020 is expected to be recognized during 2021. NOTE 12 – OTHER CURRENT LIABILITIES Other current liabilities consist of the following: December 31, 2020 December 31, 2019 Gift card liability $ 91,034 $ 88,673 Co-op advertising fund liability 299,490 298,662 Advertising fund liability 250,894 265,308 $ 641,418 $ 652,643 F- 29 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 13 – INCOME TAXES The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2020 and 2019 are presented below: For the Years Ended December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 7,692,505 $ 4,792,519 Stock-based compensation 289,758 267,226 Accounts receivables allowance 22,932 21,000 Accruals 16,266 48,502 Intangible assets 269,562 357,188 Property and equipment 10,292 2,858 Deferred Rent 5,746 - Deferred revenues 267,996 356,992 Gross deferred tax asset 8,575,057 5,846,285 Deferred tax liabilities: Beneficial conversion feature - (10,897 ) Deferred Rent - (260 ) Gross deferred tax liabilities - (11,157 ) Net deferred tax assets 8,575,057 5,835,128 Valuation allowance (8,575,057 ) (5,835,128 ) Net deferred tax assets, net of valuation allowance $ - $ - The income tax (provision) benefit for the periods shown consist of the following: For the Years Ended December 31, 2020 2019 Federal: Current $ - $ - Deferred 2,054,947 1,995,774 State and local: Current - - Deferred 684,982 665,258 2,739,929 2,661,032 Change in valuation allowance (2,739,929 ) (2,661,032 ) Income tax (provision) benefit $ - $ - F- 30 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 13 – INCOME TAXES, continued A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the periods shown, are as follows: For the Years Ended December 31, 2020 2019 Federal income tax benefit at statutory rate 21.0 % 21.0 % State income tax benefit, net of federal impact 7.0 % 7.0 % Permanent differences (0.0 )% (20.6 )% Income passed through to non-controlling interests (0.0 )% (0.0 )% Other (0.4 )% (1.2 )% Change in valuation allowance (27.6 )% (6.2 )% Effective income tax rate 0.0 % 0.0 % The Company has filing obligations in what it considers its U.S. major tax jurisdictions as follows: Nevada, California, New Jersey, Texas, New York State and New York City. The Company’s tax returns filed for the years ending December 31, 2019, 2018, 2017 and 2016 remain subject to examination. The Company is in the process of amending its U.S. Federal and State tax returns for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. As a result of the Company amending its Federal and State tax returns, the Company cannot, with certainty, determine the exact Federal and State NOLs available as of December 31, 2020. The Company estimates that upon completing the filing of the amended returns and the returns for year-end December 31, 2020 that the Company would have approximately $27.5 million of Federal and State NOLs available to offset future taxable income. The net operating loss carryforwards, if not utilized, will expire from 2031 to 2037 for federal and state purposes. Approximately $100,000 of NOL expired during year end December 31, 2020 and approximately $36,000 is projected to expire during year end December 31, 2021. In accordance with Section 382 of the Internal Revenue Code, the utilization of the Company’s net operating loss carryforwards could be subject to annual limitations if there has been greater than 50% ownership change. As such, the Company completed a Section 382 analysis and determined that none of its net operating losses would be limited as of December 31, 2020. F- 31 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES Operating Leases The leases are subject to certain annual escalations as defined in the agreements. The Company recognizes rent on a straight-line basis. The cumulative difference between the rent payments and the rent expense since the inception of the leases was $99,859 at December 31, 2020. On August 1, 2019, the Company entered into a settlement agreement with a landlord in connection with the prior executive office in Houston, Texas as the Company vacated the property on April 30, 2018. The Company owed the landlord the sum of $58,522. The landlord agreed to accept $32,283 as full payment of the damages. Pursuant to the settlement we will make three equal payments of $10,761 with the first payment to be made on August 2, 2019, the second payment is to be made on September 1, 2019 and the final payment is to be made on October 1, 2019. As of December 31, 2019, the Company has met all their obligations and the full amount has been paid. On August 22, 2019, the Company entered into a sublease with sublandlord, in connection with the acquisition of the Midtown location, for a lease with a term ending on August 31, 2022. The Company may terminate this sublease with the sublandlord with 30-day notice. The lease calls for annual base rent during the remaining term ranging between $10,448 an $11,417. On October 10, 2019, the Company entered into a lease agreement for five years with a landlord in connection with the acquisition of the Bronx location. The lease calls for an annual base rent of $6,500 per month for the first twenty-four months, with annual three percent rent increase thereafter. The lease has the option of two five-year extensions with an annual three percent rent increase. During the year ended December 31, 2019, the Company became obligated for payments pursuant to two new lease agreements for restaurant spaces with lease terms of 10 years, exclusive of options to renew. These lease agreements have a monthly rent expense based on a percentage fee of eight percent of gross sales for each year of the agreement. One of the lease states that the percentage fee will be ten percent for gross sales equal or greater than $1,000,000 for an agreement year. 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. Due to the economic effect of COVID-19 the Company made the decision to close one of their Company owned stores permanently during the third quarter of 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. On October 19, 2020, the Company entered into a lease agreement for five years with a landlord in connection with the acquisition of the Chelsea location. The lease calls for an annual base rent of $11,000 per month for the first twelve months, with annual nine percent rent increase thereafter. The lease has the option of two five-year extensions with an annual three percent rent increase. On November 2, 2020 the Company agreed to a lease assignment for the remaining term of a five years with a landlord, that was entered into on January 1, 2020, in connection with the acquisition of the Philadelphia location. The lease calls for an annual base rent of $43,992 per month. The lease has the option of one five-year extensions with an annual base rent of $48,396 per month. The Company has recorded security deposits, totaling, in the aggregate, approximately $131,790 and $37,000 as of December 31, 2020 and 2019, respectively. F- 32 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Operating Leases, continued Future aggregate minimum lease payments for these leases and others as of December 31, 2020 are: Future Minimum Lease Payments 2021 $ 595,788 2022 569,724 2023 484,442 2024 485,351 2025 345,804 Thereafter 274,190 $ 2,755,299 Total rent expense was $726,242 and $467,106 for the years ended December 31, 2020 and 2019, respectively. Of which $691,986 is recognized as rent expense under operating costs and expenses on the consolidated statement of operations and the remaining $34,256 is recognized within general and administrative expenses on the consolidated statement of operations. Included within rent expense for the year ended December 31,2020, under operating cost and expense on the consolidated statement of operation is monthly license fees of approximately $78,000 incurred in connection with our delivery only kitchens. Employment Agreements On September 26, 2018, the Company rehired Ferdinand Groenewald as Chief Financial Officer of the Company and entered into an Employment Agreement with Mr. Groenewald. Pursuant to the agreement, Mr. Groenewald will be employed as Chief Financial Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Mr. Groenewald will be entitled to a base salary at the annualized rate of $150,000 and will be eligible for a discretionary performance cash bonuses which will include $10,000 upon completion of the audit for the year ended December 31, 2017 and $25,000 and up to 1,428 shares of common stock upon completion of a public offering of not less than $3 million together with listing on a national exchange (the “Public Offering”), which may be increased to 3,571 in the event $5 million is raised. Mr. Groenewald’s salary will increase to $175,000 upon closing of the Public Offering. Mr. Groenewald is also eligible to participate in employee benefits plans as the Company may institute from time to time that are available for full-time employees. Mr. Groenewald was paid a discretionary performance cash and equity bonuses including cash of $25,000 and 19,285 shares upon completion of the Public Offering. On August 11, 2020, Mr. Groenewald agreed to cancel 19,285 shares of the Company’s common stock previously issued and waved all rights to the equity compensation provided under his employment agreement. On September 26, 2018, the Company appointed Kenneth Miller as Chief Operating Officer of the Company and entered into an Employment Agreement with Mr. Miller. Pursuant to the agreement, Mr. Miller will be employed as Chief Operating Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the agreement. During the term of the agreement, Mr. Miller will be entitled to a base salary at the annualized rate of $200,000, which will be increased to $275,000 upon successful closing of the Public Offering. Mr. Miller was issued 14,285 shares of the Company’s common stock upon closing of the Public Offering. In addition, Mr. Miller was paid a discretionary performance cash and equity bonuses including cash of $50,000 and 17,857 shares of common stock upon completion of the Public Offering. Mr. Miller is also eligible to participate in employee benefits plans as we may institute from time to time that are available for full-time employees. On August 11, 2020, Mr. Miller agreed to cancel 32,142 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. F- 33 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Employment Agreements, continued On October 26, 2018, the Company entered into an Employment Agreement with Michael Roper, which replaced his employment agreement from May 2018. Pursuant to the Employment Agreement, Mr. Roper will continue to be employed as Chief Executive Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the agreement. The Employment Agreement will be automatically extended upon listing the Company on a national exchange and raising $3,000,000 (the “Public Offering”). During the term of the Employment Agreement, Mr. Roper will be entitled to a base salary at the annualized rate of $250,000, which was increased to $275,000 upon achieving various milestones required by the Investors that participated in the September 2018 Offering and will be increased to $350,000 upon the Company completing the Public Offering. Mr. Roper will be eligible for a discretionary performance bonus to be paid in cash or equity, provided, however, no cash bonus will be paid until the closing of the Public Offering. Mr. Roper was paid a $100,000 bonus upon closing of the Public Offering. Mr. Roper was also issued 14,285 shares of our common stock upon the closing of the Public Offering. In addition, pursuant to board approval on June 29, 2019, Mr. Roper was issued 35,714 shares of our restricted common stock awards upon closing of the Public Offering. In addition, upon the closing of the Public Offering Mr. Roper received 14,285 shares of common stock pursuant to his employment agreement. Mr. Roper was issued an additional 35,714 pursuant to his employment agreement upon the closing of the Public Offering of at least $5 million. Mr. Roper’s common stock was issued on February 18, 2020 and his bonus was paid, subsequent to completing our Public Offering. On August 11, 2020, Mr. Roper agreed to cancel 100,000 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. On October 26, 2018, the Company entered into an Employment Agreement with Kevin Mohan. Pursuant to the Employment Agreement, Mr. Mohan will be engaged as Chief Investment Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the agreement. The Employment Agreement will be automatically extended upon the Public Offering. During the term of the Employment Agreement, Mr. Mohan will be entitled to a base salary at the annualized rate of $156,000, which will be increased to $175,000 upon the Public Offering. Mr. Mohan will be eligible for a discretionary performance bonus to be paid in cash following the closing of the Public Offering. Mr. Mohan was paid $50,000 bonus upon closing of the Public Offering. Mr. Mohan was also issued 28,571 shares of our common stock upon the closing of the Public Offering. In addition, pursuant to board approval on June 29, 2019, Mr. Mohan was issued 35,714 shares of our restricted common stock awards upon closing of the Public Offering. Mr. Mohan’s common stock was issued on February 18, 2020 and his bonus was paid, subsequent to completing our Public Offering. On August 11, 2020, Mr. Mohan agreed to cancel 64,285 shares of common stock previously issued to him and waived all rights to equity compensation provided under his employment agreement. On May 5, 2019, the Company entered into an Employment Agreement with Rodney Silva. Pursuant to the Employment Agreement, Mr. Silva will be engaged as Vice President of Brand Development/Franchise Sales of the Company for a period of eighteen months unless earlier terminated pursuant to the terms of the agreement. The Employment Agreement will be automatically extended upon the Public Offering. During the term of the Employment Agreement, Mr. Silva will be entitled to a base salary at the annualized rate of $150,000. Mr. Silva will be eligible for a discretionary performance bonus to be paid in cash following the closing of the Public Offering. Mr. Silva is also eligible to participate in employee benefits plans as the Company may institute from time to time that are available for full-time employees. On May 6, 2019, the Company appointed Aimee Infante as Chief Marketing Officer of the Company and entered into an Employment Agreement with Ms. Infante. Pursuant to the Employment Agreement, Ms. Infante will be employed as Chief Marketing Officer of the Company for a period of two years unless earlier terminated pursuant to the terms of the Employment Agreement. During the term of the Employment Agreement, Ms. Infante will be entitled to a base salary at the annualized rate of $125,000, which will be increased to $150,000 upon the completion of a public offering of not less than $3 million together with listing on a national exchange (the “Public Offering”). Following the closing of the Public Offering, Ms. Infante receive a one-time $10,000 cash bonus and will be entitled to an annual cash bonus based on 25% of her base salary subject to satisfying specific written criteria. See Note 15 – Equity – Restricted Common Stock for details related the restricted stock issuance. 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. F- 34 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Consulting Agreements During July 2019, the Company entered into a Consulting Agreement, effective as of July 1, 2019, with an advisory group to provide strategic business services in connection with a future offering. The term of the agreement is for one year. Pursuant to the terms of the agreement, the Company issued 41,426 restricted shares of common stock and agreed to pay a cash fee of $75,000 upon signing the agreement. During July 2019, the Company entered into a Consulting Agreement with a consultant with a background in menu and recipe development to develop a new menu and recipes for a new healthy restaurant concept called Healthy Joe’s. The Company will issue an aggregate of 1,642 shares of common stock as payment pursuant to the terms of the agreement and reimburse the consultant for any out-of-pocket expenses in connection with the services provided pursuant to the agreement. As of December 31, 2020, the Company issued 500 shares to the consultant pursuant to the agreement. 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 issued 100,000 stock options upon the approval of the 2020 Equity Incentive Plan with a grant date fair value of $187,000. See Note 15 – Equity – Options for more details related to the issuance of the stock options. 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 December 31, 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. As of December 31, 2020 as part of the Settlement Agreement the Company issued the 200,000 stock options upon the approval of the 2020 Equity Incentive Plan with a grant date fair value of $60,000. See Note 15 – Equity – Options for more details related to the issuance of the stock options. 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 December 31, 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. F- 35 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Board Compensation On July 16, 2019, the board of directors approved a board compensation plan that would compensate the board members for their deferred compensation for 2019, 2018 and 2017. The board members are eligible for cash compensation of $4,500 or $9,000 per year. To be paid as follows: (i) directors serving on the board during 2018 and 2017, will be granted shares is lieu of payment as the letter agreements set forth certain terms pursuant to which the directors will serve as directors of the Company. In addition, on an ongoing basis pursuant to the approved board compensation plan each director will receive 1,428 shares of common stock per year for service as director, 185 shares of common stock per year for service on each committee and 142 shares of common stock per year for service as chair for such committee. The shares of common stock for committee service will be limited to two committees. The Company issued shares of common stock upon the occurrence of the public offering and up listing on a national exchange as follows, which was prorated for a partial year: (i) directors that served as directors during the year ended December 31, 2017 each received 714 shares of common stock, (ii) directors that served as directors during the year ended December 31, 2018 each received 1,428 shares of common stock and (iii) directors that served as directors during the year ended December 31, 2019 each received 1,428 shares of common stock. The directors did not received compensation for services prior to the Company being up listed on a national exchange, the Company agreed to provide equity in lieu of cash compensation and equity compensation for services rendered during 2017, 2018 and 2019. For past director services in lieu of cash unpaid to date: (i) directors that served as directors during the year ended December 31, 2017 each received shares of common stock valued at $4,500 priced at the price per share of the Company’s public offering in connection with its uplisting (the “Uplisting Offering”), (ii) directors that served as directors during the year ended December 31, 2018 each received shares of common stock valued at $9,000, which was prorated for a partial year of service, and priced at the price per share of the Uplisting Offering and (iii) directors that served as directors during the year ended December 31, 2019 through the date of the Uplisting Offering each received shares of common stock valued at $9,000, which was prorated for a partial year of service, priced at the price per share of the Uplisting Offering. On August 5, 2019 the Company authorized the issuances of an aggregate of 17,005 shares of common stock, valued at a $7.00 per share, to the members of the board of directors. On October 19, 2019 the Company authorized the issuances of an aggregate of 3,748 share of common stock to the members of the board of directors. 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 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 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 On December 4, 2020, the board of directors approved a new board compensation plan that would compensate the board members for their deferred compensation for the fourth quarter 2020 through the third quarter of 2021. The board members are eligible for cash compensation of $12,000 per year to be paid quarterly within 30 days of the close of each quarter. In addition, on an ongoing basis pursuant to the approved board compensation plan each director will receive $8,000 in value of common stock per year for service as director, $6,000 in value of shares of common stock per year for service on each committee and $4,000 in value of shares of common stock per year for service as chair for such committee. The number of shares to be issued would be based upon the closing price of the last trading date of each calendar quarter. The shares of common stock for committee service will be limited to two committees. As of December 31, 2020, the Company accrued a total of $36,697 related to board compensation. F- 36 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Taxes The Company failed in certain instances in paying sales taxes collected from customers in specific states that impose a tax on sales of the Company’s products during 2018 and 2019. The Company had accrued for approximate $231,177 and $329,089, which includes interest as of December 31, 2020 and December 31, 2019 related to this matter. Litigations, Claims and Assessments On March 27, 2018 a convertible note holder filed a complaint in the Iowa District Court for Polk County #CVCV056029 against the Company for failure to pay the remaining balance due on a promissory note in the amount of $100,000, together with interest, attorney fees and other costs of $171,035. On June 6, 2018 a default judgement was entered against the Company for the amount of $171,035. The Company repaid an aggregate amount of $71,035, consisting of principal and interest, as of the date of the filing of this report. As of December 31, 2020, the Company has accrued for the liability in convertible notes payable in the amount of $100,000 and accrued interest of $23,056 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 December 31, 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 December 31, 2020, the Company accrued $30,000 for the liability in accounts payable and accrued expenses. F- 37 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Litigations, Claims and Assessments, continued 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 December 31, 2020, the Company has accrued for the liability in accounts payable and accrued expenses. In March 2021, the Company participated in a mediation concerning an investor who invested with American Restaurant Holdings, Inc and/or American Restaurants, LLC, our former parent company, from 2013 through 2015 in the total amount of $531,250. The Company does not believe the dispute concerns Muscle Maker, Inc. and intends to defend itself vigorously if the matter is not settled. As of the filing of this report, the company has not accrued for any potential liability pending the outcome of continued mediation. 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. Trademark During July 2019 the Company filed an application to register a trade name and service mark for “Healthy Joe’s” that will be used in connection with the development and operating of potential Healthy Joe’s restaurants. If the trademark is approved, the Company will license the rights to use the Healthy Joe’s trademark and intellectual property to its wholly-owned subsidiaries, Muscle Maker Development and Muscle Maker Corp., and to further sublicense them to our franchisees for use in connection with Healthy Joe’s restaurants. 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 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. 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 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 with the Miami and New York locations anticipated to be opened in 2021. F- 38 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 15 – EQUITY 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. As of December 31, 2020, the Company was authorized to issue 25,000,000 shares of $0.0001 par value per share common stock. The holders of the Company’s common stock are entitled to one vote per share. Stock Option and Stock Issuance Plan 2019 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 the date of the issuance of these consolidated financial statements 188,527 shares have been issued under the 2019 Plan. Upon the adoption of our 2020 Equity Incentive Plan, we will no longer issue awards under the 2019 Plan, but any existing awards granted to our management team and Board of Directors will remain outstanding under the 2019 Plan. 2020 Plan The Company’s board of directors and shareholders approved and adopted on September 16, 2020 the 2020 Equity Incentive Plan (“2020 Plan”), effective on September 16, 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 178,333 shares have been issued under the 2020 Plan. F- 39 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 15 – EQUITY, continued Common Stock Issuances See Note 10 – Notes Payable – 15% Senior Secured Convertible Promissory Notes, 12% Secured Convertible Notes, and Other Convertible for details related to stock issuances in connection with conversions of notes for the year ended December 31, 2019. 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. 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. See Note 14 – Commitments and Contingencies – Consulting Agreements and Board Compensation for details related to additional stock issuances for the year ended December 31, 2020 and 2019. See Note 15 – Equity – Closing of Offerings for shares issued in the offerings and over-allotment. 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. 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. F- 40 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 15 – EQUITY, continued Warrant and Option 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 term 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 $14,000 on the statement of operations during the years ended December 31, 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 0.34 -1 year, expected dividends of 0%, and stock price of $1.42 – 2.71. See Note 15 – Equity – Options for the issuance of the stock option during the fourth quarter of 2020. Restricted Common Stock During the year ended December 31, 2019, the Company issued an aggregate of 61,426 restricted common stock of the Company to consultants with an aggregate fair value of $430,000. 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 consolidated statement of operations. At December 31, 2020, the unamortized value of the restricted common stock was $426. The unamortized amount will be expensed over a weighted average period of 0.003 years. A summary of the activity related to the restricted common stock for the years ended December 31, 2020 and December 31, 2019 is presented below: Weighted Average Grant Total Date Fair Value Outstanding at January 1, 2018 6,063 44.38 Granted 61,426 7.00 Forfeited (1,649 ) 65.33 Vested (63,414 ) 8.83 Outstanding at December 31, 2019 2,426 65.33 Granted 216,783 5.00 Forfeited - - Vested (218,009 ) 5.34 Outstanding at December 31, 2020 1,200 $ 65.33 F- 41 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 15 – EQUITY, continued Options A summary of option activity during the years ended December 31, 2020 and 2019 is presented below: Weighted Weighted Average Average Remaining Number of Exercise Life Options Price In Years Outstanding, December 31, 2018 33,750 $ 9.33 1.6 Issued - - Exercised - - Outstanding, December 31, 2019 33,750 $ 9.33 0.6 Issued 300,000 2.15 Exercised - - Forfeited (33,750 ) 9.33 Outstanding, December 31, 2020 300,000 $ 2.15 1.8 Exercisable, December 31, 2020 300,000 $ 2.15 1.8 On November 27, 2020, the Company issued an aggregate of 300,000 fully vested stock options to consultants with an aggregate fair value of $118,000. See Note 14 – Commitments and Contingencies – Consulting Agreements for details related to the stock options issued for the year ended December 31, 2020. The Company has estimated the fair value of the options using the Black-Scholes model using the following assumptions: For the Year Ended December 31, 2020 Risk free interest rate 0.10 – 0.23 % Expected term (years) 0.34 - 5.00 Expected volatility 66.77- 112.17 % Expected dividends 0.00 % F- 42 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 16 – EQUITY, continued Warrants A summary of warrants activity during the years ended December 31, 2020 and 2019 is presented below: Weighted Weighted Average Average Remaining Number of Exercise Life Warrants Price In Years Outstanding, December 31, 2018 312,078 $ 23.66 3.3 Issued 2,138,209 4.88 Exercised - - Outstanding, December 31, 2019 2,450,287 $ 5.51 3.7 Issued 486,729 3.65 Exercised - - Forfeited (354,159 ) 6.74 Outstanding, December 31, 2020 2,582,857 $ 4.08 3.3 Exercisable, December 31, 2020 2,582,857 $ 4.08 3.3 The grant date fair value of warrants granted during the years ended December 31, 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 Years Ended December 31, 2020 2019 Risk free interest rate 1.37 % 1.55 – 2.62 % Expected term (years) 3.00 0.28 - 5.00 Expected volatility 55.33 % 46.69- 88.10 % Expected dividends 0.00 % 0.00 % Stock-Based Compensation Expense Stock-based compensation related to restricted stock issued to employees, directors and consultants, warrants and options issued to consultants amounted to $2,806,336 and $666,504 for the years ended December 31, 2020 and 2019, respectively, of which $2,803,716 and $663,804, respectively, was recorded in general and administrative expenses and $2,620 and $2,700, respectively, was recorded in labor expense within restaurant operating expenses. F- 43 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 17 – SUBSEQUENT EVENTS Company-Owned Restaurants Subsequent to December 31, 2020 and through the date of the issuance of these consolidated financial statements, the Company opened one additional company-owned restaurant. Common Stock On February 3, 2021, the Company issued an aggregate of 20,000 shares of common stock of the Company to a digital marketing consultant with an aggregate fair value of $42,600. On February 3, 2021, the Company issued an aggregate of 16,126 shares of common stock of the Company to the members of the board of directors as compensation earned through the end of the fourth quarter of 2020. On February 11, 2021, the Company issued an aggregate of 221,783 shares of common stock of the Company to various executives and an employee. 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. Consulting Agreements On February 7, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultants to provide the Company with business and marketing advice as needed. The term of the agreement is for five months from the effective date on February 7, 2021. Pursuant to the terms of the agreement the Company agreed to pay the consultant a total of 100,000 shares of the Company’s common stock. The Company issued 60,000 shares of common stock upon the effective date of the agreement with the remaining 40,000 to be issued upon the successful completion of the agreement. On March 8, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultants 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. Acquisition of Superfit Foods 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. Private Placement On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4,115,227 shares of Common Stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of Common Stock (the “Pre-Funded Warrant”). Each share 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. The Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company is required to register the resale of the Shares and the shares issuable upon exercise of the Common Warrant and the Pre-Funded Warrant. The Company is required to prepare and file a registration statement with the Securities and Exchange Commission within 30 days of the date of the Securities Purchase Agreement and to use commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement. Pursuant to a placement agency agreement, dated April 6, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8% of the gross proceeds raised in the Private Placement and a common stock purchase warrant to purchase shares of Common Stock in an amount equal to 4% of the Shares and shares of Common Stock issuable upon exercise of the Warrants sold in the Private Placement, the warrant has an exercise price of $2.916 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement. F- 44