Sadot Group Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-39223 Muscle Maker, Inc. (Exact name of registrant as specified in its charter) Nevada 47-2555533 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 2600 South Shore Blvd. , Suite 300 , League City , Texas 77573 (Address of principal executive offices) Registrant’s telephone number, including area code: (682) 708-8250 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0,0001 par value GRIL The NASDAQ Capital Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one): Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The number of shares if the Registrant’s common stock, $0.0001 par value per share, outstanding as of May 12, 2022, was 28,694,316 . MUSCLE MAKER, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022 TABLE OF CONTENTS ITEM NO. NAME OF ITEM Page PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2022 AND DECEMBER 31, 2021 3 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 4 UNAUDITED CONDENSED CONSOLIDATED STATMENTS OF CHANGES IN SHOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2022 5 UNAUDITED CONDENSED CONSOLIDATED STATMENTS OF CHANGES IN SHOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2021 6 UNAUDITED CONDENSED COLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 7 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 9 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 43 ITEM 4. CONTROLS AND PROCEDURES 43 PART II- OTHER INFORMATION 44 ITEM 1. LEGAL PROCEEDING 44 ITEM 1A. RISK FACTORS 45 ITEM 2. UNGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 45 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 45 ITEM 4. MINE SAFETY DISCLOSURES 45 ITEM 5. OTHER INFORMATION 45 ITEM 6 EXHIBITS 46 SIGNATURES 47 2 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, 2022 2021 Assets Current Assets: Cash $ 14,771,220 $ 15,766,703 Accounts receivable, net of allowance for doubtful accounts of $ 6,964 and $ 23,693 as of March 31, 2022 and December 31, 2021, respectively 355,829 155,167 Inventory 260,097 258,785 Current portion of loans receivable, net of allowance of $ 70,784 and $ 71,184 at March 31, 2022 and December 31, 2021, respectively - - Prepaid expenses and other current assets 1,091,276 1,789,328 Total Current Assets 16,478,422 17,969,983 Right of use assets 2,667,385 - Property and equipment, net 1,935,792 2,280,267 Goodwill 2,626,399 2,626,399 Intangible assets, net 6,034,987 6,387,464 Security deposits and other assets 151,073 167,770 Total Assets $ 29,894,058 $ 29,431,883 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable and accrued expenses $ 1,804,540 $ 2,208,523 Convertible note payable to Former Parent 82,458 82,458 Convertible note payable 100,000 100,000 Other notes payable 133,219 165,052 Operating lease liability, current 561,137 - Deferred revenue, current 78,103 49,728 Deferred rent, current - 36,800 Other current liabilities 278,420 286,088 Total Current Liabilities 3,037,877 2,928,649 Other notes payable, non-current 864,599 1,005,027 Operating lease liability, non-current 2,250,439 - Deferred revenue, non-current 1,176,379 1,013,645 Deferred rent, non-current - 91,295 Total Liabilities 7,329,294 5,038,616 Commitments and Contingencies - - Stockholders’ Equity: Common stock, $ 0.0001 par value, 50,000,000 shares authorized, 28,643,406 and 26,110,268 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively 2,864 2,611 Additional paid-in capital 95,832,826 95,760,493 Accumulated deficit ( 73,270,926 ) ( 71,369,837 ) Total Stockholders’ Equity 22,564,764 24,393,267 Total Liabilities and Stockholders’ Equity $ 29,894,058 $ 29,431,883 See Notes to the Unaudited Condensed Consolidated Financial Statements 3 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) 2022 2021 For the Three Months Ended March 31, 2022 2021 Revenues: Company restaurant sales, net of discounts $ 2,694,192 $ 1,178,911 Franchise royalties and fees 208,141 135,340 Franchise advertising fund contributions 18,125 14,087 Total Revenues 2,920,458 1,328,338 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 1,025,935 504,461 Labor 1,073,047 767,065 Rent 340,396 256,191 Other restaurant operating expenses 653,473 339,922 Total restaurant operating expenses 3,092,851 1,867,639 Depreciation and amortization 475,729 169,128 Franchise advertising fund expenses 18,125 14,087 Preopening expenses - 10,986 Selling, general and administrative expenses 1,326,947 2,966,636 Total Costs and Expenses 4,913,652 5,028,476 Loss from Operations ( 1,993,194 ) ( 3,700,138 ) Other Income (Expenses): Other income (expense) ( 19,421 ) 2,628 Interest expense, net ( 14,743 ) ( 14,174 ) Gain on debt extinguishment 141,279 - Total Other Income (Expenses), Net 107,115 ( 11,546 ) Loss Before Income Tax ( 1,886,079 ) ( 3,711,684 ) Income tax provision - - Net Loss $ ( 1,886,079 ) $ ( 3,711,684 ) Net Loss Per Share: Basic and Diluted ( 0.07 ) ( 0.31 ) Weighted Average Number of Common Shares Outstanding: Basic and Diluted 27,801,604 11,817,591 See Notes to the Unaudited Condensed Consolidated Financial Statements 4 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance - December 31, 2021 26,110,268 $ 2,611 $ 95,760,493 $ ( 71,369,837 ) $ 24,393,267 Cumulative effect of change in accounting principal - - - ( 15,010 ) ( 15,010 ) Cashless exercise of pre-funded warrants 2,409,604 241 ( 241 ) - Common stock issued as compensation to board of directors 93,534 9 56,975 56,984 Common stock issued as compensation for services 30,000 3 15,599 15,602 Net loss - - - ( 1,886,079 ) ( 1,886,079 ) Balance - March 31, 2022 28,643,406 $ 2,864 $ 95,832,826 $ ( 73,270,926 ) $ 22,564,764 See Notes to the Unaudited Condensed Consolidated Financial Statements 5 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance - December 31, 2020 11,725,764 $ 1,172 $ 68,987,663 $ ( 63,193,707 ) $ 5,795,128 Beginning balance, value 11,725,764 $ 1,172 $ 68,987,663 $ ( 63,193,707 ) $ 5,795,128 Issuance of restricted stock 1,200 - - - - Common stock issued in connection of the acquisition of SuperFit Foods on March 25, 2021 268,240 27 624,973 - 625,000 Restricted common stock issued as compensation to executives and employees 221,783 22 636,495 - 636,517 Common stock issued as compensation to board of directors 28,837 3 57,199 - 57,202 Common stock issued as compensation for services 300,000 30 676,670 - 676,700 Amortization of restricted common stock - - 426 - 426 Net loss - - - ( 3,711,684 ) ( 3,711,684 ) Balance - March 31, 2021 12,545,824 $ 1,254 $ 70,983,426 $ ( 66,905,391 ) $ 4,079,289 Ending balance, value 12,545,824 $ 1,254 $ 70,983,426 $ ( 66,905,391 ) $ 4,079,289 See Notes to the Unaudited Condensed Consolidated Financial Statements 6 MUSCLE MAKER, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2022 2021 For the Three Months Ended March 31, 2022 2021 Cash Flows from Operating Activities Net loss $ ( 1,886,079 ) $ ( 3,711,684 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 475,727 169,128 Stock-based compensation 72,586 1,712,845 Gain on extinguishments of debt ( 141,279 ) - Loss on disposal of assets 239,637 37,027 Bad debt expense ( 9,258 ) 18,676 Changes in operating assets and liabilities: Accounts receivable, net ( 175,404 ) ( 24,549 ) Inventory ( 1,312 ) ( 8,208 ) Prepaid expenses and other current assets 698,052 5,976 Security deposits and other assets 16,697 - Accounts payable and accrued expenses ( 403,983 ) 219,716 Deferred rent ( 128,095 ) 4,294 Operating right of use asset and lease liability, net 129,181 - Deferred revenue 191,109 ( 20,739 ) Other current liabilities ( 7,668 ) ( 2,717 ) Total Adjustments 955,990 2,111,449 Net Cash Used in Operating Activities ( 930,089 ) ( 1,600,235 ) Cash Flows from Investing Activities Purchases of property and equipment ( 34,812 ) ( 67,754 ) Cash paid in connection with the acquisition of SuperFit Foods - ( 500,000 ) Collections from loans receivable 400 200 Net Cash Used in Investing Activities ( 34,412 ) ( 567,554 ) Cash Flows from Financing Activities Repayments of other notes payables ( 30,982 ) ( 18,493 ) Net Cash Used in Financing Activities ( 30,982 ) ( 18,493 ) Net Decrease in Cash ( 995,483 ) ( 2,186,282 ) Cash - Beginning of Period 15,766,703 4,195,932 Cash - End of Period $ 14,771,220 $ 2,009,650 See Notes to the Unaudited Condensed Consolidated Financial Statements 7 MUSCLE MAKER, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2022 2021 For the Three Months Ended March 31, 2022 2021 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 24,428 $ 9,950 Supplemental Disclosures of non-cash investing and financing activities: Cashless exercise of pre-funded warrants $ 241 $ - See Notes to the Unaudited Condensed Consolidated Financial Statements 8 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS 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® 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® trademark 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®. On March 25, 2021, MMI acquired the assets of SuperFit Foods, a subscription based fresh-prepared meal prep business located in Jacksonville, Florida. With this acquisition, we are also the owner of the trade name SuperFit Foods that we use in connection with the operations of SuperFit Foods. SuperFit Foods is differentiated from other meal prep services by allowing customers in the Jacksonville Florida market to order online via the Company’s website or mobile app and pick up their fully prepared meals from 28 Company-owned coolers located in gyms and wellness centers. On May 14, 2021, MMI acquired PKM Stamford, LLC, Poke Co., LLC, LB Holdings LLC, TNB Holdings, LLC, Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC, each a Connecticut limited liability company (collectively, Pokemoto”), a healthier modern culinary twist on the traditional Hawaiian poke classic. Pokemoto had thirteen locations in four states – Connecticut, Rhode Island, Massachusetts, and Georgia and offers up chef-driven contemporary flavors with fresh delectable and healthy ingredients such as Atlantic salmon, sushi-grade tuna, fresh mango, roasted cashews and black caviar tobiko that appeals to foodies, health enthusiasts, and sushi-lovers everywhere. The colorful dishes and modern chic dining rooms provide an uplifting dining experience for guests of all ages. Customers can dine in-store or order online via third party delivery apps for contactless delivery. MMI and its subsidiaries are hereinafter referred to as the “Company”. As of March 31, 2022, MMI consisted of three operating segments: ● Muscle Maker Grill Division ● Pokemoto Division ● SuperFit Foods Division 9 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS, continued The Company operates under the name Muscle Maker Grill, Pokemoto and SuperFit Foods and is a franchisor and owner operator of Muscle Maker Grill and Pokemoto restaurants. As of March 31, 2022, the Company’s restaurant system included nineteen Company-owned restaurants, including the SuperFit Foods kitchen, and nineteen franchise restaurants. Liquidity Our primary source of liquidity is cash on hand. As of March 31, 2022, the Company had a cash balance, a working capital surplus and an accumulated deficit of $ 14,771,220 , $ 13,440,545 , and $ 73,270,926 , respectively. During the quarter ended March 31, 2022, the Company incurred a pre-tax net loss of $ 1,886,079 and net cash used in operations of $ 930,089 . The Company believes that its existing cash on hand and future cash flows from franchise operations, will be sufficient to fund operations, anticipated capital expenditures and repayment obligations over the next twelve months. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2022, and for the three months ended March 31, 2022, and 2021. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the operating results for the full year. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021. The balance sheet as of December 31, 2021, has been derived from the Company’s audited financial statements. Principles of Consolidation The accompanying condensed 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. 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. 10 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates include: ● the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets; ● the estimated useful lives of intangible and depreciable assets; ● estimates and assumptions used to value warrants and options; ● the recognition of revenue; and ● the recognition, measurement and valuation of current and deferred income taxes. Estimates and assumptions are periodically reviewed, and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions. Cash and Cash Equivalents The Company considers all highly-liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of March 31, 2022 or December 31, 2021. 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: SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT Furniture and equipment 3 - 7 years Leasehold improvements 1 - 11 years 11 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 2 – 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 trademark – Muscle Maker had an indefinite live as of December 31, 2021. The Company determined that as of January 1, 2022, the trademark - Muscle Maker had a finite life of 3 years and will be amortizing the value over the new estimated life. The Company’s goodwill has an indefinite life, and is accordingly not amortized, but is 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. The other intangible assets estimated useful lives are as follows: SCHEDULE OF OTHER INTANGIBLE ASSETS USEFUL LIVES Franchisee agreements 13 years Franchise license 10 years Trademark – Muscle Maker, SuperFit and Pokemoto 3 – 5 years Domain name, customer list and Proprietary recipes 3 – 7 years Non-compete agreement 2 – 3 years Impairment of Long-Lived Assets When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company performs an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income. Convertible Instruments The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). If the instrument is determined not to be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the market price of the Company’s common stock as of the commitment date to the effective conversion price of the instrument. As of March 31, 2022 and December 31, 2021, the Company deemed the conversion feature was not required to be bifurcated and recorded as a derivative liability. 12 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued Revenue Recognition The Company’s revenues consist of restaurant sales, franchise royalties and fees, franchise advertising fund contributions, and other revenues. The Company recognized revenues according to Topic 606 “Revenue from Contracts with Customers”. Under the guidance, revenue is recognized in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model, we made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and which represent separate performance obligations. Restaurant Sales Retail store revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales related taxes. The Company recorded retail store revenues of $ 2,694,192 and $ 1,178,911 during the quarters ended March 31, 2022 and 2021, respectively. The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. The Company recognizes revenues from gift cards as restaurant revenues once the Company performs its obligation to provide food and beverage to the customer simultaneously with the redemption of the gift card or through gift card breakage, as discussed in Other Revenues below. Franchise Royalties and Fees Franchise revenues consists of royalties, franchise fees and rebates. Royalties are based on a percentage of franchisee net sales revenue. The Company recognizes the royalties as the underlying sales occur. The Company recorded revenue from royalties of $ 108,421 and $ 81,469 during the quarters ended March 31, 2022 and 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for the multi-unit development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee, these fees are then recognized as franchise fee revenue on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. The Company recorded revenue from franchise fees of $ 48,891 and $ 9,786 during the quarters ended March 31, 2022 and 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company has supply agreements with certain food and beverage vendors. Pursuant to the terms of these agreements, rebates are provided to the Company based upon the dollar volume of purchases for all company-owned and franchised restaurants from these vendors. Rebates earned on purchases by franchise stores are recorded as revenue during the period in which the related food and beverage purchases are made. The Company recorded revenue from rebates of $ 50,829 and $ 44,085 during the quarters ended March 31, 2022 and 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. Rebates earned on purchases by Company-owned stores are recorded as a reduction of food and beverage costs during the period in which the related food and beverage purchases are made. 13 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued Franchise Advertising Fund Contributions Under the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under selling, general and administrative expenses. When an advertising contribution fund is over-spent at year end, advertising expenses will be reported on the condensed consolidated statement of operations in an amount that is greater than the revenue recorded for advertising contributions. Conversely, when an advertising contribution fund is under-spent at a period end, the Company will accrue advertising costs up to advertising contributions recorded in revenue. The Company recorded contributions from franchisees of $ 18,125 and $ 14,087 during the quarters ended March 31, 2022 and 2021, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations. Other Revenues Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. Gift card liability is recorded in other current liabilities on the condensed consolidated balance sheet. For the quarter ended March 31, 2022 and 2021, the Company did not record any gift card breakage. Deferred Revenue Deferred revenue primarily includes initial franchise fees received by the Company, which are being amortized over the life of the Company’s franchise agreements. Deferred revenue is recognized in income over the life of the franchise agreements and vendor rebates are recognized in income as performance obligations are satisfied. Advertising Advertising costs are charged to expense as incurred. Advertising costs were approximately $ 113,719 and $ 24,051 during the quarters ended March 31, 2022 and 2021, respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. 14 MUSCLE MAKER, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued Net Loss per Share Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the impact of potential common shares, if dilutive, resulting from the exercise of warrants, options or the conversion of convertible notes payable. The following securities are excluded from the calculation of weighted average diluted common shares at March 31, 2022 and 2021, respectively, because their inclusion would have been anti-dilutive: SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE 2022 2021 March 31, 2022 2021 Warrants 17,873,906 2,560,361 Options 100,000 300,000 Convertible debt 32,350 32,350 Total potentially dilutive shares 18,006,256 2,892,711 Major Vendor The Company engages various vendors to distribute food products to their Company-owned restaurants. Purchases from the Company’s largest supplier totaled 45 % and 84 % of the Company’s purchases for the quarters ended March 31, 2022 and 2021, respectively. Fair Value of Financial Instruments The Company measures the fair value of financial assets and liabilities based on the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: 15 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued Fair Value of Financial Instruments, continued Level 1 — quoted prices in active markets for identical assets or liabilities Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — inputs that are unobservable (for example, cash flow modelling inputs based on assumptions) The carrying amounts of accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts of our short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of common stock and warrants, are comparable to rates of returns for instruments of similar credit risk. See Note 16– Equity – Warrant and Options Valuation for details related to accrued compensation liability being fair valued using Level 1 inputs. Leased Assets The Company adopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit of $ 15,010 as of the adoption date. Lease right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments arising from the lease agreement. These assets and liabilities are recognized at the commencement of the lease based upon the present value of the future minimum lease payments over the lease term. The lease term reflects the no cancellable period of the lease together with periods covered by an option to extend or terminate the lease when management is reasonably certain that it will exercise such option. Changes in the lease term assumption could impact the right-of-use assets and lease liabilities recognized on the balance sheet. As our leases typically do not contain a readily determinable implicit rate, we determine the present value of the lease liability using our incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis. Income Taxes The Company accounts for income taxes under Accounting Standards Codification (“ASC”) 740 Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carry forwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Tax benefits claimed or expected to be claimed on a tax return are recorded in the Company’s financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Uncertain tax positions have had no impact on the Company’s financial condition, results of operations or cash flows. The Company does not expect any significant changes in its unrecognized tax benefits within years of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses in the condensed consolidated statements of operations. 16 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued Stock-Based Compensation The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally recorded on the grant date and re-measured on financial reporting dates and vesting dates until the service period is complete. The fair value amount of the award is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires companies to recognize lease liabilities and corresponding right-of-use leased assets on the balance sheets and to disclose key information about leasing arrangements. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2022, with early adoption permitted. Additionally, in 2018 and 2019, the FASB issued the following Topic 842–related ASUs: ● ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, which clarifies the applicability of Topic 842 to land easements and provides an optional transition practical expedient for existing land easements; ● ASU 2018-10, Codification Improvements to Topic 842, Leases, which makes certain technical corrections to Topic 842; ● ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows companies to adopt Topic 842 without revising comparative period reporting or disclosures and provides an optional practical expedient to lessors to not separate lease and non-lease components of a contract if certain criteria are met; and ● ASU 2019-01, Leases (Topic 842): Codification Improvements, which provides guidance for certain lessors on determining the fair value of an underlying asset in a lease and on the cash flow statement presentation of lease payments received; ASU No. 2019-01 also clarifies disclosures required in interim periods after adoption of ASU No. 2016-02 in the year of adoption. The Company adopted Topic 842 as of January 1, 2022, and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit of $ 15,010 as of the adoption date. See Note 11 - Leases for further details. In October 2021, the FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the extent of the impact of this ASU, but do not expect the adoption of this standard to have a significant impact on our condensed consolidated financial statements. 17 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued Subsequent Events The Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed in Note 16 – Subsequent Events. NOTE 3 – ACQUISITIONS SuperFit Foods Acquisition On March 25, 2021, the Company entered into an asset purchase agreement with SuperFit Foods, LLC, a Florida limited liability company and SuperFit Foods, LLC, a Nevada limited liability company (the “SuperFit Acquisition”). The purchase price of the assets and rights was $ 1,150,000 . The purchase price was payable as follows: $ 500,000 that was paid at closing, of which $ 25,000 was released from an escrow account held by our attorney, and $ 625,000 paid in 268,240 shares of common stock. The remaining $25,000, which was to be issued in the Company’s common stock, was forfeited as the Company and former owner agreed that not all obligations were met. The Company acquired the following assets as part of the purchase agreement, adjusted for purchase accounting adjustments to reflect the fair value of the net assets acquired during 2021: SCHEDULE OF ASSETS AND LIABILITIES ACQUIRED IN BUSINESS COMBINATIONS Furniture and equipment $ 82,000 Vehicles 55,000 Property and Equipment 55,000 Tradename 45,000 Customer list 140,000 Domain name 125,000 Proprietary Recipes 160,000 Non-compete agreement 260,000 Intangible assets 260,000 Goodwill 258,000 Total assets acquired $ 1,125,000 The adjustment to the estimate identifiable net assets acquired resulted in a corresponding $ 25,000 decrease in estimated goodwill due to the Company having no further obligation to issue the $ 25,000 shares of common stock as mentioned above. The unaudited pro-forma financial information in the table below summarizes the condensed consolidated results of operations of the Company and SuperFit Foods, LLC as though the acquisition had occurred as of January 1, 2021. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results. SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION 2022 2021 Pro Forma (Unaudited) For the Three Months Ended March 31, 2022 2021 Revenues $ 2,920,458 $ 1,835,838 Restaurant operating expenses 3,092,851 2,322,412 Total cost and expenses 4,913,652 5,482,877 Loss from Operations ( 1,993,194 ) ( 3,647,039 ) 18 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – ACQUISITIONS, continued Pokemoto Acquisition On May 14, 2021, the Company entered into Membership Interest Purchase Agreement with the members (the (“Poke Sellers”) of PKM Stamford, LLC, Poke Co., LLC, LB Holdings LLC, and TNB Holdings, LLC, each a Connecticut limited liability company (collectively, the “Poke Entities”) pursuant to which the Company acquired all of the issued and outstanding membership interest of the Poke Entities in consideration of $ 4,000,000 in cash and $ 730,000 payable in the form of a promissory note (the “Poke Note”). In a related transaction, on May 14, 2021, the Company and the Poke Sellers entered into a Membership Interest Exchange Agreement pursuant to which the Company acquired Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC, each a Connecticut limited liability company (collectively, the Poke Entities II”) in exchange for shares of common stock of the Company valued at $ 1,250,000 . The Company issued 880,282 shares of common stock of the Company on May 14, 2021. The price per share was determined by using the 10-day trading average preceding the date of closing. The closing occurred on May 14, 2021. Poke Entities and Poke Entities II are hereinafter referred to as “Pokemoto”. As of the date of the acquisition Pokemoto operated a total of 14 locations, six Company-owned restaurants and eight franchised restaurants, in four states, offering up chef-driven contemporary flavors with fresh delectable and healthy ingredients such as Atlantic salmon, sushi-grade tuna, fresh mango, roasted cashews and black caviar tobiko that appeals to foodies, health enthusiasts, and sushi-lovers everywhere. The Company acquired the following assets as part of the purchase agreement, adjusted for purchase accounting adjustments to reflect our estimate of the fair value of the net assets acquired during 2021: SCHEDULE OF ASSETS AND LIABILITIES ACQUIRED IN BUSINESS COMBINATIONS Purchase Price $ 5,980,000 Assets Cash $ 1,184,610 Accounts Receivables - Inventory 19,500 Property and Equipment 297,529 Intangible assets, net 4,560,000 Operating lease right-of-use assets, net 719,941 Security deposits and other assets 35,580 $ 6,817,160 Liabilities Accounts payable and accrued expenses $ 296,224 Other notes payable 1,462,453 Deferred revenue 125,624 Operating lease liability 751,258 $ 2,635,559 Fair value of identifiable net assets acquired 4,181,601 Goodwill $ 1,798,399 19 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – ACQUISITIONS, continued Pokemoto Acquisition, continued Identifiable intangible assets acquired include the following: SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS Fair Value Weighted average amortization period Tradename $ 175,000 5.00 Franchise License 2,775,000 10.00 Proprietary Recipes 1,130,000 7.00 Non-Compete 480,000 2.00 $ 4,560,000 8.22 The unaudited pro-forma financial information in the table below summarizes the condensed consolidated results of operations of the Company and Pokemoto, LLC as though the acquisition had occurred as of January 1, 2021. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results. SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION 2022 2021 Pro Forma (Unaudited) For the Three Months Ended March 31, 2022 2021 Revenues $ 2,920,458 $ 2,312,161 Restaurant operating expenses 3,092,851 2,588,186 Total cost and expenses 4,913,652 5,927,844 Loss from Operations ( 1,993,194 ) ( 3,615,683 ) NOTE 4 - LOANS RECEIVABLE At March 31, 2022 and December 31, 2021, the Company’s loans receivable balance was $ 0 . Loans receivable includes loans to franchisees and a former franchisee totaling, in the aggregate, $ 0 , net of reserves for uncollectible loans of $ 70,784 and $ 71,184 at March 31, 2022 and December 31, 2021, respectively. NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS At March 31, 2022 and December 31, 2021, the Company’s prepaid expenses and other current assets consisted of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS March 31, December 31, 2022 2021 Prepaid expenses $ 362,685 $ 83,975 Preopening expenses 457 602 Other receivables 728,134 1,704,751 Prepaid and Other Current Assets $ 1,091,276 $ 1,789,328 20 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 5 –PREPAID EXPENSES AND OTHER CURRENT ASSETS, continued Prepaid and other current assets at March 31, 2022 and December 31, 2021, included a receivable of $ 728,134 and $ 1,704,751 , respectively, related to the employee retention tax credits receivable from the Internal Revenue Services (“IRS”) that was made available to companies effected by Covid-19. NOTE 6 – PROPERTY AND EQUIPMENT, NET As of March 31, 2022 and December 31, 2021, property and equipment consist of the following: SCHEDULE OF PROPERTY AND EQUIPMENT, NET March 31, December 31, 2022 2021 Furniture and equipment $ 1,335,774 $ 1,397,098 Vehicles 55,000 55,000 Leasehold improvements 1,692,480 1,981,019 Property and equipment, gross 3,083,254 3,433,117 Less: accumulated depreciation and amortization ( 1,147,462 ) ( 1,152,850 ) Property and equipment, net $ 1,935,792 $ 2,280,267 Depreciation expense amounted to $ 123,250 and $ 153,522 for the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022 and 2021, the Company wrote off property and equipment with an original cost value of $ 384,675 and $ 99,313 , respectively, related to closed locations and future locations that were terminated due to the economic environment as a result of COVID-19 and recorded a loss on disposal of $ 239,637 and $ 37,027 , respectively, after accumulated depreciation of $ 127,926 and $ 62,286 , respectively, in the condensed consolidated statement of operations. NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET Intangible Assets A summary of the intangible assets is presented below: SCHEDULE OF INTANGIBLE ASSETS Intangible Assets Intangible assets, net at December 31, 2021 Acquisitions Impairment of intangible assets Amortization expense Intangible assets, net at March 31, 2022 Trademark Muscle Maker Grill $ 1,525,653 $ - $ - $ ( 125,396 ) $ 1,400,257 Franchise Agreements 162,439 - - ( 6,603 ) 155,836 Trademark SuperFit 38,075 - - ( 2,218 ) 35,857 Domain Name SuperFit 105,764 - - ( 6,161 ) 99,603 Customer List SuperFit 118,455 - - ( 6,900 ) 111,555 Proprietary Recipes SuperFit 135,378 - - ( 7,886 ) 127,492 Non-Compete Agreement SuperFit 193,339 - - ( 21,350 ) 171,989 Trademark Pokemoto 152,862 - - ( 8,625 ) 144,237 Franchisee License Pokemoto 2,599,473 - - ( 68,387 ) 2,531,086 Proprietary Recipes Pokemoto 1,027,916 - - ( 39,773 ) 988,143 Non-Compete Agreement Pokemoto 328,110 - - ( 59,178 ) 268,932 $ 6,387,464 $ - $ - $ ( 352,477 ) $ 6,034,987 21 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET, continued Intangible Assets, continued Amortization expense related to intangible assets was $ 352,477 and $ 15,606 for the three months ended March 31, 2022 and 2021, respectively. The estimated future amortization expense is as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSE For the three months ended March 31, 2023 2024 2025 2026 2027 Thereafter Total Trademark Muscle Maker Grill $ 508,551 $ 509,944 $ 381,762 $ - $ - $ - $ 1,400,257 Franchise Agreements 26,780 26,853 26,780 26,780 26,780 21,864 155,836 Trademark SuperFit 8,995 9,020 8,995 8,847 - - 35,857 Domain Name SuperFit 24,986 25,055 24,986 24,576 - - 99,603 Customer List SuperFit 27,985 28,061 27,985 27,524 - - 111,555 Proprietary Recipes SuperFit 31,982 32,070 31,982 31,457 - - 127,492 Non-Compete Agreement SuperFit 86,588 85,401 - - - - 171,989 Trademark Pokemoto 34,981 35,077 34,981 34,981 4,218 - 144,237 Franchisee License Pokemoto 277,348 278,108 277,348 277,348 277,348 1,143,586 2,531,086 Proprietary Recipes Pokemoto 161,303 161,744 161,302 161,302 161,302 181,189 988,143 Non-Compete Agreement Pokemoto 240,000 28,932 - - - - 268,932 Total $ 1,429,500 $ 1,220,265 $ 976,121 $ 592,815 $ 469,648 $ 1,346,639 6,034,987 The Company determined that no impairment testing of the Company’s intangible assets was require as of March 31, 2022. Therefore, no impairment charge is required. Goodwill A summary of the goodwill assets is presented below: SCHEDULE OF GOODWILL ASSETS Goodwill Muscle Maker Grill Pokemoto SuperFit Food Total Goodwill, net at December 31, 2021 $ 570,000 $ 1,798,399 $ 258,000 $ 2,626,399 Impairment of goodwill - - - - Goodwill, net at March 31, 2022 $ 570,000 $ 1,798,399 $ 258,000 $ 2,626,399 The Company determined that no impairment testing of the Company’s goodwill was require as of March 31, 2022. Therefore, no impairment charge is required. 22 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 8 – ACCOUNTS PAYABLES AND ACCRUED EXPENSES Accounts payables and accrued expenses consist of the following: SCHEDULE OF ACCOUNTS PAYABLES AND ACCRUED EXPENSES March 31, December 31, 2022 2021 Accounts payable $ 999,922 $ 734,688 Accrued payroll 254,130 758,732 Accrued professional fees 113,642 185,872 Accrued board members fees 18,000 57,573 Accrued rent expense 203,895 176,727 Accrued compensation expense - 36,600 Sales taxes payable (1) 106,500 125,550 Accrued interest 28,290 28,426 Other accrued expenses 80,161 104,355 Total Accounts Payable and Accrued Expenses $ 1,804,540 $ 2,208,523 (1) See Note 14 – Commitments and Contingencies –Taxes for detailed related to delinquent sales taxes. NOTE 9 – CONVERTIBLE NOTE PAYABLE TO FORMER PARENT On April 6, 2018, the Company issued a $ 475,000 convertible promissory note (the “2018 ARH Note”) to the Former Parent for services rendered and expense paid on behalf of the Company. The 2018 ARH Note has no stated interest rate or maturity date and is convertible into shares of the Company’s common stock at a conversion price of $ 3.50 per share at a time to be determined by the lender. On April 11, 2018, the Former Parent elected to partially convert the 2018 ARH Note for the principal of $ 392,542 into 112,154 shares of the Company’s common stock. The Company had an aggregate gross amount of $ 82,458 , as of March 31, 2022 and December 31, 2021, respectively, in convertible notes payable to Former Parent outstanding. NOTE 10 – NOTES PAYABLE Convertible Notes As of March 31, 2022 and December 31, 2021, the Company has convertible note payable in the amount of $ 100,000 which is included within convertible notes payable. See Note 14 – Commitments and Contingencies – Litigation, Claims and Assessments for details related to the $ 100,000 convertible note payable. Other Notes Payable On October 10, 2019, the Company issued a note payable in connection with the acquisition of the franchisee location in the amount of $ 300,000 . The note has a stated interest rate of 8 % with monthly payments payable over 5 years. 23 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 –NOTES PAYABLE, continued Other Notes Payable, continued On May 9, 2020, the Company entered into a Paycheck Protection Program Promissory Note and Agreement with Greater Nevada Credit Union, pursuant to which the Company received loan proceeds of $ 866,300 (the “PPP Loan”). The PPP Loan was made under, and is subject to the terms and conditions of, the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration. On June 21, 2021, the U.S. Small Business Administration (the “SBA”) forgave the Company’s first Paycheck Promissory Note (“PPP loan”) entered into on May 9, 2020. The aggregate amount forgiven is $ 875,974 , consisting of $ 866,300 in principal and $ 9,674 in interest expenses. The forgiven amount was accounted for as a gain on debt extinguishment of $ 875,974 and was recorded in our condensed consolidated statement of operations. During the year ended December 31, 2021, as part of the Pokemoto acquisition, the Company acquired $ 1,171,400 loans issued by the Small Business Administration under its Economic Injury Disaster Loans (“EIDL”). The Company repaid all the loans in full during the year ended December 31, 2021. During the year ended December 31, 2021, as part of the Pokemoto acquisition the Company acquired $ 291,053 in paycheck protection loans second draw (the “PPP 2 Loan”). The SBA forgave $ 139,877 in principal and $ 1,402 in interest expense during the three months ended March 31, 2022. During the three months ended March 31, 2022 and 2021, the Company repaid a total amount of $ 30,982 and $ 18,493 , respectively, of the other notes payable and other notes payable, related party. As of March 31, 2022, the Company had an aggregate amount of $ 997,818 in other notes payable. The notes had interest rates ranging between 1 % - 8 % per annum, due on various dates through May 2026. The maturities of other notes payable as of March 31, 2022, are as follows: SCHEDULE OF MATURITIES OF OTHER NOTES PAYABLE Principal Repayments due as of Amount 03/31/2023 $ 133,219 03/31/2024 142,203 03/31/2025 121,016 03/31/2026 69,906 03/31/2027 531,474 Long term debt $ 997,818 NOTE 11 – LEASES The Company adopted Topic 842 as of January 1, 2022. The Company’s leases consist of restaurant locations. We determine if a contract contains a lease at inception. The lease generally has remaining terms of 1-10 years and most lease included the option to extend the lease for an additional 5-year period. The total lease cost associated with right of use assets and operating lease liabilities for the three months ended March 31, 2021, was $ 241,588 and has been recorded in the condensed consolidated statement of operations as rent expense within restaurant operating expenses. As of March 31, 2022, assets and liabilities related to the Company’s leases were as follows: SCHEDULE OF OPERATING LEASE ASSETS AND LIABILITIES 2022 March 31, 2022 Assets Right to use asset $ 2,667,385 Total lease assets $ 2,667,385 Liabilities Current: Operating leases $ 561,137 Operating leases Current $ 561,137 Noncurrent: Operating leases 2,250,439 Operating leases Noncurrent 2,250,439 Total Lease liabilities $ 2,811,576 As of March 31, 2022, the Company’s lease liabilities mature as follows: SCHEDULE OF OPERATING LEASE LIABILITY MATURITY Operating Leases Fiscal Year: Remainder of 2022 $ 662,377 2023 769,266 2024 712,592 2025 578,094 2026 367,041 Thereafter 783,390 Total lease payments $ 3,872,760 Less imputed interest ( 1,061,184 ) Present value of lease liabilities $ 2,811,576 The Company’s lease term and discount rates were as follows: SCHEDULE OF LEASE TERM AND DISCOUNT RATE March 31, 2022 Weighted-average remaining lease term (in year) Operating leases 5.65 Weighted-average discount rate Operating leases 12 % 24 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 12 – DEFERRED REVENUE At March 31, 2022 and December 31, 2021, deferred revenue consists of the following: SCHEDULE OF DEFERRED REVENUE March 31, December 31, 2022 2021 Deferred revenues, net $ 1,254,482 $ 1,063,373 Less: Deferred revenues, current ( 78,103 ) ( 49,728 ) Deferred revenues, non-current $ 1,176,379 $ 1,013,645 NOTE 13 – OTHER CURRENT LIABILITIES Other current liabilities consist of the following: SCHEDULE OF OTHER CURRENT LIABILITIES March 31, December 31, 2022 2021 Gift card liability $ 27,997 $ 27,633 Co-op advertising fund liability 117,358 126,564 Advertising fund liability 133,065 131,891 Other current liabilities $ 278,420 $ 286,088 See Note 2 – Significant Accounting Policies – Revenue Recognition for details related to the gift card liability and advertising fund liability. NOTE 14 – COMMITMENTS AND CONTINGENCIES Franchising During the three months ended March 31, 2022, the Company entered into a various franchise agreement for a total of eleven potentially new Pokemoto locations with various franchisees. The franchisees paid the Company an aggregate of $ 205,000 and this has been recorded in deferred revenue as of March 31, 2022. Litigations, Claims and Assessments On March 27, 2018, a convertible note holder filed a complaint in the Iowa District Court for Polk County #CVCV056029 against the Company for failure to pay the remaining balance due on a promissory note in the amount of $ 100,000 , together with interest, attorney fees and other costs of $ 171,035 . On June 6, 2018, a default judgement was entered against the Company for the amount of $ 171,035 . The Company repaid an aggregate amount of $ 71,035 , consisting of principal and interest, as of the date of the filing of this report. As of March 31, 2022, the Company has accrued for the liability in convertible notes payable in the amount of $ 100,000 and accrued interest of $ 28,290 is included in accounts payable and accrued expenses. See Note 17 – Subsequent Events – Litigations, Claims and Assessments for details related to the settlement of this judgement. On or about March 7, 2019, the Company was listed as a defendant to a lawsuit filed by a contractor in the State of Texas in El Paso County #2019DCV0824. The contractor is claiming a breach of contract and is seeking approximately $ 32,809 in damages for services claimed to be rendered by the contractor. As of December 31, 2021, the Company accrued $ 30,000 for the liability in accounts payable and accrued expenses. On January 23, 2020, the Company was served a judgment issued by the Judicial Council of California in the amount of $ 130,185 for a breach of a lease agreement in Chicago, Illinois, in connection with a Company-owned store that was closed in 2018. As of December 31, 2021, the Company has accrued for the liability in accounts payable and accrued expenses. In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management after consulting legal counsel, such matters are currently not expected to have a material impact on the Company’s financial statements. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements after consulting legal counsel. 25 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Employment Agreements On January 2, 2022, the Company appointed Jennifer Black as Chief Financial Officer of the Company and entered into an Offer Letter with Ms. Black. Pursuant to the Offer Letter, Ms. Black will be employed as Chief Financial Officer of the Company on an at-will basis. Ms. Black will be entitled to a base salary at the annualized rate of $ 190,000 . The Company’s previous CFO, Ferdinand Groenewald, will remain and was appointed as the Chief Accounting Officer of the Company. The Company issued Ms. Black 20,000 shares of common stock upon completion of 90 days of employment. Ms. Black will be entitled to receive stock options to acquire 20,000 shares of common stock subject to the approval of the Board of Directors and Compensation Committee and the terms and conditions will be subject to entering into a stock option agreement. See Note 17 – Subsequent Events – Common Stock and Options for details related to the issuance of the shares of common stock and stock options. On February 10, 2022, the Company entered into an Employment Agreement with Michael Roper effective February 14, 2022, which replaced his prior employment agreement. Pursuant to the Employment Agreement, Mr. Roper will continue to be employed as Chief Executive Officer of the Company on an at will basis. During the term of the Employment Agreement, Mr. Roper will be entitled to a base salary at the annualized rate of $ 350,000 , will be increased to $ 375,000 upon the one-year anniversary. Mr. Roper will be eligible for a discretionary performance bonus to be paid in cash or equity. Within 90 days of the effective date, the Company will issue Mr. Roper stock options to receive 100,000 shares of common stock which will vest over a term of five years . If Mr. Roper is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, Mr. Roper will be entitled to a severance package of 18 months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17 – Subsequent Events – Options for details related to the issuance of the stock options. On February 10, 2022, the Company and Kevin Mohan, Chief Investment Officer, entered a letter agreement providing that Mr. Mohan will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $ 200,000 effective February 14, 2022. Mr. Mohan will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 75 % of his salary. Within 90 days of the effective date, the Company will issue Mr. Mohan stock options to receive 75,000 shares of common stock which will vest over a term of five years . If Mr. Mohan is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17 – Subsequent Events – Options for details related to the issuance of the stock options. On February 9, 2022, the Company and Kenn Miller, Chief Operations Officer, entered a letter agreement providing that Mr. Miller will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $ 275,000 effective February 14, 2022. Mr. Miller will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 75 % of his salary. Within 90 days of the effective date, the Company will issue Mr. Miller stock options to receive 50,000 shares of common stock which will vest over a term of five years . If Mr. Miller is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a severance package of 12 months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17 – Subsequent Events – Options for details related to the issuance of the stock options. 26 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Employment Agreements, continued On February 9, 2022, the Company and Aimee Infante, Chief Marketing Officer, entered a letter agreement providing that Ms. Infante will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $ 175,000 effective February 14, 2022. Ms. Infante will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 25 % of her salary. Within 90 days of the effective date, the Company will issue Ms. Infante stock options to receive 42,500 shares of common stock which will vest over a term of five years . If Ms. Infante is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, she will be entitled to a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17 – Subsequent Events – Options for details related to the issuance of the stock options. On February 9, 2022, the Company and Ferdinand Groenewald, Chief Accounting Officer, entered a letter agreement providing that Mr. Groenewald will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $ 175,000 effective February 14, 2022. Mr. Groenewald will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 25 % of his salary. Within 90 days of the effective date, the Company will issue Mr. Groenewald stock options to receive 25,000 shares of common stock which will vest over a term of five years . If Mr. Groenewald is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 17 – Subsequent Events – Options for details related to the issuance of the stock options. Nasdaq Notice On February 1, 2022, the Company received notice from The Nasdaq Stock Market (“Nasdaq”) that the closing bid price for the Company’s common stock had been below $ 1.00 per share for the previous 30 consecutive business days, and that the Company is therefore not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Rule”). Nasdaq’s notice has no immediate effect on the listing or trading of the Company’s common stock on The Nasdaq Capital Market. The notice indicates that the Company will have 180 calendar days, until August 1, 2022, to regain compliance with this requirement. The Company can regain compliance with the $ 1.00 minimum bid listing requirement if the closing bid price of its common stock is at least $ 1.00 per share for a minimum of ten (10) consecutive business days during the 180-day compliance period. If the Company does not regain compliance during the initial compliance period, it may be eligible for additional time of 180 calendar days to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of our publicly held shares and all other Nasdaq initial listing standards, except the bid price requirement, and will need to provide written notice to Nasdaq of its intention to cure the deficiency during the second compliance period. If the Company is not eligible or it appears to Nasdaq that the Company will not be able to cure the deficiency during the second compliance period, Nasdaq will provide written notice to the Company that the Company’s common stock will be subject to delisting. In the event of such notification, the Company may appeal Nasdaq’s determination to delist its securities, but there can be no assurance that Nasdaq would grant the Company’s request for continued listing. The Company intends to actively monitor the minimum bid price of its common stock and may, as appropriate, consider available options to regain compliance with the Rule. There can be no assurance that the Company will be able to regain compliance with the Rule or will otherwise be in compliance with other Nasdaq listing criteria. 27 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued Taxes The Company failed in certain instances in paying past state and local sales taxes collected from customers in specific states that impose a tax on sales of the Company’s products during 2017 and 2018. The Company had accrued a liability for approximately $ 38,792 and $ 125,550 as of March 31, 2022 and December 31, 2021, respectively, related to this matter. All current state and local sales taxes from January 1, 2018 for open Company-owned locations have been fully paid and in a timely manner. The Company has completed or is in discussions on payment plans with the various state or local entities for these past owed amounts. NOTE 15 – REPORTABLE OPERATING SEGMENTS See Note 1 – Business Organization and Nature of Operations for descriptions of our operating segments. SUMMARY OF OPERATING SEGMENTS For The Three Months Ended March 31, 2022 Revenues Muscle Maker Grill Division $ 1,271,935 Pokemoto Division 1,287,637 SuperFit Foods Division 360,886 Revenues $ 2,920,458 Operating Loss Muscle Maker Grill Division $ ( 307,474 ) Pokemoto Division ( 22,858 ) SuperFit Division 16,564 Corporate and unallocated G&A expenses (a) ( 1,326,947 ) Unallocated operating other income (expense) (b) ( 352,479 ) Operating Loss $ ( 1,993,194 ) Gain in debt extinguishment 141,279 Interest expense, net ( 14,743 ) Other non-operating income (expense) ( 19,421 ) Loss before income taxes $ ( 1,886,079 ) (a) Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $ 779,718 , professional fees of $ 97,963 , and consulting fees of $ 8,645 . (b) This includes amortization of intangible assets. See Note 7. 28 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 16 – EQUITY Common Stock On January 3, 2022, the Company authorized the issuance of an aggregate of 1,200,000 shares of common stock in connection with the cashless exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,200,215 warrants were exercised. On January 6, 2022, the Company authorized the issuance of an aggregate of 39,573 shares of common stock to the members of the board of directors as compensation earned during the fourth quarter of 2021. The Company accrued for the liability as of December 31, 2021. On January 18, 2022, the Company issued an aggregate of 30,000 shares of common stock of the Company to a consultant that assisted with the acquisition of SuperFit Foods and Pokemoto, with an aggregate fair value amount of $ 15,600 . The Company accrued for the liability as of December 31, 2021. On February 24, 2022, the Company authorized the issuance of an aggregate of 1,209,604 shares of common stock in connection with the cashless exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,210,110 warrants were exercised. On March 31, 2022, the Company authorized the issuance of an aggregate of 53,961 shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2022. Options A summary of options activity during the three months ended March 31, 2022 is presented below: SCHEDULE OF OPTION ACTIVITY Weighted Weighted Average Average Remaining Number of Exercise Life Options Price In Years Outstanding, December 31, 2021 100,000 $ 5.00 1.92 Issued - - Exercised - - Forfeited - Outstanding, March 31, 2022 100,000 $ 5.00 1.67 Exercisable, March 31, 2022 100,000 $ 5.00 1.67 29 MUSCLE MAKER, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 16 – EQUITY, continued Warrants A summary of warrants activity during the three months ended March 31, 2022 is presented below: SCHEDULE OF WARRANTS ACTIVITY Weighted Weighted Average Average Remaining Number of Exercise Life Warrants Price In Years Outstanding, December 31, 2021 20,284,016 $ 1.66 4.0 Issued - - Exercised ( 2,410,110 ) 0.01 Forfeited - - Outstanding, March 31, 2022 17,873,906 $ 1.89 4.3 Exercisable, March 31, 2022 17,873,906 $ 1.89 4.3 Stock-Based Compensation Expense Stock-based compensation related to restricted stock issued to employees, directors and consultants, warrants and warrants to consultants amounted to $ 72,586 and $ 1,712,845 for the three months ended March 31, 2022 and 2021, respectively, of which $ 72,586 and $ 1,712,597 , respectively, was recorded in selling, general and administrative expenses and $ 0 and $ 248 , respectively, was recorded in labor expense within restaurant operating expenses. NOTE 17 – SUBSEQUENT EVENTS Company-Owned Restaurants Subsequent to March 31, 2022, and through the date of the issuance of these condensed consolidated financial statements, the Company opened one new Company-owned Pokemoto location in Miami. Common Stock On April 4, 2022, the Company authorized the issuance of 20,000 shares of common stock to a member of the executive team per the employment agreement. The stock was not fully earned until April 4, 2022. Options On May 2, 2022, the Company, pursuant to the employment agreements, issued options to purchase an aggregate of 312,500 shares of the Company’s common stock. The options had an exercise price of $ 0.41 per share and vest over ratably over twenty quarters anniversaries with the first vesting occurring on June 30, 2022 . Litigations, Claims and Assessments On April 22, 2022, the Company and a convertible note holder entered into a settlement agreement to settle the outstanding principal and interest due on the note in the aggregate amount of $ 110,000 . The Company paid $ 40,000 , on of before May 1, 2022, and the remaining balance will be paid in seven instalments of $ 10,000 a month with the first payment being due on June 1, 2022 . 30 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of the results of operations and financial condition of Muscle Maker, Inc. (“Muscle Maker”), together with its subsidiaries (collectively, the “Company”) as of March 31, 2022 and December 31, 2021 and for the three months ended March 31, 2022 and 2021 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to Muscle Maker. “Muscle Maker Grill”, “SuperFit Foods” and “Pokemoto” refers to the names under which our corporate and franchised restaurants do business depending on the concept. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “forecast,” “model,” “proposal,” “should,” “may,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. For a detailed discussion of risk factors affecting us, see “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. OVERVIEW The Company operates under the names Muscle Maker Grill, Pokemoto and SuperFit Foods and is a franchisor and owner operator of Muscle Maker Grill and Pokemoto restaurants. As of March 31, 2022, the Company’s restaurant system included nineteen Company-owned restaurants, including the SuperFit Foods kitchen, and nineteen franchise restaurants. In addition to these restaurants, the Company also operates from time to time with the following brand names under our ghost kitchen model: Meal Plan AF, Muscle Maker Burger Bar, Bowls Deep, Burger Joe’s, Wrap It Up, Salad Vibes, Mr. T’s House of Boba and Gourmet Sandwich. Our direct mail to consumer meal prep/plan program operates under the musclemakerprep.com and superfitfoods.com websites. As of March 31, 2022, MMI consisted of three operating segments: ● Muscle Maker Grill Restaurant Division ● Pokemoto Hawaiian Poke Restaurant Division ● SuperFit Foods Meal Prep Division MMI is our parent company. We own and operate three unique “healthier for you” restaurant concepts within our portfolio of companies: Muscle Maker Grill restaurants, SuperFit Foods meal prep and Pokemoto Hawaiian Poke restaurants. Our Company was founded on the belief of taking every-day menu options and converting them into “healthier for you” menu choices. Consumers are demanding healthier choices, customization, flavor and convenience. We believe our portfolio of companies directly satisfy these consumer needs. We focus on lean proteins, fresh fruits and vegetables, proprietary sauces, whole grains and various other items like protein shakes, meal plans, specialty drinks and super foods. Each of our three concepts offers different menus that are tailored to specific consumer segments. We operate in the fast-casual and meal prep segments of the restaurant industry. We believe our “healthier for you” inspired concepts deliver a highly differentiated customer experience. Muscle Maker Grill Restaurants (“Muscle Maker Grill”): our Muscle Maker Grill restaurants are fast casual style restaurants specializing in “healthier for you” high quality, made to order, lean protein-based meals. These meals feature all-natural chicken breast, grass fed beef, lean turkey, shrimp and plant-based items. We pair these lean proteins with super foods such as avocado, spinach and broccoli, while also offering cauliflower rice, whole wheat pasta, sweet potato fries and proprietary specialty sauces like zero carb, fat free or gluten free options. Our products are made to order. The menu features bowls, wraps, salads and burgers. We also offer protein shakes and fruit smoothies along with meal plans and catering. Customers can dine in or take out or have their meals delivered to their door via Company delivery personnel or third-party services such as Uber Eats, DoorDash and GrubHub. 31 SuperFit Foods Meal Prep (“SuperFit Foods”): SuperFit Foods is a wholly owned meal prep division located in Jacksonville, Florida and focuses solely on meal plans. The terms meal prep and meal plans will be used interchangeably throughout this document. The business operates with a centralized kitchen that prepares all meals for distribution to consumers twice per week. This is a subscription-based business model where consumers order their meals via the SuperFitfoods.com website and are charged automatically every week. There are over 150 meal plan options to choose from as well as various healthy juices, snacks and desserts. Meal plans focus on specific dietary needs such as vegetarian, high protein, gluten free and low calorie. SuperFit Foods’ distribution process is different than most meal prep companies. The business operates with a centralized kitchen that prepares all meals for distribution to consumers twice per week. While other meal plan companies ship meals directly to consumer’s homes, the SuperFit Foods model uses Company-owned coolers placed at designated pick-up locations throughout the Jacksonville, Florida market. Pick up locations are placed inside wellness centers such as gyms, yoga studios, and various lifestyle locations. SuperFit Foods delivers twice per week by independent contractors to these locations and consumers conveniently pick up their orders after their workouts or during their daily routines. This model allows us to keep food fresh and refrigerated (even in the summer months), reduces shipping costs to consumers and provides an easier distribution model for the Company. While we do offer direct shipment or drop-offs to homes, this represents a smaller percentage of overall Company revenue. As the lockdowns and restrictions from Covid are reducing, we believe our distribution model becomes even more attractive for consumers. Pokemoto Hawaiian Poke restaurants (“Pokemoto”): Pokemoto restaurants are fast casual style restaurants that specialize in Hawaiian inspired poke bowls, wraps and salads. Poke is native Hawaiian cuisine made up of diced fresh fish served as an appetizer or main course with strong influences of Japanese and Korean cuisine. Think of it as deconstructed sushi that a consumer can customize into a bowl, salad or wrap every time. Hawaiian Poke is trending in the restaurant industry. It is a unique segment that is healthy, customizable, popular with millennials and Gen-Zs, offers unique flavor profiles and is “Instagrammable.” Pokemoto offers consumers the possibility to customize their order every time. Consumers move down a linear production line (similar to Chipotle or Subway customer interaction and operations) customizing their bowl from a wide selection of ingredients. Pokemoto offers five types of protein including sushi grade tuna, salmon, chicken, shrimp or tofu. Consumers pick a base of white/brown rice or salad, select from over 25 mix-ins/toppings including avocado, kani salad, pickled daikon, hijiki seaweed, masago, caviar, mandarin oranges, edamame, mango, roasted cashews or wonton crisps to name a few and topped off with over eight proprietary sauces that are made in house. All this gets mixed together creating a flavor explosion that is customized for every consumer. Pokemoto requires little to no cooking. Everything is either raw (tuna, salmon, veggies and fruits) or comes in pre-cooked (chicken and shrimp). The only cooking we do is soup and rice. It’s that simple. Because we have little cooking and consumers customize their orders, our labor requirements compared to most restaurants may be reduced. In addition, we believe training becomes much easier when you are not cooking or requiring recipes to be followed while consumers customize their menu options. This creates a consistent product across all our Pokemoto restaurants as we expand into more markets. Finally, because we have little to no cooking, our build outs usually do not require expensive hoods, fire suppression systems, deep fryers, grills, ovens, etc. making the potential cost of building out a location very favorable. We believe our healthy-inspired restaurant concept delivers a highly differentiated customer experience by combining the quality and hospitality that customers commonly associate with our full service and fast casual restaurant competitors with the convenience and value customers generally expect from traditional fast food restaurants. The foundation of our brand is based on our core values of quality, empowerment, respect, service and value. ● Quality . Commitment to provide high quality, healthy-inspired food for a perceived wonderful experience for our guests. ● Empowerment and Respect . We seek to empower our employees to take initiative and give their best while respecting themselves and others to maintain an environment for team work and growth. ● Service . Provide world class service to achieve excellence each passing day. ● Value . Our combination of high-quality, healthy-inspired food, empowerment of our employees, world class service, all delivered at an affordable price, strengthens the value proposition for our customers. 32 In striving for these goals, we aspire to connect with our target market and create a great brand with a strong and loyal customer base. We are the owner of the trade name and service mark Muscle Maker Grill®, SuperFit Foods®, Pokemoto®, MMG Burger Bar®, Meal Plan AF® 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®, Pokemoto®, and SuperFit Foods trademarks and intellectual property to our wholly owned subsidiaries, Muscle Maker Development, Poke Co Holdings LLC and Muscle Maker Corp., and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® and Pokemoto® restaurants. As of March 31, 2022, the Company had a cash balance, a working capital surplus and an accumulated deficit of $14,771,220, $13,440,545, and $73,270,926, respectively. During the three months ended March 31, 2022, the Company incurred a pre-tax net loss of $1,886,079 and net cash used in operations of $930,089. The Company believes that our existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve months. Key Financial Definitions Total Revenues Our revenues are derived from three primary sources: Company restaurant sales, franchise fee revenues and vendor rebates from Franchisees. Franchise revenues are comprised of franchise royalty revenues collected based on 2% to 6% of franchisee net sales and other franchise revenues which include initial, transfer and renewal franchisee fees. Vendor rebates are received based on volume purchases or services from franchise owned locations. In addition, we have other revenues which consists of gift card breakage which is recognized when we determine that there is no further legal obligation to remit the unredeemed gift card balance. Food and Beverage Costs Food and beverage costs include the direct costs associated with food, beverage and packaging of our menu items at Company-operated restaurants partially offset by vendor rebates from Company-owned stores. The components of food, beverages and supplies are variable in nature, change with sales volume, are affected by menu mix and are subject to fluctuations in commodity costs. Labor Restaurant labor costs, including preopening labor, consists of Company-operated restaurant-level management and hourly labor costs, including salaries, wages, payroll taxes, workers’ compensation expense, benefits and bonuses paid to our Company-operated restaurant-level team members. Like other cost items, we expect total restaurant labor costs at our Company-operated restaurants to increase due to inflation and as our Company restaurant revenues grow. Factors that influence labor costs include minimum wage and employer payroll tax legislation, mandated health care costs and operational productivity established by the management team. Rent Restaurant rent, including preopening rental charges, consist of Company-operated restaurant-level rental or lease payments applicable to executed rental or lease agreements. In many cases these rental payments may include payments for common area maintenance as well as property tax assessments. Our rent strategy in some locations consists of a variable rent structure calculated on net sales of the restaurant. While this can have a negative effect on higher volume locations where we cannot leverage a fixed rent, it provides downside protection for lower volume locations. The Company does incur rent for some closed locations while we seek to negotiate lease terminations or sublease to other companies. 33 Other Restaurant Operating Expenses Other restaurant operating expenses, including preopening operating expenses, consist of Company-operated restaurant-level ancillary expenses not inclusive of food and beverage, labor and rent expense. These expenses are generally marketing, advertising, merchant and bank fees, utilities, leasehold and equipment repairs, insurance and maintenance. A portion of these costs are associated with third party delivery services such as Uber Eats, Grub Hub, DoorDash and others. The fees associated with these third-party delivery services can range up to 25% of the total order being delivered. Management believes delivery is a critical component of our business model and industry trends will continue to push consumers towards delivery. We have adjusted our cost structure to reflect different pricing models, portion sizes, menu offerings, and other considerations to potentially partially offset these rising costs of delivery. Depreciation and Amortization Depreciation and amortization primarily consist of the depreciation of property and equipment and amortization of intangible assets. Franchise Advertising Expenses In accordance with Topic 606, the Company recognizes sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under general and administrative expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses include expenses associated with corporate, marketing and administrative functions that support our operations, including wages, benefits, advertising, travel expense, stock-based compensation expense, legal and professional fees, training, investor relations and other corporate costs. We incur incremental general and administrative expenses as a result of being a publicly listed company on the Nasdaq capital market. Other Income (Expense) Other income (expenses) consists of amortization of debt discounts on the convertible notes, interest expense related to convertible notes payable, change in fair value of accrued compensation and gains on debt extinguishments in connection with the PPP loan forgiveness. Income Taxes Income taxes represent federal, state, and local current and deferred income tax expense. 34 Consolidated Results of Operations The following table represents selected items in our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021, respectively: For the Three Months Ended March 31, 2022 2021 Revenues: Company restaurant sales, net of discounts $ 2,694,192 $ 1,178,911 Franchise royalties and fees 208,141 135,340 Franchise advertising fund contributions 18,125 14,087 Total Revenues 2,920,458 1,328,338 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 1,025,935 504,461 Labor 1,073,047 767,065 Rent 340,396 256,191 Other restaurant operating expenses 653,473 339,922 Total restaurant operating expenses 3,092,851 1,867,639 Depreciation and amortization 475,729 169,128 Franchise advertising fund expenses 18,125 14,087 Preopening expenses - 10,986 Selling, general and administrative expenses 1,326,947 2,966,636 Total Costs and Expenses 4,913,652 5,028,476 Loss from Operations (1,993,194 ) (3,700,138 ) Other Income (Expenses): Other income (expense) (19,421 ) 2,628 Interest expense, net (14,743 ) (14,174 ) Gain on debt extinguishment 141,279 - Total Other Income (Expenses), Net 107,115 (11,546 ) Loss Before Income Tax (1,886,079 ) (3,711,684 ) Income tax provision - - Net Loss $ (1,886,079 ) $ (3,711,684 ) 35 Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021 Revenues Our revenues totaled $2,920,458 for the three months ended March 31, 2022 compared to $1,328,338 for the three months ended March 31, 2021. The $1,592,120 increase is primarily attributed to an increase in restaurant sales as a direct result of the acquisition of Pokemoto and SuperFit Foods, in addition to the opening of new company owned locations. We generated Company restaurant sales, net of discounts, of $2,694,192 for the three months ended March 31, 2022 compared to $1,178,911 for the three months ended March 31, 2021. This represented an increase of $1,515,281, or 128.5%, which is mainly attributable to the Pokemoto restaurants sales and SupferFit Foods sales generated during the current year since their dates of acquisition. Franchise royalties and fees for the three months ended March 31, 2022 and 2021 totaled $208,141 compared to $135,340 respectively. This represents an increase of $72,801, or 53.79%. Franchise advertising fund contributions for the three months ended March 31, 2022 and 2021 totaled $18,125 compared to $14,087, respectively. 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. Thus the increase has been a direct result of us increasing our expenses incurred related to our national advertising services to benefit our franchisees and the brands as a whole. Operating Costs and Expenses Operating costs and expenses primarily consist of restaurant food and beverage costs, restaurant labor expense, restaurant rent expense, other restaurant operating expenses, depreciation and amortization expenses and selling, general and administrative expenses. Restaurant food and beverage costs for the three months ended March 31, 2022 and 2021 totaled $1,025,935 or 38.1% as a percentage of Company restaurant net sales, and $504,461 or 42.8%, as a percentage of Company restaurant net sales, respectively. The $521,474 increase resulted from higher store counts during the current year as compared to the prior year resulting in higher sales with an overall decrease (improvement) of (4.7%) in restaurant and food beverage cost as a percentage of sales. Restaurant labor for the three months ended March 31, 2022 and 2021 totaled $1,073,047, or 39.9%, as a percentage of Company restaurant net sales, and $767,065, or 64%, as a percentage of Company restaurant net sales, respectively. The $318,883 increase resulted due a higher store count during the current year as compared to the prior year as the Company opened and acquired more stores as compared to the prior period. We were able to reduce (improve) our overall labor costs as a percentage of sales by (24.1%) due to increased sales and also due to improvements in operations. Restaurant rent expense for the three months ended March 31, 2022 and March 31, 2021 totaled $340,396 or 12.7% as a percentage of restaurant sales, and $256,191, or 21.7%, as a percentage of restaurant sales, respectively. The increase of $84,205 is directly attributed to the new Company-owned locations acquired during the current period as compared to the prior period thus increasing the store count from sixteen stores to nineteen stores as of March 31, 2022. The percent of total sales reduced (improved) by (9.1)% as sales increased overall and we are able to leverage fixed rent against these higher sales levels. Other restaurant operating expenses for the three months ended March 31, 2022 and March 31, 2021 totaled $653,473, or 24.3% as a percentage of restaurant sales, and $339,922, or 29.9% as a percentage of restaurant sales, respectively. The $300,650 increase is due to higher third-party merchant fees resulting from an increase in delivery orders and a higher store count during the year as compared to the prior year. The increased store count also resulted in an increase in utility fees and insurance expenses. The other restaurant operating expenses as a percent of total sales reduced (improved) by (5.7%). Depreciation and amortization expense for the three months ended March 31, 2022 and March 31, 2021 totaled $475,729 and $169,128, respectively. The $306,601 increase is mainly attributed to amortization expense attributed to the additions of definite life intangible assets of approximately $4,150,000 acquired through the various acquisitions during the prior year as compared to the prior year. The remaining of the variance is attributable to depreciation expense related to additional property and equipment acquired through acquisitions and additional property and equipment purchased for new store build outs and the remodeling of an existing and acquired Company-owned restaurant compared to the prior year. 36 Selling, general and administrative expenses for the three months ended March 31, 2022 and 2021 totaled $1,326,947, or 45.4% of total revenue, and $2,966,636, or 223.3% of total revenue, respectively. The $1,639,689 decrease was mainly attributed to a reduction in consulting expenses of approximately $1,029,000 which is mainly due to stock-based compensation expense for stock issued to various consultants for various services rendered in the prior year as compared to the current year, a decrease in professional fees of approximately $267,000 which resulted from changing our auditing firm during 2021 and a decrease in salaries and wages of approximately $465,000 resulting from a reduction in employee stock based compensation expense as the executive received shares of common stock in the prior period as compared to the current period. The decrease was partially offset by a write off of fixed assets of approximately $105,000 due to closed locations in the current period as compared to the prior period. The remainder of the variance was attributed to various other expenses including recruiting, marketing, computer expenses etc. Loss from Operations Our loss from operations for the three months ended March 31, 2022 and 2021 totaled $1,993,194, or 68.25% of total revenues and $3,700,138, or 278.6% of total revenue, respectively. The decrease of $1,706,944 in loss from operations is primarily attributable to the increase of total revenues of $1,592,120 and a decrease in total cost and expenses of $114,824 as discussed above. Other Income (Expense) Other income (expense) for the three months ended March 31, 2022 and 2021 totaled $107,115 and ($11,546), respectively. The $118,661 increase in other income (expense) was primarily attributable to a gain on extinguishment of debt of $141,279 due to the forgiveness of our PPP loans partially offset by an increase in other expenses of $22,049, mainly attributed to settlement expense, and an increase interest expense of $569. Net Loss Our net loss for the three months ended March 31, 2022 was $1,886,079 which was an improvement of $1,825,605 as compared to a net loss of $3,711,684 for the three months ended March 31, 2021, resulting from an increase in our total revenue of $1,592,120, an increase in our other income (expense) of $118,661 and a decrease of our total cost and expenses of $114,824. 37 The following table represents selected items in our condensed consolidated statements of operations for the three months ended March 31, 2022, respectively by our operating segments: Muscle Maker Pokemoto SuperFit Foods Consolidated Grill Division Division Division Unallocated Revenues: Company restaurant sales, net of discounts $ 2,694,192 $ 1,108,199 $ 1,225,108 $ 360,886 $ - Franchise royalties and fees 208,141 145,611 62,529 - - Franchise advertising fund contributions 18,125 18,125 - - - Total Revenues 2,920,458 1,271,935 1,287,637 360,886 - Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 1,025,935 465,684 427,174 133,074 - Labor 1,073,047 568,099 405,550 99,404 - Rent 340,396 207,334 102,904 30,159 - Other restaurant operating expenses 653,473 251,780 328,056 73,633 - Total restaurant operating expenses 3,092,851 1,492,897 1,263,684 336,270 - Depreciation and amortization 475,729 68,387 46,811 8,052 352,479 (b) Franchise advertising fund expenses 18,125 18,125 - - - Selling, general and administrative expenses 1,326,947 - - - 1,326,947 (a) Total Costs and Expenses 4,913,652 1,579,409 1,310,495 344,322 1,679,426 (Loss) Income from Operations (1,993,194 ) (307,474 ) (22,858 ) 16,564 (1,679,426 ) Other Income (Expense): Other income (expense) (19,421 ) (19,560 ) 79 60 - Interest expense, net (14,743 ) (14,743 ) - - - Gain on debt extinguishment 141,279 - 141,279 - - Amortization of debt discounts - - - - - Total Other Income (Expense), Net 107,115 (34,303 ) 141,358 60 - Loss Before Income Tax (1,886,079 ) (341,777 ) 118,500 16,624 (1,679,426 ) Income tax provision - - - - - Net (Loss) Income Net $ (1,886,079 ) $ (341,777 ) $ 118,500 $ 16,624 $ (1,679,426 ) Income tax provision - - - - - Net (Loss) Income $ (1,886,079 ) $ (341,777 ) $ 118,500 $ 16,624 $ (1,679,426 ) (a) Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $779,718, professional fees of $97,963, and consulting fees of $8,645. (b) This includes amortization of intangible assets. See Note 7. 38 Liquidity and Capital Resources Liquidity We measure our liquidity in a number of ways, including the following: March 31, December 31, 2021 2021 Cash $ 14,771,220 $ 15,766,703 Working Capital Surplus $ 13,440,545 $ 15,041,334 Convertible notes payable, including related parties and Former Parent, net $ 182,458 $ 182,458 Other notes payable, including related parties $ 997,818 $ 1,170,079 Availability of Additional Funds Although we have a working capital surplus of $13,440,545, we presently have an accumulated deficit of $73,270,926, as of March 31, 2022, and we utilized $930,089 of cash in operating activities during the three months ended March 31, 2022. We believe that our existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve months. In the event we are required to obtain additional financing, either through borrowings, private placements, public offerings, or some type of business combination, such as a merger, or buyout, and there can be no assurance that we will be successful in such pursuits. We may be unable to acquire the additional funding necessary to continue operating. Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company. If we need to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities could dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional funds on favorable terms could have a material adverse effect on our liquidity and financial condition. Sources and Uses of Cash for the Three Months Ended March 31, 2022 and March 31, 2021 For the three months ended March 31, 2022 and 2021, we used cash of $930,089 and $1,600,235, respectively, in operations. Our cash used for the three months ended March 31, 2022 was primarily attributable to our net loss of $1,886,079, adjusted for net non-cash income in the aggregate amount of $637,413, partially offset by $318,577 of net cash provided by changes in the levels of operating assets and liabilities. Our cash used for the three months ended March 31, 2021 was primarily attributable to our net loss of $3,711,684, adjusted for net non-cash income in the aggregate amount of $1,941,970, partially offset by $169,479 of net cash provided by changes in the levels of operating assets and liabilities. During the three months ended March 31, 2022, cash used in investing activities was $34,412, of which $34,812 was used to purchase property and equipment, partially offset by $400 of collections in loans receivable. During the three months ended March 31, 2021, cash used in investing activities was $567,554, of which $67,754 was used to purchase property and equipment and $500,000 used in connection with the acquisition of SuperFit Foods. 39 Net cash used by financing activities for the three months ended March 31, 2022 was $30,982, consisting of repayments of various other notes payable. Net cash used by financing activities for the three months ended March 31, 2021 was $18,493, for repayments of various other notes payable. Critical Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates include: ● the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets; ● the estimated useful lives of intangible and depreciable assets; ● estimates and assumptions used to value warrants issued in connection with notes payable; ● the recognition of revenue; and ● the recognition, measurement and valuation of current and deferred income taxes. Estimates and assumptions are periodically reviewed, and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions. Intangible Assets 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 trademark – Muscle Maker had a finite life as of December 31, 2021. The Company determined that as of January 1, 2022, the trademark - Muscle Maker had a finite life of 3 years and will be amortizing the value over the new estimated life. The Company’s goodwill has an indefinite life, and is accordingly 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. The other intangible assets estimated original useful lives are as follows: Franchisee agreements 13 years Franchise license 10 years Trademark – Muscle Maker, SuperFit and Pokemoto 3 – 5 years Domain name, customer list and Proprietary recipes 3 – 7 years Non-compete agreement 2 – 3 years 40 Impairment of Long-Lived Assets When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, we perform an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income. Deferred Revenue Deferred revenue primarily includes initial franchise fees received by the Company, which are being amortized over the life of the Company’s franchise agreements. Deferred revenue is recognized in income over the life of the franchise agreements and vendor rebates are recognized in income as performance obligations are satisfied. Revenue Recognition The Company’s revenues consist of restaurant sales, franchise royalties and fees, franchise advertising fund contributions, and other revenues. The Company recognized revenues according to Topic 606 “Revenue from Contracts with Customers”. Under the guidance, revenue is recognized in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model, we made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and which represent separate performance obligations. Restaurant Sales Retail store revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales related taxes. The Company recorded retail store revenues of $2,694,192 and $1,178,911 during the quarters ended March 31, 2022 and 2021, respectively. The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. The Company recognizes revenues from gift cards as restaurant revenues once the Company performs its obligation to provide food and beverage to the customer simultaneously with the redemption of the gift card or through gift card breakage, as discussed in Other Revenues below. Franchise Royalties and Fees Franchise revenues consists of royalties, franchise fees and rebates. Royalties are based on a percentage of franchisee net sales revenue. The Company recognizes the royalties as the underlying sales occur. The Company recorded revenue from royalties of $108,421 and $81,469 during the quarters ended March 31, 2022 and 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for the multi-unit development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee, these fees are then recognized as franchise fee revenue on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. The Company recorded revenue from franchise fees of $48,891 and $9,786 during the quarters ended March 31, 2022 and 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. 41 The Company has supply agreements with certain food and beverage vendors. Pursuant to the terms of these agreements, rebates are provided to the Company based upon the dollar volume of purchases for all company-owned and franchised restaurants from these vendors. Rebates earned on purchases by franchise stores are recorded as revenue during the period in which the related food and beverage purchases are made. The Company recorded revenue from rebates of $50,829 and $44,085 during the quarters ended March 31, 2022 and 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. Rebates earned on purchases by Company-owned stores are recorded as a reduction of food and beverage costs during the period in which the related food and beverage purchases are made. Franchise Advertising Fund Contributions Under the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under selling, general and administrative expenses. When an advertising contribution fund is over-spent at year end, advertising expenses will be reported on the condensed consolidated statement of operations in an amount that is greater than the revenue recorded for advertising contributions. Conversely, when an advertising contribution fund is under-spent at a period end, the Company will accrue advertising costs up to advertising contributions recorded in revenue. The Company recorded contributions from franchisees of $18,125 and $14,087 during the quarters ended March 31, 2022 and 2021, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations. Other Revenues Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. Gift card liability is recorded in other current liabilities on the condensed consolidated balance sheet. For the quarter ended March 31, 2022 and 2021, the Company did not record any gift card breakage. Deferred Revenue Deferred revenue primarily includes initial franchise fees received by the Company, which are being amortized over the life of the Company’s franchise agreements. Deferred revenue is recognized in income over the life of the franchise agreements and vendor rebates are recognized in income as performance obligations are satisfied. Income Taxes We account for income taxes under Accounting Standards Codification (“ASC”) 740 Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Tax benefits claimed or expected to be claimed on a tax return are recorded in our financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Our policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses in the condensed consolidated statements of operations. 42 Recently Issued Accounting Pronouncements See Note 2 to our condensed consolidated financial statements for the three months ended March 31, 2022. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the quarter ended March 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of such date our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information requested to be disclosed by us in our reports that we file or submit under the Exchange Act. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 43 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. We record legal costs associated with loss contingencies as incurred and have accrued for all probable and estimable settlements. We are currently involved in pending legal proceedings that have been previously disclosed in our filings with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended. Below is a summary of the legal proceedings that have become a reportable event or which have had developments during the three months ended March 31, 2022. On March 27, 2018, a convertible note holder filed a complaint in the Iowa District Court for Polk County #CVCV056029 against the Company for failure to pay the remaining balance due on a promissory note in the amount of $100,000, together with interest, attorney fees and other costs of $171,035. On June 6, 2018 a default judgement was entered against the Company for the amount of $171,035. The Company repaid an aggregate amount of $71,035, consisting of principal and interest, as of the date of the filing of this report. As of March 31, 2022, the Company has accrued for the liability in convertible notes payable in the amount of $100,000 and accrued interest of $28,290 is included in accounts payable and accrued expenses. See Note 17 – Subsequent Events – Litigations, Claims and Assessments for details related to the settlement of this judgement. On or about March 7, 2019, the Company was listed as a defendant to a lawsuit filed by a contractor in the State of Texas in El Paso County #2019DCV0824. The contractor is claiming a breach of contract and is seeking approximately $32,809 in damages for services claimed to be rendered by the contractor. As of March 31, 2022, the Company accrued $30,000 for the liability in accounts payable and accrued expenses. On January 23, 2020, the Company was served a judgment issued by the Judicial Council of California in the amount of $130,185 for a breach of a lease agreement in Chicago, Illinois, in connection with a Company-owned store that was closed in 2018. As of March 31, 2022, the Company has accrued for the liability in accounts payable and accrued expenses. MMI or its subsidiaries failed in certain instances in paying past state and local sales taxes collected from customers in specific states that impose a tax on sales of the Company’s products during 2017 and 2018. The Company had accrued a liability for approximately $38,792 and $125,550 as of March 31, 2022 and December 31, 2021, respectively, related to this matter. All current state and local sales taxes from January 1, 2018 for open Company-owned locations have been fully paid and in a timely manner. Subsequent to March 31, 2022, the Company has made all the payments to various states to satisfy the outstanding past state and local sales taxes. 44 ITEM 1A. RISK FACTORS. Not applicable. See, however, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results and Financial Condition”) of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 17, 2022. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. Issuance of Stock On January 3, 2022, the Company authorized the issuance of an aggregate of 1,200,000 shares of common stock in connection with the cashless exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,200,215 warrants were exercised. On January 6, 2022, the Company authorized the issuance of an aggregate of 39,573 shares of common stock to the members of the board of directors as compensation earned during the fourth quarter of 2021. The Company accrued for the liability as of December 31, 2021. On January 18, 2022, the Company issued an aggregate of 30,000 shares of common stock of the Company to a consultant that assisted with the acquisition of SuperFit Foods and Pokemoto, with an aggregate fair value amount of $15,600. The Company accrued for the liability as of December 31, 2021. On February 24, 2022, the Company authorized the issuance of an aggregate of 1,209,604 shares of common stock in connection with the cashless exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,210,110 warrants were exercised. On March 31, 2022, the Company authorized the issuance of an aggregate of 53,961 shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2022. The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. ITEM 5. OTHER INFORMATION. 45 ITEM 6. EXHIBITS Exhibit No. Exhibit Description 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 32.3 Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document* 101.SCH Inline XBRL Schema Document* 101.CAL Inline XBRL Calculation Linkbase Document* 101.DEF Inline XBRL Definition Linkbase Document* 101.LAB Inline XBRL Label Linkbase Document* 101.PRE Inline XBRL Presentation Linkbase Document* 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) † Includes management contracts and compensation plans and arrangements *Filed herewith. +Previously filed. 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 12, 2022 MUSCLE MAKER, INC. By: /s/ Michael J. Roper Michael J. Roper Chief Executive Officer (Principal Executive Officer) By: /s/ Jennifer Black Jennifer Black Chief Financial Officer (Principal Financial Officer) By: /s/ Ferdinand Groenewald Ferdinand Groenewald Chief Accounting Officer (Principal Accounting Officer) 47