Sadot Group Inc. 10-Q

Item 1. Financial Statements Muscle Maker, Inc. Condensed Consolidated Balance Sheets (Unaudited) March 31, 2023 December 31, 2022 $’000 $’000 Assets Current assets: Cash 6,386 9,898 Accounts receivable, net of allowance for doubtful accounts of $ 28.8 thousand and $ 23.4 thousand as of March 31, 2023 and December 31, 2022, respectively 4,961 135 Inventory 35,145 298 Prepaid expenses and other current assets 206 317 Total current assets 46,698 10,648 Right to use assets 2,189 2,433 Property and equipment, net 1,680 1,895 Goodwill 2,626 2,626 Intangible assets, net 4,301 4,611 Deposit on farmland 5,002 4,914 Security deposits and other assets 102 103 Total assets 62,598 27,230 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses 35,863 1,953 Accrued stock-based compensation expense - related party 3,400 3,603 Notes payable, current 225 222 Operating lease liability, current 505 560 Deferred revenue, current 90 95 Other current liabilities 195 182 Total current liabilities 40,278 6,615 Notes payable, non-current 722 759 Operating lease liability, non-current 1,800 2,019 Deferred revenue, non-current 1,228 1,276 Total liabilities 44,028 10,669 Commitments and Contingencies Stockholders’ equity: Common stock, $ 0.0001 par value, 150 million shares authorized, 32.2 million and 29.3 million shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively 3 3 Additional paid-in capital 98,988 95,913 Accumulated deficit ( 80,421 ) ( 79,355 ) Total stockholders’ equity 18,570 16,561 Total liabilities and stockholders’ equity 62,598 27,230 See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited) 4 Table of Contents Muscle Maker, Inc. Condensed Consolidated Statement of Operations (Unaudited) Three Months Ended March 31, 2023 2022 $’000 $’000 Revenues: Commodity sales 210,366 — Company restaurant sales, net of discounts 2,301 2,694 Franchise royalties and fees 284 208 Franchise advertising fund contributions 16 18 Total revenues 212,967 2,920 Operating Costs and Expenses: Commodity operating expenses: Commodity cost 205,055 — Labor 620 — Other commodity operating expenses 154 — Total commodity operating expenses 205,829 — Restaurant operating expenses: Food and beverage costs 839 1,026 Labor 880 1,073 Rent 274 340 Other restaurant operating expenses 472 650 Total restaurant operating expenses 2,465 3,089 Depreciation and amortization expenses 633 476 Franchise advertising fund expenses 16 18 Pre-opening expenses 36 — Post-closing expenses 94 — Stock-based consulting expenses 3,359 — Sales, general and administrative expenses 2,142 1,324 Total costs and expenses 214,574 4,907 Loss from operations ( 1,607 ) ( 1,987 ) Other Income: Other income / (expense) — ( 19 ) Interest income / (expense), net 3 ( 18 ) Change in fair value of accrued compensation 541 — Gain on debt extinguishment — 140 Total other income, net 544 103 Loss Before Income Tax ( 1,063 ) ( 1,884 ) Income tax 3 2 Net loss ( 1,066 ) ( 1,886 ) Net Loss Per Share: Basic and Diluted ( 0.04 ) ( 0.07 ) Weighted average Number of Common Shares Outstanding: Basic and Diluted 29,443,394 27,801,604 See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited) 5 Table of Contents Muscle Maker, Inc. Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) Common Stock Additional Paid-in Capital Accumulated Deficit Total Shares Amount ( '000 $’000 $’000 $’000 $’000 Balance at December 31, 2021 26,110 3 95,760 ( 71,370 ) 24,393 Cumulative effect of change in accounting principal — — — ( 15 ) ( 15 ) Cashless exercise of pre-funded warrants 2,410 — — — — Common stock compensation to board of directors 94 — 57 — 57 Common stock issued as compensation for services 30 — 16 — 16 Net loss — — — ( 1,886 ) ( 1,886 ) Balance at March 31, 2022 28,644 3 95,833 ( 73,271 ) 22,565 Balance at December 31, 2022 29,287 3 95,913 ( 79,355 ) 16,561 Common stock compensation to board of directors 31 — 28 — 28 Common stock issued as compensation for services 2,849 — 3,020 — 3,020 Stock-based compensation - options — — 27 — 27 Net loss — — — ( 1,066 ) ( 1,066 ) Balance at March 31, 2023 32,167 3 98,988 ( 80,421 ) 18,570 See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited) 6 Table of Contents Muscle Maker, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2023 2022 $’000 $’000 Cash Flows from Operating Activities Net loss ( 1,066 ) ( 1,886 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 633 476 Stock-based compensation 55 72 Gain on extinguishments of debt — ( 140 ) Stock-based consulting expenses 3,359 — Change in fair value of compensation 541 — Loss on disposal of assets — 240 Bad debt expense ( 5 ) ( 9 ) Changes in operating assets and liabilities: Accounts receivable, net ( 4,821 ) ( 175 ) Inventory ( 34,848 ) ( 1 ) Prepaid expenses and other current assets 111 698 Security deposits and other assets — 16 Accounts payable and accrued expenses 33,910 ( 404 ) Accrued stock-based compensation expense - related party ( 1,082 ) — Deferred rent — ( 128 ) Operating right of use asset and liability, net ( 30 ) 129 Deferred revenue ( 53 ) 191 Other current liabilities 14 ( 8 ) Total adjustments ( 2,216 ) 957 Net cash used in operating activities ( 3,282 ) ( 929 ) Cash Flows from Investing Activities Deposit on farmland ( 87 ) — Purchases of property and equipment ( 109 ) ( 35 ) Net cash used in investing activities ( 196 ) ( 35 ) Cash Flows from Financing Activities Repayments of notes payables ( 34 ) ( 32 ) Net cash used in financing activities ( 34 ) ( 32 ) Net Decrease in Cash ( 3,512 ) ( 996 ) Cash – beginning of period 9,898 15,767 Cash – end of period 6,386 14,771 See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited) 7 Table of Contents Muscle Maker, Inc. Condensed Consolidated Statements of Cash Flows (Continued) (Unaudited) Three Months Ended March 31, 2023 2022 $’000 $’000 Supplemental Disclosures of Cash Flow Information: Cash paid for interest 3 24 See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited) 8 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 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 of MMI, which was formed in Nevada on November 13, 2020, to franchise the Muscle Maker Grill® name, trademarks and business system to qualified franchisees internationally. On March 25, 2021, MMI acquired the assets and trademarks of SuperFit Foods™, a subscription based fresh-prepared meal prep business located in Jacksonville, Florida. On May 14, 2021, MMI acquired the assets and trademarks of 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, an operator and franchisor of a fast casual restaurant chain concept, collectively known as “Pokémoto®.” On October 19, 2022, MMI formed Sadot LLC, a Delaware limited liability company and a wholly-owned subsidiary of MMI, ("Sadot"), for the purpose of shipping and trading agri-commodities on a global basis. With the formation of Sadot in late 2022, MMI has evolved from a U.S.-centric restaurant business into a global, food-focused organization. As of March 31, 2023, MMI consisted of two distinct operating units: 1. SADOT LLC: MMI’s largest operating unit is a global agri-commodities company engaged in trading and shipping of food and feed (e.g., soybean meal, wheat, corn, etc.) via dry bulk cargo ships to/from markets such as Brazil, Canada, China, India, Japan, Malaysia, Philippines, Poland, Romania, Ukraine and Vietnam. Sadot competes with the ABCD commodity companies (ADM, Bunge, Cargill, Louis-Dreyfus) as well as many regional organizations. Sadot seeks to diversify over time into a sustainable and forward-looking global agri-foods company. 2. MMI RESTAURANT GROUP: This is MMI’s legacy business with two fast casual restaurant concepts, Pokémoto Hawaiian Poké® and Muscle Maker Grill®, plus a fresh-prep meal service, SuperFit Foods™, with 30+ points of distribution plus in-home and national delivery. As of March 31, 2023, the MMI Restaurant Group included 19 company-owned restaurants, including the SuperFit Foods™ kitchen, and 26 franchise restaurants. The MMI Restaurant Group seeks to develop Pokémoto® into a national restaurant brand through franchising. MMI and its subsidiaries are hereinafter referred to as the “Company”. Liquidity Our primary source of liquidity is cash on hand. As of March 31, 2023, the Company had a cash balance, a working capital surplus and an accumulated deficit of $ 6.4 million, $ 6.4 million, and $ 80.4 million, respectively. During the three months ended March 31, 2023, the Company incurred a Pre-tax net loss of $ 1.1 million and Net cash used in operations of $ 3.3 million. 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 12 months. 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 9 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) of the Unaudited Condensed Consolidated Financial Statements of the Company as of March 31, 2023, and for the three months ended March 31, 2023, and 2022. The results of operations for the three months ended March 31, 2023, and 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, 2022. The Balance Sheet as of December 31, 2022, has been derived from the Company’s audited Financial Statements. Principles of Consolidation The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries and majority-owned subsidiary. Any intercompany transactions and balances have been eliminated in consolidation. Reclassifications Certain prior period balances have been reclassified in order to conform to current period presentation. These reclassifications have no effect on the previously reported results of operations or loss per share. 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, 2023 or December 31, 2022. Inventory Inventories, which are stated at the lower of cost or net realizable value, consist primarily of commodity trade shipments in-transit, perishable food items and supplies. Cost is determined using the first-in, first-out method. Deposit on Farmland Deposit on farmland consists of funds paid as a deposit with the intent to acquire farmland in Africa by our Sadot subsidiary. As of March 31, 2023, the Company recorded a deposit of $ 5.0 million. The Company has entered into a letter of intent with a deposit to purchase undeveloped farmland. The Company is still in final negotiations with the intent to finalize the agreement by the end of the second quarter of 2023. 10 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) Property and Equipment Property and equipment are stated at cost less accumulated Depreciation and amortization expenses. Major improvements are capitalized, and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization expenses are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows: Furniture and equipment 3 – 7 years Leasehold improvements 1 – 11 years Intangible Assets The Company accounts for recorded intangible assets in accordance with the Accounting Standards Codification (“ASC’) 350 “Intangibles – Goodwill and Other”. In accordance with ASC 350, the Company does not amortize intangible assets having indefinite useful lives. The Company determined that as of January 1, 2022, – the trademark – Muscle Maker had a finite life of 3 years and is amortizing the value over the new estimated life. The Company’s goodwill has an indefinite life and is 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. ASC 350 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 useful lives of the Company’s intangible assets are: Franchisee agreements 13 years Franchise license 10 years Trademarks 3 – 5 years Domain name, Customer list and Proprietary recipes 3 – 7 years Non-compete agreements 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”). 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. 11 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) As of March 31, 2023 and December 31, 2022, the Company deemed the conversion feature was not required to be bifurcated and recorded as a derivative liability. Related Parties A party is considered to be related to the Company if the party directly, indirectly, or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party. Revenue Recognition The Company’s revenues consist of Commodity sales, Restaurant sales, Franchise royalties and fees, Franchise advertising fund contributions, and Other revenues. The Company recognizes revenues according to Topic 606 of FASB, “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. Commodity Sales Commodity sale revenue is generated by our Sadot subsidiary and is recognized when the commodity is delivered as evidenced by the bill of lading and the invoice is prepared and submitted to the customer. During the three months ended March 31, 2023, the Company recorded Commodity sales revenues of $ 210.4 million. The Company did not have any Commodity sales revenue during the three months ended March 31, 2022. 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 $ 2.3 million and $ 2.7 million during the three months ended March 31, 2023 and 2022, 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, initial 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 $ 0.2 million and $ 0.1 million during the three months ended March 31, 2023 and 2022, respectively, which is included in Franchise royalties and fees on the accompanying Unaudited 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 initial franchise fees. The Company capitalizes these fees upon collection from the franchisee. These initial fees are then recognized as franchise fee revenue on a straight- 12 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 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. If a franchise location closes or a franchise agreement is terminated for any reason, the unrecognized revenue will be recognized in full at that time. The Company recorded revenue from initial franchise fees of $ 0.1 million and $ 49.0 thousand during the three months ended March 31, 2023 and 2022, respectively, which is included in Franchise royalties and fees on the accompanying Unaudited 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 $ 26.0 thousand and $ 0.1 million during the three months ended March 31, 2023 and 2022, respectively, which is included in Franchise royalties and fees on the accompanying Unaudited 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 Sales, general and administrative expenses. When an advertising contribution fund is over-spent at year-end, advertising expenses will be reported on the Unaudited 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 $ 16.0 thousand and $ 18.0 thousand, respectively, during the three months ended March 31, 2023 and 2022, which are included in Franchise advertising fund contributions on the accompanying Unaudited 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 Unaudited Condensed Consolidated Balance Sheets. 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. If a franchise location closes or a franchise agreement is terminated for any reason, the remaining deferred revenue will be recognized in full at that time. Stock-Based Consulting Expense Stock-based consulting expenses are for consulting fees due to Aggia related to ongoing Sadot operations and expansion of the global agri-commodities business. Based on the servicing agreement with Aggia LLC FZ, a Company formed under the laws of United Arab Emirates (“Aggia”), the consulting fees are calculated at approximately 80.0 % of the Net Income generated by the Sadot business segment. For the three months ended March 31, 2023, $ 3.4 million is recorded as Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and a corresponding liability is recorded as Accrued stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Balance Sheets. This expense is expected to be paid in stock in 2023. 13 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) Advertising Advertising costs are charged to expense as incurred. Advertising costs were $ 0.1 million and $ 33.0 thousand for the three months ended March 31, 2023 and 2022, respectively, are included in Sales, general and administrative expenses and $ 40.0 thousand and $ 0.1 million, respectively, are included in Other restaurant operating expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations. Net Loss per Share Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the impact of potential common shares, if dilutive, resulting from the exercise of warrants, options or the conversion of convertible notes payable. The following securities are excluded from the calculation of weighted average diluted common shares at March 31, 2023 and 2022, respectively, because their inclusion would have been anti-dilutive: March 31, 2023 2022 ( '000 ( '000 Warrants 18,034 17,874 Options 1,013 100 Convertible debt 24 32 Total potentially dilutive shares 19,071 18,006 Major Vendor The Company engages various vendors to purchase commodities for resale and distribute food products to their Company-owned restaurants. Purchases from the Company’s three largest commodity suppliers totaled 98 % of the Company’s purchases for the three months ended March 31, 2023. Purchases from the Company’s largest food products supplier totaled 45 % of the Company’s purchases for the three months ended March 31, 2022. Fair Value of Financial Instruments The Company measures the fair value of financial assets and liabilities based on the guidance of the FASB Accounting ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 — quoted prices in active markets for identical assets or liabilities. Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable. Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement. 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 14 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 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 17 – Equity for details related to accrued compensation liability being fair valued using Level 1 inputs. Income Taxes The Company accounts for income taxes under 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 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 Sales, general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations. Stock-Based Compensation The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally recorded on the grant date and re-measured on financial reporting dates and vesting dates until the service period is complete. The fair value amount of the award is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), 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, 2021, 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 15 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) • 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 $ 15.0 thousand as of the adoption date, and recognized an additional $ 7.8 thousand during the second quarter of 2022, based on updated information on two of our leases, for an aggregate cumulative-effect adjustment to accumulated deficit of $ 22.8 thousand. 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. The adoption of this guidance did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements and related disclosures. Subsequent Events The Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in the Financial Statements, except as disclosed in Note 19 – Subsequent events . 3. Loans Receivable The Company had no loan receivable balance at March 31, 2023 and December 31, 2022. Loans receivable include loans to franchisees totaling, in the aggregate, net of reserves for uncollectible loans. There were no reserves for uncollectible loans at March 31, 2023 and $ 0.1 million at March 31, 2022. Loans receivable were paid in full during the third quarter of 2022 and the corresponding reserve for loan loss was reversed. 4. Prepaid Expenses and Other Current Assets At March 31, 2023 and December 31, 2022, the Company’s prepaid expenses and other current assets consists of the following: As of March 31, 2023 December 31, 2022 $’000 $’000 Prepaid expenses 189 89 Other receivables 17 228 Prepaid and Other Current Assets 206 317 Included in prepaid and other current assets is a receivable of $ 17.0 thousand and $ 0.2 million as of March 31, 2023 and December 31, 2022, respectively. The receivable reduced Labor expense for 2021 included in Restaurant operating expenses, related to the employee retention tax credits receivable from the Internal Revenue Services (“IRS”) that was made available to companies effected by COVID-19. The Company started to early access the credit in the fourth quarter of 2021 as allowed by the IRS. 5. Deposit On Farmland At December 31, 2022, the Company's deposit on farmland balance was $ 4.9 million. At March 31, 2023, the Company gave an additional $ 0.1 million deposit, totaling $ 5.0 million deposit on farmland balance. Deposit on farmland consists of 16 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) funds paid as a deposit with the intent to acquire farmland in Africa by our Sadot subsidiary. The Company has entered into a letter of intent with a deposit to purchase undeveloped farmland. The Company is still in final negotiations with the intent to finalize the agreement by the end of the second quarter of 2023. 6. Property and Equipment, Net As of March 31, 2023 and December 31, 2022, Property and equipment consist of the following: As of March 31, 2023 December 31, 2022 $’000 $’000 Furniture and equipment 1,312 1,266 Vehicles 55 55 Leasehold improvements 2,102 2,062 Construction in process 27 5 Property and equipment, gross 3,496 3,388 Less: accumulated depreciation ( 1,816 ) ( 1,493 ) Property and equipment, net 1,680 1,895 Depreciation expense amounted to $ 0.3 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023 there were no write off's related to Property and equipment. For the three months ended March 31, 2022, the Company wrote off Property and equipment with an original cost value of $ 0.4 million, related to closed locations and future locations that were terminated due to the economic environment as a result of COVID-19 and increased Labor and Food cost and recorded a loss on disposal of $ 0.2 million, after accumulated depreciation of $ 0.1 million, in the Unaudited Condensed Consolidated Statement of Operations. 7. Goodwill and Other Intangible Assets, Net The Company’s intangible assets include trademarks, franchisee agreements, franchise license, domain names, customer list, proprietary recipes and non-compete agreements. Intangible assets are amortized over useful lives ranging from 2 to 13 years. 17 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) A summary of the intangible assets is presented below: Intangible assets, net at December 31, 2021 Impairment of intangible assets Amortization expense Intangible assets, net at March 31, 2022 Intangible assets, net at December 31, 2022 Impairment of intangible assets Amortization expense Intangible assets, net at March 31, 2023 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Trademark Muscle Maker Grill 1,526 — ( 125 ) 1,401 670 — ( 83 ) 587 Franchise Agreements Muscle Maker Grill 162 — ( 6 ) 156 136 — ( 7 ) 129 Trademark SuperFit 38 — ( 2 ) 36 29 — ( 2 ) 27 Domain Name SuperFit 106 — ( 6 ) 100 81 — ( 6 ) 75 Customer List SuperFit 118 — ( 7 ) 111 90 — ( 7 ) 83 Proprietary Recipes SuperFit 135 — ( 8 ) 127 103 — ( 8 ) 95 Non-Compete Agreement SuperFit 193 — ( 21 ) 172 107 — ( 21 ) 86 Trademark Pokemoto 153 — ( 9 ) 144 118 — ( 9 ) 109 Franchisee License Pokemoto 2,599 — ( 68 ) 2,531 2,322 — ( 68 ) 2,254 Proprietary Recipes Pokemoto 1,028 — ( 40 ) 988 867 — ( 40 ) 827 Non-Compete Agreement Pokemoto 328 — ( 59 ) 269 88 — ( 59 ) 29 6,386 — ( 351 ) 6,035 4,611 — ( 310 ) 4,301 Amortization expense related to intangible assets was $ 0.3 million and $ 0.4 million for the three months ended March 31, 2023 and 2022, respectively. 18 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The estimated future amortization expense is as follows: Three Months Ended March 31, 2024 2025 2026 2027 2028 Thereafter Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 Trademark Muscle Maker Grill 252 335 — — — — 587 Franchise Agreements Muscle Maker Grill 20 27 27 27 27 1 129 Trademark SuperFit 7 9 9 2 — — 27 Domain Name SuperFit 19 25 25 6 — — 75 Customer List SuperFit 21 28 28 6 — — 83 Proprietary Recipes SuperFit 24 32 32 7 — — 95 Non-Compete Agreement SuperFit 65 21 — — — — 86 Trademark Pokemoto 26 35 35 13 — — 109 Franchisee License Pokemoto 209 278 277 277 277 936 2,254 Proprietary Recipes Pokemoto 122 162 161 161 161 60 827 Non-Compete Agreement Pokemoto 29 — — — — — 29 794 952 594 499 465 997 4,301 The Company determined that no impairment testing of the Company’s intangible assets was required as of March 31, 2023. Therefore, no impairment charge was recorded. A summary of the goodwill assets is presented below: Muscle Maker Grill Pokemoto SuperFit Food Total $’000 $’000 $’000 $’000 Goodwill, net at December 31 2021 570 1,798 258 2,626 Impairment of goodwill — — — — Goodwill, net at March 31, 2022 570 1,798 258 2,626 Goodwill, net at December 31 2022 570 1,798 258 2,626 Impairment of goodwill — — — — Goodwill, net at March 31, 2023 570 1,798 258 2,626 The Company determined that no impairment testing of the Company’s goodwill was required as of March 31, 2023. Therefore, no impairment charge was recorded. 19 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 8. Accounts Payables and Accrued Expenses Accounts payables and accrued expenses consist of the following: As of March 31, 2023 December 31, 2022 $’000 $’000 Accounts payable 699 1,085 Accrued payroll and bonuses 102 551 Accrued expenses 102 87 Accrued professional fees 73 185 Accounts payable commodities 34,830 — Sales taxes payable (1) 57 45 35,863 1,953 (1) See Note 15 – Commitments and contingencies for details related to delinquent sales taxes. 9. Accrued Stock-Based Consulting Expenses Due to Related Party At March 31, 2023, Accrued stock-based consulting expenses due to related party was $ 3.4 million. At December 31, 2022, Accrued stock-based consulting expenses was $ 3.6 million. Accrued stock-based consulting expenses are related to consulting fees due to our newly established related party, Aggia, for Sadot operations. See Note 18 – Related party transactions for details. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 80.0 % of the Net income generated by the Sadot business segment. For the three months ended March 31, 2023, $ 3.4 million are also recorded as Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations. The Stock-based consulting expense that is due to related party is expected to be paid in stock in 2023. 10. Notes Payable Convertible Notes Payable On April 6, 2018, the Company issued a $ 0.5 million 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 $ 0.4 million into 0.1 million shares of the Company’s common stock. The Company had an aggregate gross amount of $ 0.1 million and $ 0.1 million of convertible notes payable as of March 31, 2023 and December 31, 2022 included in notes payable on the Unaudited Condensed Consolidated Balance Sheets. Other Notes Payable During the three months ended March 31, 2023 and 2022, the Company repaid a total amount of $ 0.1 million and $ 1.3 million, respectively, of the other notes payable. As of March 31, 2023, the Company had an aggregate amount of $ 0.9 million in other notes payable. The notes had interest rates ranging between 3.75 % - 8.00 % per annum, due on various dates through May 2027. 20 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The maturities of notes payable as of March 31, 2023, are as follows: Principal Amount $’000 2023 225 2024 121 2025 70 2026 531 Thereafter — 947 11. Leases The Company’s leases consist of restaurant locations. We determine if a contract contains a lease at inception. The leases generally have remaining terms of 1 - 10 years and most leases included the option to extend the lease for an additional 5 years. The total lease cost associated with right of use assets and operating lease liabilities for the three months ended March 31, 2023, was $ 0.1 million and has been recorded in the Unaudited Condensed Consolidated Statement of Operations as Rent expense within Restaurant operating expenses. The assets and liabilities related to the Company’s leases were as follows: As of March 31, 2023 December 31, 2022 $’000 $’000 Assets Right to use asset 2,189 2,433 Liabilities Operating leases – current 505 560 Operating leases – non-current 1,800 2,019 Total lease liabilities 2,305 2,579 21 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The table below presents the future minimum lease payments under the noncancellable operating leases as of March 31, 2023: Operating Leases $’000 Fiscal Year: 2023 565 2024 706 2025 556 2026 386 2027 300 2028 222 Thereafter 368 Total lease payments 3,103 Less imputed interest ( 798 ) Present value of lease liabilities 2,305 The Company’s lease term and discount rates were as follows: As of March 31, 2023 Weighted-average remaining lease term (in years) Operating leases 5.01 Weighted-average discount rate Operating leases 12.0 % 12. Deferred Revenue The Company's deferred revenue consists of the following: As of March 31, 2023 December 31, 2022 $’000 $’000 Deferred revenues, net 1,318 1,371 Less: deferred revenue, current ( 90 ) ( 95 ) Deferred revenues, non-current 1,228 1,276 22 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 13. Other Current Liabilities Other current liabilities consist of the following: As of March 31, 2023 December 31, 2022 $’000 $’000 Gift card liability 26 25 Co-op advertising fund liability 87 79 Marketing development brand liability 41 35 Advertising fund liability 41 43 195 182 See Note 2 – Significant accounting policies for details related to the gift card liability and advertising fund liability. 14. Income Taxes The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of March 31, 2023 and December 31, 2022 are presented below: As of March 31, 2023 December 31, 2022 $’000 $’000 Deferred tax assets: Net operating loss carryforwards 10,693 10,615 Receivable allowance 6 5 Stock-based compensation 313 15 Intangible assets 38 314 Deferred revenues 273 204 Leases 25 32 Gross deferred tax asset 11,348 11,185 Deferred tax liabilities: Property and equipment ( 103 ) ( 160 ) Gross deferred tax liabilities ( 103 ) ( 160 ) Net deferred tax assets 11,246 11,025 Valuation allowance ( 11,246 ) ( 11,025 ) Net deferred tax asset, net of valuation allowance — — 23 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The income tax expense for the periods shown consist of the following: As of March 31, 2023 December 31, 2022 $’000 $’000 Federal: Current — — Deferred — — State and local: Current 3 25 Deferred — — 3 25 Change in valuation allowance — — Income tax expense 3 25 A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the periods shown, are as follows: As of March 31, 2023 December 31, 2022 Federal income tax benefit at statutory rate 21.0 % 21.0 % State income tax benefit, net of federal impact ( 0.2 ) % ( 0.5 ) % Permanent differences ( 1.9 ) % ( 0.1 ) % PPP loan forgiveness — % 0.4 % Return to provision adjustments — % 3.3 % Deferred tax asset true up- State — % ( 14.5 ) % Deferred tax asset true up- Federal — % ( 6.8 ) % Other 0.1 % — % Change in valuation allowance ( 20.7 ) % ( 3.3 ) % Effective income tax rate ( 1.7 ) % ( 0.5 ) % The Company has filing obligations in what it considers its U.S. major tax jurisdictions as follows: Nevada, California, Connecticut, Florida, New Jersey, Texas, Virginia, New York State and New York City. The earliest year that the Company is subject to examination is the year ended December 31, 2015. The Company has approximately $ 63.6 million of Federal and State Net operating loss (“NOLs”) available to offset future taxable income. The net operating loss carryforwards generated prior to 2018, if not utilized, will expire from 2035 to 2037 for federal and state purposes. As of March 31, 2023 and December 31, 2022, the Company has determined that it is more likely than not that the Company will not recognize the future tax benefit of the loss carryforwards and has recognized a valuation allowance of $ 11.2 million and $ 11.0 million, respectively. The valuation allowance increased by approximately $ 0.2 million. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5 percent stockholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36-month time period testing period or beginning the day after the most recent ownership change, if shorter. 24 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 15. Commitments and Contingencies Consulting Agreements On November 14, 2022 (the “Effective Date”), the Company, Sadot and Aggia entered into a Services Agreement (the “Services Agreement”) whereby Sadot engaged Aggia to provide certain advisory services to Sadot for creating, acquiring and managing Sadot’s business of wholesaling food and engaging in the purchase and sale of physical food commodities. As consideration for Aggia providing the services to Sadot, the Company agreed to issue shares of common stock of the Company, par value $ 0.0001 per share, to Aggia subject to Sadot generating net income measured on a quarterly basis at per share price of $ 1.5625 , subject to equitable adjustments for any combinations or splits of the common stock occurring following the Effective Date. Upon Sadot generating net income for any fiscal quarter, the Company shall issue Aggia a number of shares of common stock equal to the net income for such fiscal quarter divided by the per share price (the “Shares”). The Company may only issue authorized, unreserved shares of common stock. The Company will not issue Aggia in excess of 14.4 million shares representing 49.9 % of the number of issued and outstanding shares of common stock as of the Effective Date. Further, once Aggia has been issued a number of shares constituting 19.99 % of the issued and outstanding shares of common stock of the Company, no additional shares shall be issued to Aggia unless and until this transaction has been approved by the shareholders of the Company. The shareholders approved the Services Agreement on February 28, 2023. In the event that the shares cap has been reached, then the remaining portion of the net income, if any, not issued as shares shall accrue as debt payable by Sadot to Aggia until such debt has reached a maximum of $ 71.5 million. The Company will prepare the shares earned calculation after the annual audit or quarter review is completed by the auditors. The shares will be issued within 10 days of the final calculation. Additionally, for the three months ended March 31, 2023, the Company reimbursed Aggia for all operating costs related to Sadot including labor, operating and general administrative expenses of $ 0.6 million, $ 0.2 million and $ 0.1 million, respectively. Franchising During the three months ended March 31, 2023 and 2022, the Company entered into various Pokemoto franchise agreements for a total of 5 and 11 , respectively, potentially new Pokemoto locations with various franchisees. The Franchisees paid the Company an aggregate of $ 0.1 million and $ 0.2 million and this has been recorded in deferred revenue as of March 31, 2023 and 2022, respectively. Master Franchise Agreement On October 25, 2021, Muscle Maker Development International LLC (“MMDI”), a wholly-owned subsidiary of Muscle Maker Inc., entered into a Master Franchise Agreement (the “Master Franchise Agreement”) with Almatrouk Catering Company – OPC (“ACC”) providing ACC with the right to grant franchises for the development of 40 “Muscle Maker Grill” restaurants through December 31, 2030 (the “Term”) in the Kingdom of Saudi Arabia (“KSA”). Under the Master Franchise Agreement, MMDI has granted to ACC an exclusive right to establish and operate Muscle Maker restaurants in the KSA. MMDI will not own or operate restaurants in KSA, grant franchises for the restaurants in KSA, or grant Master Franchise Rights for the restaurants to other persons within the KSA. ACC will be solely responsible for the development, sales, marketing, operations, distribution and training of all franchise locations sold in the KSA. ACC is required to pay MMDI $ 0.2 million pursuant to the Master Franchise Agreement upon the occurrence of various events. ACC is required to pay MMDI $ 20.0 thousand upon the execution of each franchise agreement for each individual restaurant and a monthly royalty fee of $ 1.0 thousand for each restaurant. Further, ACC is to adhere to the agreed upon development schedule as outlined in the master franchise agreement. An initial $ 20.0 thousand deposit was paid on the agreement and no other amount is due at this time. ACC has not performed against this agreement. 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. As of the second quarter 2022, all past 25 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) due tax on sales from 2017 and 2018 has been paid in full. The Company had accrued a sales tax liability for approximately $ 0.1 million and $ 44.6 thousand as of March 31, 2023, and December 31, 2022, respectively. 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 all the payment plans with the various state or local entities for these past owed amounts. Litigations, Claims and Assessments On April 24, 2022, the Company and a convertible note holder entered into an agreement in which the Company will repay a total of $ 0.1 million in connection with the default judgement issued on June 22, 2018, by the Iowa District Court for Polk County #CVCV056029, filed against the Company for failure to pay the remaining balance due on a promissory note in the amount of $ 0.1 million, together with interest, attorney fees and other costs of $ 0.2 million. The Company agreed to pay $ 40.0 thousand on or before May 1, 2022 and to make seven installment payments of $ 10.0 thousand per month starting on or before June 1, 2022. As of December 30, 2022, the Company had paid this note in full. 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 $ 33.0 thousand in damages for services claimed to be rendered by the contractor. The Company accrued $ 30.0 thousand for the liability in accounts payable and accrued expenses as of March 31, 2023 and December 31, 2022. On January 23, 2020, the Company was served a judgment issued by the Judicial Council of California in the amount of $ 0.1 million 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, 2023 and December 31, 2022, 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. Employment Agreements On November 16, 2022, , the Company entered into an Executive Employment Agreement with Michael Roper (the “Roper Agreement”), which replaced his prior employment agreement. Pursuant to the Roper 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 Roper Agreement, Mr. Roper is entitled to a base salary at the annualized rate of $ 0.4 million. Mr. Roper will be eligible for a discretionary performance bonus to be determined by the Board annually. Further, Mr. Roper will be entitled to an additional bonus of $ 0.1 million upon the Company obtaining approval of the Shareholder Matters and $ 25.0 thousand upon the Designated Directors representing a majority of the Board of Directors. If Mr. Roper is terminated for any reason, he will be entitled to receive accrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of the term applicable to such stock option. If Mr. Roper is terminated by the Company for any reason other than cause or resigns for a good reason, Mr. Roper will be entitled to a severance payment equal to 36 months of salary, which will be reduced to 18 months following the second anniversary of the Roper Agreement, and all equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Roper Agreement will automatically terminate and the prior employment agreement will again be in full effect. On March 21, 2023, the Company entered into an Executive Employment Agreement with Jennifer Black (the “Black Agreement”), which replaced her prior employment agreement. Pursuant to the Black Agreement, Ms. Black will continue to be employed as Chief Financial Officer of the Company on an at-will-basis. During the term of the Black Agreement, Ms. Black is entitled to a base salary at the annualized rate of $ 0.2 million. Ms. Black will be eligible for a discretionary performance bonus up to 50 % of her annual salary. Further, Ms. Black will be entitled to an additional bonus of $ 0.1 million upon the Company obtaining approval of the Shareholder Matters and $ 25.0 thousand upon the Designated Directors representing a majority of the Board of Directors. If Ms. Black is terminated for any reason, she will be entitled to receive accrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to 26 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) exercise any equity compensation rights through the last day of the term applicable to such stock option. If Ms. Black is terminated by the Company for any reason other than cause or resigns for a good reason, Ms. Black will be entitled to a severance payment equal to 36 months of salary, which will be reduced to six months following the second anniversary of the Black Agreement, and all equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Black Agreement will automatically terminate and the prior employment agreement will again be in full effect. On November 16, 2022, the Company entered into an Executive Employment Agreement with Kenneth Miller (the “Miller Agreement”), which replaced his prior employment agreement. Pursuant to the Miller Agreement, Mr. Miller will continue to be employed as Chief Operating Officer of the Company on an at-will-basis. During the term of the Miller Agreement, Mr. Miller is entitled to a base salary at the annualized rate of $ 0.3 million. Mr. Miller will be eligible for a discretionary performance bonus up to 75 % of his annual salary. Further, Mr. Miller will be entitled to an additional bonus of $ 25.0 thousand upon the Designated Directors representing a majority of the Board of Directors. If Mr. Miller is terminated for any reason, he will be entitled to receive accrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of the term applicable to such stock option. If Mr. Miller is terminated by the Company for any reason other than cause or resigns for a good reason, Mr. Miller will be entitled to a severance payment equal to 36 months of salary, which will be reduced to 12 months following the second anniversary of the Miller Agreement, and all equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Miller Agreement will automatically terminate and the prior employment agreement will again be in full effect. On November 16, 2022, the Company entered into an Executive Employment Agreement with Kevin Mohan (the “Mohan Agreement”), which replaced his prior employment agreement. Pursuant to the Mohan Agreement, Mr. Mohan will continue to be employed as Chief Investment Officer of the Company on an at-will-basis. During the term of the Employment Agreement, Mr. Mohan is entitled to a base salary at the annualized rate of $ 0.2 million. Mr. Mohan will be eligible for a discretionary performance bonus up to 75 % of his annual salary. Further, Mr. Mohan will be entitled to an additional bonus of $ 0.1 million upon the Company obtaining approval of the Shareholder Matters and $ 25.0 thousand upon the Designated Directors representing a majority of the Board of Directors. If Mr. Mohan is terminated for any reason, he will be entitled to receive accrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of the term applicable to such stock option. If Mr. Mohan is terminated by the Company for any reason other than cause or resigns for a good reason, Mr. Mohan will be entitled to a severance payment equal to 36 months of salary, which will be reduced to six months following the second anniversary of the Mohan Agreement, and all equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Mohan Agreement will automatically terminate and the prior employment agreement will again be in full effect. On November 16, 2022, the Company entered into an Executive Employment Agreement with Aimee Infante (the “Infante Agreement”), which replaced her prior employment agreement. Pursuant to the Infante Agreement, Ms. Infante will continue to be employed as Chief Marketing Officer of the Company on an at-will-basis. During the term of the Infante Agreement, Ms. Infante is entitled to a base salary at the annualized rate of $ 0.2 million. Ms. Infante will be eligible for a discretionary performance bonus up to 25 % of her annual salary. Further, Ms. Infante will be entitled to an additional bonus of $ 25.0 thousand upon the Designated Directors representing a majority of the Board of Directors. If Ms. Infante is terminated for any reason, she will be entitled to receive accrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of the term applicable to such stock option. If Ms. Infante is terminated by the Company for any reason other than cause or resigns for a good reason, Ms. Infante will be entitled to a severance payment equal to 36 months of salary, which will be reduced to six months following the second anniversary of the Infante Agreement, and all equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Infante Agreement will automatically terminate, and the prior employment agreement will again be in full effect. 27 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 16. Reportable Operating Segments See Note 1 – Business organization and nature of operations for descriptions of our operating segments. The following table sets forth the results of operations for the relevant segments for the three months ended March 31, 2023: For the Three Months Ended March 31, 2023 Restaurant division Sadot division Corporate adj. Total segments $’000 $’000 $’000 $’000 Revenues: Commodity sales — 210,366 — 210,366 Company restaurant sales, net of discounts 2,301 — — 2,301 Franchise royalties and fees 284 — — 284 Franchise advertising fund contributions 16 — — 16 Total revenues 2,601 210,366 — 212,967 Operating Costs and Expenses: Commodity operating expenses: Commodity cost — 205,055 — 205,055 Labor — 620 — 620 Other commodity operating expenses — 154 — 154 Total commodity operating expenses — 205,829 — 205,829 Restaurant operating expenses: Food and beverage costs 839 — — 839 Labor 880 — — 880 Rent 274 — — 274 Other restaurant operating expenses 472 — — 472 Total restaurant operating expenses 2,465 — — 2,465 Depreciation and amortization expenses 316 — 317 633 Franchise advertising fund expenses 16 — — 16 Pre-opening expenses 36 — — 36 Post-closing expenses 93 — 1 94 Stock-based consulting expenses — — 3,359 3,359 Sales, general and administrative expenses 82 286 1,774 2,142 Total costs and expenses 3,008 206,115 5,451 214,574 (Loss) / income from operations ( 407 ) 4,251 ( 5,451 ) ( 1,607 ) Other Income: Interest income / (expense), net 2 — 1 3 Change in fair value of accrued compensation — — 541 541 Total other income, net 2 — 542 544 (Loss) / Income Before Income Tax ( 405 ) 4,251 ( 4,909 ) ( 1,063 ) Income tax — — 3 3 Net (loss) / income ( 405 ) 4,251 ( 4,912 ) ( 1,066 ) 28 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The following table sets forth the results of operations for the relevant segments for the three months ended March 31, 2022: For the Three Months Ended March 31, 2022 Restaurant division Sadot division Corporate adj. Total segments $’000 $’000 $’000 $’000 Revenues: Company restaurant sales, net of discounts 2,694 — — 2,694 Franchise royalties and fees 208 — — 208 Franchise advertising fund contributions 18 — — 18 Total revenues 2,920 — — 2,920 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 1,026 — — 1,026 Labor 1,073 — — 1,073 Rent 340 — — 340 Other restaurant operating expenses 650 — — 650 Total restaurant operating expenses 3,089 — — 3,089 Depreciation and amortization expenses 119 — 357 476 Franchise advertising fund expenses 18 — — 18 Sales, general and administrative expenses 257 — 1,067 1,324 Total costs and expenses 3,483 — 1,424 4,907 Loss from operations ( 563 ) — ( 1,424 ) ( 1,987 ) Other Income: Other income / (expense) 2 — ( 21 ) ( 19 ) Interest income / (expense), net 3 — ( 21 ) ( 18 ) Gain on debt extinguishment 140 — — 140 Total other income, net 145 — ( 42 ) 103 Loss Before Income Tax ( 418 ) — ( 1,466 ) ( 1,884 ) Income tax — — 2 2 Net loss ( 418 ) — ( 1,468 ) ( 1,886 ) With the creation of our Sadot subsidiary in late 2022, we began to transform from a U.S.-centric restaurant business into a global, food-focused organization with two distinct segments. As a result, we have reevaluated and changed our operating segments during the three months ended March 31, 2023. Previously we split out Muscle Maker Grill, Pokemoto, and SuperFit Foods as their own restaurant operating segments. Since Sadot's operations is primarily in commodities trading and is such a large portion of the Companies business, the Company segregated it into its own segment and combined all restaurant operations into a segment. The Company will continue to evaluate its operating segments and update as necessary. 17. Equity Stock Option and Stock Issuance Plan 2021 Plan The Company’s board of directors and shareholders approved and adopted on October 7, 2021 the 2021 Equity Incentive Plan (“2021 Plan”), effective on September 16, 2020 under which stock options and restricted stock may be granted to 29 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) officers, directors, employees and consultants in the form of non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Under the 2021 Plan, the Company reserved 1.5 million shares of common stock for issuance. As of March 31, 2023, 1.2 million shares have been issued and 0.3 million options to purchase shares have been awarded under the 2021 Plan. 2023 Plan The Company’s board of directors and shareholders approved and adopted on February 28, 2023 the 2023 Equity Incentive Plan (“2023 Plan”) under which stock options and restricted stock may be granted to officers, directors, employees and consultants in the form of non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock Units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Under the 2023 Plan, the Company reserved 2.5 million shares of common stock for issuance. As of March 31, 2023 no shares have been issued and 68.9 thousand option to purchase shares have been awarded under the 2023 Plan. Common Stock Issuances On January 6, 2022, the Company authorized the issuance of an aggregate of 39.6 thousand shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2022. The Company accrued for the liability as of March 31, 2022. On January 18, 2022, the Company issued an aggregate of 30.0 thousand 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 $ 15.6 thousand. The Company accrued for the liability as of March 31, 2022. On March 31, 2022, the Company authorized the issuance of an aggregate of 0.1 million shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2022. On April 4, 2022, the Company authorized the issuance of 20.0 thousand 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. On June 8, 2022, the Company authorized the issuance of 5.0 thousand shares of common stock to a contractor for work done at a Company owned location. On June 30, 2022, the Company recognized 30.9 thousand shares of common stock for book purpose to reconcile the shares outstanding to the transfer agent report. On July 14, 2022, the Company authorized the issuance of an aggregate of 0.1 million shares of common stock to the members of the board of directors as compensation earned during the second quarter of 2022. On October 12, 2022, the Company authorized the issuance of an aggregate of 0.1 million shares of common stock to the members of the board of directors as compensation earned during the third quarter of 2022. On November 29, 2022, the Company authorized the issuance of an aggregate of 0.4 million shares of common stock in connection with the exercise of pre-funded warrants. On January 5, 2023, the Company authorized the issuance of an aggregate of 31.3 thousand shares of common stock to the members of the board of directors as compensation earned during the fourth quarter of 2022. On March 27, 2023, the Company authorized the issuance of 2.8 million shares of common stock to Aggia as consulting fees earned during the fourth quarter of 2022. Change in fair vale of accrued compensation on the Unaudited Condensed Consolidated Statement of Operations is made up of the difference between the agreed upon issuance price, per the servicing agreement with Aggia and the market price 30 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) on the day of issuance. For three months ended March 31, 2023, Change in fair value of accrued compensation was $ 0.5 million. Private Placements On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company for an aggregate purchase price of approximately $ 10.0 million (i) 1.3 million shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4.1 million shares of common stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2.9 million shares of common stock (the “pre-funded warrant”). Each share and accompanying common warrant is being sold together at a combined offering price of $ 2.43 per share and Common Warrant, and each pre-funded warrant and accompanying common warrant is being sold together at a combined offering price of $ 2.42 per pre-funded warrant and accompanying common warrant. The pre-funded warrant is immediately exercisable, at a nominal exercise price of $ 0.01 per share, and may be exercised at any time until the pre-funded warrant are fully exercised. The common warrant will have an exercise price of $ 2.43 per share, are immediately exercisable and will expire 5.5 years from the date of issuance. The Private Placement closed on April 9, 2021. The Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company was required to register the resale of the shares and the shares issuable upon exercise of the common warrant and the pre-funded warrant. The Company prepared and filed a registration statement with the Securities and Exchange Commission within 30 days of the date of the Securities Purchase Agreement and to used commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement. Pursuant to a placement agency agreement, dated April 6, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8.0 % of the gross proceeds raised in the Private Placement and a common stock purchase warrant to purchase shares of common stock in an amount equal to 4.0 % of the Shares and shares of common stock issuable upon exercise of the warrants sold in the Private Placement, the warrant has an exercise price of $ 2.916 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement. On November 17, 2021, the Company entered into a Securities Purchase Agreement with accredited investors (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investors (the “Purchasers”) agreed to purchase from the Company for an aggregate purchase price of approximately $ 15.0 million (i) 6.8 million shares (the “Shares”) of common stock, par value $ 0.0001 per share, of the Company (the “common stock”) (ii) a common stock purchase warrant to purchase up to 10.8 million shares of common stock (the “common warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 4.1 million shares of common stock (the “pre-funded warrant”). Each share and accompanying common warrant were being sold together at a combined offering price of $ 1.385 per share and common warrant, and each pre-funded warrant and accompanying Common Warrant is being sold together at a combined offering price of $ 1.3849 per pre-funded warrant and accompanying common warrant. The pre-funded warrant is immediately exercisable, at a nominal exercise price of $ 0.0001 per share, and may be exercised at any time until the pre-funded warrant is fully exercised. The common warrant will have an exercise price of $ 1.385 per share, are immediately exercisable and will expire 5 years from the date of issuance. The Private Placement closed on November 22, 2021. The Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company is required to register the resale of the shares and the shares issuable upon exercise of the common warrant and the pre-funded warrant. The Company was required to prepare and file a registration statement with the Securities and Exchange Commission within 30 days of the date of the Securities Purchase Agreement and used 31 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement. Pursuant to a placement agency agreement, dated November 17, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8.0 % of the gross proceeds raised in the Private Placement and a common stock purchase warrant to purchase shares of Common Stock in an amount equal to 4.0 % of the Shares and shares of common stock issuable upon exercise of the warrants sold in the Private Placement, which warrant has an exercise price of $ 1.662 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement. The warrants for the November 17, 2021, private placement for the Placement Agents were issued in the fourth quarter of 2022. Warrant and Option Valuation The Company has computed the fair value of warrants granted and options accrued for as accrued compensation expense using the Black-Scholes option pricing model. The expected term used for warrants and options issued to non-employees is the contractual life. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected term of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. Options On February 27, 2023, the Company issued options to purchase an aggregate of 0.5 million shares of the Company's common stock to officers and directors. The options had an exercise price of $ 1.51 per share and vest ratably over 20 quarters with the first vesting occurring March 31, 2023. On March 15, 2023, the Company issued options to purchase 0.1 million shares of the Company's common stock. The options had an exercise price of $ 1.51 per share and vest ratably over 20 quarters with the first vesting occurring March 31, 2023. A summary of option activity during the three months ended March 31, 2023 and 2022 is presented below: Weighted-average exercise price Number of options Weighted-average remaining life (in years) Aggregate intrinsic value $ $’000 Outstanding, December 31, 2021 5.00 100,000 1.90 — Issued — — N/A — Exercised — — N/A — Forfeited — — N/A — Outstanding, March 31, 2022 5.00 100,000 1.66 — Exercisable, March 31, 2022 5.00 100,000 1.66 — Outstanding, December 31, 2022 1.52 412,500 3.56 156 Issued 1.51 600,000 6.17 — Exercised — — N/A — Forfeited — — N/A — Outstanding, March 31, 2023 1.52 1,212,500 5.00 206 Exercisable, March 31, 2023 3.00 190,019 1.51 40 32 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The Company has estimated the fair value of the options using the Black-Scholes model using the following assumptions: Three Months Ended March 31, 2023 Risk free interest rate 1.53 - 4.33 % Expected term (years) 5 Expected volatility 59.10 - 156.87 % Expected dividends — Warrants On January 3, 2022, the Company issued 1.2 million 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 1.2 million warrants were exercised. On February 24, 2022, the Company issued 1.2 million 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 1.2 million warrants were exercised. On November 29, 2022, the Company issued 0.4 million shares of common stock in connection with the exercising of pre-funded warrants for $ 44 . A summary of warrants activity during the three months ended March 31, 2023 and 2022 is presented below: Number of Warrants Weighted-average exercise price Weighted-average remaining life (in years) Outstanding, December 31, 2021 20,284,016 $ 1.60 4.00 Issued — — N/A Exercised ( 2,410,110 ) — N/A Forfeited — — N/A Outstanding, March 31, 2022 17,873,906 $ 1.90 4.30 Exercisable, March 31, 2022 17,873,906 $ 1.90 4.30 Outstanding, December 31, 2022 18,033,640 $ 1.93 3.51 Issued — — N/A Exercised — — N/A Forfeited — — N/A Outstanding, March 31, 2023 18,033,640 $ 1.93 3.26 Exercisable, March 31, 2023 18,033,640 $ 1.93 3.26 Stock-Based Compensation Expense Stock-based compensation related to restricted stock issued to employees, directors and consultants, warrants and warrants to consultants amounted to $ 3.4 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively, of which $ 58.7 thousand and $ 0.1 million, respectively, was recorded in Sales, general and administrative expenses. There was $ 3.4 million recorded in Stock-based consulting expense for the three months ended March 31, 2023. There were no expenses recorded in Stock-based consulting expense for the three months ended March 31, 2022. 33 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 18. Related Party Transactions The Company held a Special Meeting on February 28, 2023. Of the 29.3 million shares of Common Stock outstanding on January 19, 2023, the record date, 17.2 million shares were represented at the Special Meeting, in person or by proxy, constituting a quorum. At the meeting, the shareholders approved (i) the Services Agreement whereby Sadot engaged Aggia, to provide certain advisory services to Sadot for managing Sadot’s business of wholesaling food and engaging in the purchase and sale of physical food commodities (the “Sadot Transaction”); (ii) an amendment of the Company’s articles of incorporation to increase the number of authorized shares of common stock from 50.0 million to 150.0 million; (iii) for purposes of complying with NASDAQ Listing Rule 5635(b), the issuance of the Shares pursuant to the Services Agreement entered between the Company, Sadot and Aggia representing more than 20 % of our common stock outstanding, which would result in a “change of control” of the Company under applicable Nasdaq listing rules; (iv) for purposes of complying with NASDAQ Listing Rule 5635(c), the issuance of up to 14.4 million Shares of Common Stock to Aggia pursuant to the Services Agreement and net income generated thresholds; (v) the right of Aggia to nominate up to eight directors to the Board of Directors subject to achieving net income thresholds as set forth in the Services Agreement; and (vi) the adoption of the 2023 Equity Incentive Plan. In April of 2023, MMI recognized a related party relationship between newly appointed directors of the Company and Aggia. As of March 31, 2023, Aggia owned 8.9 % of the Company's commons stock. While a related party relationship exists, the amounts recognized during the period are immaterial to the Company's consolidated results. During the three months ended March 31, 2023, the Company recorded Stock-based consulting expense of $ 3.4 million to its related party, Aggia for consulting services rendered. As of March 31, 2023 the Company accrued stock-based compensation expense due to related party of $ 3.4 million. Additionally, for the three months ended March 31, 2023, the Company reimbursed Aggia for all operating costs related to Sadot including labor, operating and general administrative expenses of $ 0.6 million, $ 0.2 million and $ 0.1 million, respectively. The Company will continue to monitor and evaluate its related party transactions to ensure that they are conducted in accordance with applicable laws and regulations and in the best interests of the Company and its shareholders. 34 Table of Contents Muscle Maker, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 19. Subsequent Events Stock Issuance On April 5, 2023, the Company authorized the issuance of an aggregate of 29.7 thousand shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2023. The Company accrued for the liability as of March 31, 2023. Appointment of Directors On April 3, 2023, the Board appointed Marvin Yeo and Paul Sansom to the Board of Directors, effective April 10, 2023. Repurchase Program On April 13, 2023, the Company announced that its Board of Directors had approved a share repurchase program. Under the program, the Company is authorized to purchase shares of its common stock with a value of up to $ 2.0 million in open market transactions at the discretion of management. 35 Table of Contents