Sadot Group Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-39223

MUSCLE MAKER, INC.

(Exact name of registrant as specified in its charter)

Nevada

47-2555533

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

2600 South Shore Blvd., Suite 300,

League City, Texas

77573

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (682)-708-8250

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, $0.0001 par value per share		GRIL		The NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☒

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 November 15, 2021, was 17,812,293.

MUSCLE MAKER, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

		Page

PART 1 – FINANCIAL INFORMATION

ITEM 1. Financial Statements.

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	1

	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	2

	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Nine Months Ended September 30, 2020	3

	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2021	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	5

	Notes to Unaudited Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	25

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	39

ITEM 4.	Controls and Procedures.	39

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings.	40

ITEM 1A.	Risk Factors.	41

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	42

ITEM 3.	Defaults Upon Senior Securities.	42

ITEM 4.	Mine Safety Disclosures.	42

ITEM 5.	Other Information.	42

ITEM 6.	Exhibits.	43

SIGNATURES		44

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2021			December 31, 2020

Assets
Current Assets:
Cash	$	3,616,845		$	4,195,932
Accounts receivable, net of allowance for doubtful accounts of $75,000 as of September 30, 2021 and December 31, 2020, respectively		345,518			140,305
Inventory		178,344			113,824
Current portion of loans receivable, net of allowance of $61,275 and $106,900 at September 30, 2021 and December 31, 2020, respectively		8,209			2,394
Prepaid expenses and other current assets		1,068,732			40,903
Total Current Assets		5,217,648			4,493,358
Property and equipment, net		2,488,665			2,342,723
Goodwill		2,661,564			656,348
Intangible assets, net		7,765,252			2,878,278
Loans receivable, non-current		-			996
Security deposits and other assets		229,799			131,916
Total Assets	$	18,362,928		$	10,503,619

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	1,978,933		$	1,500,935
Convertible notes payable to Former Parent		82,458			82,458
Convertible notes payable		100,000			100,000
Other notes payable, current		186,037			701,552
Deferred revenue, current		44,437			62,858
Deferred rent, current		21,117			20,569
Other current liabilities		674,651			641,418
Total Current Liabilities		3,087,633			3,109,790
Other notes payable, non-current		1,167,267			575,140
Deferred revenue, non-current		845,763			944,271
Deferred rent, non-current		96,903			79,290
Total Liabilities		5,197,566			4,708,491

Commitments and Contingencies		-

Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 17,726,383 and 11,725,764 shares issued and outstanding as of September 30, 2021, and December 31, 2020, respectively		1,773			1,172
Additional paid-in capital		81,623,811			68,987,663
Accumulated deficit		(68,460,222	)		(63,193,707	)
Total Stockholders’ Equity		13,165,362			5,795,128
Total Liabilities and Stockholders’ Equity	$	18,362,928		$	10,503,619

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	2021			2020			2021			2020
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020

Revenues:
Company restaurant sales, net of discounts	$	2,976,255		$	887,922		$	6,720,030		$	2,785,288
Franchise royalties and fees		373,180			251,491			629,643			569,815
Franchise advertising fund contributions		670			13,132			19,499			45,587
Total Revenues		3,350,105			1,152,545			7,369,172			3,400,690

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		1,165,607			346,808			2,542,333			1,067,831
Labor		1,230,776			420,804			2,901,613			1,350,247
Rent		343,637			184,309			904,758			468,590
Other restaurant operating expenses		713,224			286,689			1,705,397			719,601
Total restaurant operating expenses		3,453,244			1,238,610			8,054,101			3,606,269
Preopening expenses		11,393			-			22,379			46,764
Depreciation and amortization		384,673			80,113			838,447			288,615
Impairment of intangible asset		-			100,000			-			100,000
Franchise advertising fund expenses		670			13,132			19,499			45,587
General and administrative expenses		1,136,424			457,282			6,098,379			6,800,536
Total Costs and Expenses		4,986,404			1,889,137			15,032,805			10,887,771
Loss from Operations		(1,636,299	)		(736,592	)		(7,663,633	)		(7,487,081	)

Other Income (Expense):
Other (expense) income, net		1,006,152			(5,360	)		1,232,461			(18,908	)
Interest expense, net		(2,483	)		(20,128	)		(38,817	)		(114,861	)
Change in fair value of accrued compensation		-			100,000			127,500			4,000
Gain on debt extinguishment		200,000			-			1,075,974			-
Amortization of debt discounts		-			-			-			(38,918	)
Total Other Income (Expense), Net		1,203,669			74,512			2,397,118			(168,687	)

Loss Before Income Tax		(432,630	)		(662,080	)		(5,266,515	)		(7,655,768	)
Income tax provision		-			-			-			-
Net Loss	$	(432,630	)	$	(662,080	)	$	(5,266,515	)	$	(7,655,768	)

Net Loss Per Share:
Basic and diluted	$	(0.02	)	$	(0.09	)	$	(0.35	)	$	(1.06	)

Weighted Average Number of Common Shares Outstanding:
Basic and diluted		17,704,445			7,633,347			14,991,168			7,217,767

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Shares			Amount			Capital			Deficit			Total
							Additional
	Common Stock						Paid-in			Accumulated
	Shares			Amount			Capital			Deficit			Total
Balance - December 31, 2019		5,714,464		$	571		$	53,339,793		$	(53,094,602	)	$	245,762
Issuance of restricted stock		1,226			-			-
Common stock issued upon offering on February 12, 2020, net of underwriter’s discount and offering costs of $920,000		1,540,000			154			6,779,846			-			6,780,000
Restricted stock issued as compensation to executive team upon completion of the initial public offering		216,783			22			1,083,893			-			1,083,915
Common stock issued as compensation to board of directors		25,616			3			128,077			-			128,080
Stock-based compensation
Restricted common stock		-			-			20,148			-			20,148
Warrant		-			-			191,000			-			191,000
Common stock issued as compensation for services
Common stock issued as compensation for services, shares
Common stock issued in exchange for accrued interest
Common stock issued in exchange for accrued interest, shares
Restricted common stock cancelled by executive team
Restricted common stock cancelled by executive team, shares
Common stock cancelled by consultant issued for prior services
Common stock cancelled by consultant issued for prior services, shares
Common stock issued as compensation for services as per settlement
Common stock issued as compensation for services as per settlement, shares
Warrant expense – Reclassed to accrued compensation for future options
Offering on September 10, 2020, net of underwriter’s discount and offering cost of $660,000
Offering on September 10, 2020, net of underwriter’s discount and offering cost of $660,000, shares
Restricted common stock issued as compensation to executives and employees
Restricted common stock issued as compensation to executives and employees, shares
Common stock, pre-funded warrants and warrant issued in private placement on April 7, 2021, net of fees $790,000
Common stock, pre-funded warrants and warrant issued in private placement on April 7, 2021, net of fees $790,000, shares
Exercise of pre-funding warrants
Exercise of pre-funding warrants, shares
Cancellation of share per agreement with shareholder
Cancellation of share per agreement with shareholder, shares
Common stock issued to investor
Common stock issued to investor, shares
Common stock issued as part of the acquisition
Common stock issued as part of the acquisition, shares
Net loss		-			-			-			(5,492,263	)		(5,492,263	)

Balance - March 31, 2020		7,883,089		$	789		$	63,467,718		$	(58,586,865	)	$	4,881,642
Common stock issued as compensation for services		20,000			2			56,198			-			56,200
Common stock issued in exchange for accrued interest		51,105			5			357,730			-			357,735
Common stock issued as compensation to board of directors		4,340			-			11,874			-			11,874

Stock-based compensation: Restricted common stock		-			-			20,148						20,148
Net loss		-			-			-			(1,501,425	)		(1,501,425	)

Balance - June 30, 2020		7,958,534		$	796		$	63,913,668		$	(60,088,290	)	$	3,826,174
Beginning balance		7,958,534		$	796		$	63,913,668		$	(60,088,290	)	$	3,826,174
Restricted common stock cancelled by executive team		(216,783	)		(22	)		(1,083,893	)		-			(1,083,915	)
Common stock cancelled by consultant issued for prior services		(300,000	)		(30	)		-						-
Common stock issued as compensation for services as per settlement		300,000			30			-			-			-
Common stock issued as compensation for services		53,571			5			200,700			-			200,705
Offering on September 10, 2020, net of underwriter’s discount and offering cost of $660,000		3,294,118			329			4,939,672			-			4,940,001
Warrant expense – Reclassed to accrued compensation for future options		-			-			(191,000	)		-			(191,000	)
Stock-based compensation:
Restricted common stock		-			-			20,367			-			20,367
Net loss		-			-			-			(662,080	)		(662,080	)

Balance - September 30, 2020		(11,089,440	)	$	1,108		$	67,799,514		$	(60,750,370	)	$	7,050,252
Ending balance		(11,089,440	)	$	1,108		$	67,799,514		$	(60,750,370	)	$	7,050,252

See Notes to the Unaudited Condensed Consolidated Financial Statements

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
Issuance of restricted stock		1,200			-			-			-			-
Common stock issued as part 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
Stock-based compensation:
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
Common stock, pre-funded warrants and warrant issued in private placement on April 7, 2021, net of fees $790,000		1,250,000			125			9,181,224			-			9,181,349
Common stock issued as part of the acquisition of Pokemoto on May 14, 2021		880,282			88			1,249,912			-			1,250,000
Common stock issued as part of the acquisition		880,282			88			1,249,912			-			1,250,000
Exercise of pre-funding warrants		2,865,227			287			28,365			-			28,652
Cancellation of share per agreement with shareholder		(11,879	)		(1	)		(99,999	)					(100,000	)
Common stock issued as compensation for services		160,000			16			229,185			-			229,201
Net loss		-			-			-			(1,122,201	)		(1,122,201	)

Balance – June 30, 2021		17,689,454			1,769			81,572,113			(68,027,592	)		13,546,290
Beginning balance		17,689,454			1,769			81,572,113			(68,027,592	)		13,546,290
Common stock issued as compensation to board of directors		20,829			2			29,159			-			29,161
Common stock issued to investor		15,000			2			20,999			-			21,001
Common stock issued as compensation for services		1,100			-			1,540			-			1,540
Net loss		-			-			-			(432,630	)		(432,630	)

Balance – September 30, 2021		17,726,383		$	1,773		$	81,623,811		$	(68,460,222	)	$	13,165,362
Ending balance		17,726,383		$	1,773		$	81,623,811		$	(68,460,222	)	$	13,165,362

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months Ended
	September 30,
	2021			2020

Cash Flows from Operating Activities
Net loss	$	(5,266,515	)	$	(7,655,768	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		838,447			288,615
Stock-based compensation		1,779,248			2,619,522
Amortization of debt discounts		-			38,918
Gain on extinguishment of debt		(1,075,974	)		-
Gain on change in fair value of accrued compensation		(127,500	)		(4,000	)
Impairment of intangible asset		-			100,000
Write off of property and equipment		37,027			41,480
Bad debt expense		18,676			-
Deferred rent		(13,156	)		15,914

Changes in operating assets and liabilities:
Accounts receivable		(169,300	)		(94,198	)
Inventory		(45,020	)		(7,634	)
Prepaid expenses and other current assets		(1,084,132	)		10,840
Security deposits and other assets		(6,000	)		(50,600	)
Accounts payable and accrued expenses		380,215			(520,405	)
Deferred revenue		(240,345	)		(244,843	)
Other current liabilities		33,233			(14	)
Total Adjustments		325,419			2,193,595
Net Cash Used in Operating Activities		(4,941,096	)		(5,462,173	)

Cash Flows from Investing Activities
Purchases of property and equipment		(183,861	)		(568,733	)
Cash paid in connection with the acquisition of SuperFit Foods		(500,000	)		-
Cash paid in connection with the acquisition of Pokemoto		(2,815,390	)		-
Cash paid in connection with the acquisition		(2,815,390	)		-
Collections from loans receivable		800			8,809
Net Cash Used in Investing Activities		(3,498,451	)		(559,924	)

Cash Flows from Financing Activities
Proceeds from offerings, net of underwriter’s discount and offering costs of $1,580,000		-			11,720,001
Proceeds from PPP loan		-			866,300
Proceeds from Private Placement Offering, net of offering costs		9,181,349			-
Proceeds from exercise of pre-funded warrants		28,652			-
Repayments of convertible note payable		-			(550,000	)
Cash paid in connection with cancellation of shares		(100,000	)		-
Repayments of other notes payable - related party		-			(91,000	)
Repayments of other notes payables		(1,249,514	)		(488,247	)
Proceeds from other notes payable – related party		-			-
Proceeds from other note payable		-			150,000
Net Cash Provided by Financing Activities		7,860,460			11,607,054

Net (Decrease) Increase in Cash		(579,087	)		5,584,957
Cash - Beginning of Period		4,195,932			478,854
Cash - End of Period	$	3,616,845		$	6,063,811

See Notes to the Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended
	September 30,
	2021		2020

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	66,179	$	388,101

Supplemental disclosures of non-cash investing and financing activities
Common stock issued in exchange for accrued interest	$	-	$	357,735
Warrant expense – Reclassed to accrued compensation for future options	$	-	$	191,000

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS, GOING CONCERN AND MANAGEMENT’S PLANS

Muscle Maker, Inc. (“MMI”), was incorporated in Nevada on October 25, 2019. MMI was a wholly owned subsidiary of Muscle Maker, Inc (“MMI-Cal”), a California corporation incorporated on December 8, 2014, but the two merged on November 13, 2019 with MMI as the surviving entity. MMI wholly owns Muscle Maker Development, LLC (“MMD”), Muscle Maker Corp, LLC (“MMC”) and Muscle Maker USA, Inc (“Muscle USA”). MMD was formed on July 18, 2017, in the State of Nevada for the purpose of running our existing franchise operations and continuing to franchise the Muscle Maker Grill name and business system to qualified franchisees. MMC was formed on July 18, 2017, in the State of Nevada for the purpose of developing new corporate stores and operating new and existing corporate stores of MMI. Muscle USA was formed on March 14, 2019 in the State of Texas for the purpose of opening additional new corporate stores.

MMI is a fast-casual restaurant concept that specializes in preparing healthy-inspired, high-quality, fresh, made-to-order lean, protein-based meals featuring chicken, seafood, pasta, hamburgers, wraps and flat breads. In addition, our restaurants feature freshly prepared entrée salads and an appealing selection of sides, protein shakes and fruit smoothies. MMI operates in the fast-casual restaurant segment.

MMI is the owner of the trade name and service mark Muscle Maker Grill®, Healthy Joe’s and other trademarks and intellectual property we use in connection with the operation of Muscle Maker Grill® restaurants. We license the right to use the Muscle Maker Grill® and Healthy Joe’s trademarks and intellectual property to our wholly-owned subsidiaries, MMD, MMC and Muscle USA, and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® and Healthy Joe’s restaurants.

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. In 2020 Superfit foods produced overs 220,000 fresh-prepared meals. 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, and 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”.

The Company operates under the name SuperFit Foods, Pokemoto and Muscle Maker Grill and is a franchisor and owner operator of Muscle Maker Grill, Healthy Joe’s and Pokemoto restaurants. As of September 30, 2021, the Company’s restaurant system included twenty-five company-owned restaurants, nineteen franchise restaurants, which includes the two locations in Kuwait, and one meal prep business. Three of the company-owned restaurants are delivery-only locations, including SuperFit Foods.

COVID-19

The COVID-19 global pandemic continues to rapidly evolve. The Company is continually monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, labor shortages resulting from various factors including mandatory vaccination requirements, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. The pandemic has resulted in a negative impact on the Company’s operations during the year ended December 31, 2020 and continued into the nine months ended September 30, 2021. However, due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity is uncertain as of the date of this report. While there could ultimately be an additional material impact on operations and liquidity of the Company, the full impact could not be determined, as of the date of this report.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS, GOING CONCERN AND MANAGEMENT’S PLANS, continued

Going Concern and Management’s Plans

As of September 30, 2021, the Company had a cash balance, a working capital surplus and an accumulated deficit of $3,616,845, $2,130,015, and $68,460,222, respectively. During the three and nine months ended September 30, 2021, the Company incurred a pre-tax net loss of $432,630and $5,266,515, respectively. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date of the issuance of these condensed consolidated financial statements.

Although management believes that the Company has access to capital resources, there are no commitments in place for new financing as of the date of the issuance of these condensed consolidated financial statements and there can be no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. The Company expects to have ongoing needs for working capital in order to (a) fund operations; plus (b) expand operations by opening additional corporate-owned restaurants. To that end, the Company may be required to raise additional funds through equity or debt financing. However, there can be no assurance that the Company will be successful in securing additional capital. If the Company is unsuccessful, the Company may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund its liabilities, or (d) seek protection from creditors.

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

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 September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 2021 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, 2020. The balance sheet as of December 31, 2020 has been derived from the Company’s audited financial statements.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Any intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates include:

	●	the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets;
	●	the estimated useful lives of intangible and depreciable assets;
	●	estimates and assumptions used to value warrants and options;
	●	the recognition of revenue; and
	●	the recognition, measurement and valuation of current and deferred income taxes.

Estimates and assumptions are periodically reviewed, and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Cash and Cash Equivalents

The Company considers all highly-liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of September 30, 2021 and December 31, 2020.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its condensed consolidated financial statements and disclosures.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different. ASU 2018-07 expands the scope of Topic 718, Compensation — Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than a Company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company is currently evaluating ASU 2018-07 and its impact on the condensed consolidated financial statements.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Recent Accounting Pronouncements, continued

In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for emerging growth companies for interim and annual reporting periods beginning after December 15, 2021, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company is currently assessing the impact this guidance will have on its condensed consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for emerging growth companies for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently assessing the impact this guidance will have on its condensed consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements” (“Topic 842”) (“ASU 2019-01”). These amendments align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied. (Issue 1). The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities. (Issue 2). Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. (Issue 3). The transition and effective date provisions apply to Issue 1 and Issue 2. They do not apply to Issue 3 because the amendments for that Issue are to the original transition requirements in Topic 842. This amendment will be effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating ASU 2019-01 and its impact on its unaudited condensed consolidated financial statements and financial statement disclosures.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Revenue Recognition

In accordance with the Accounting Standards Codification Topic 606 “Revenue from Contracts with Customers”, the Company recognized revenue in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model, we have made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and which represent separate performance obligations.

Restaurant Sales

Retail store revenue at Company operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discount and other sales related taxes. The Company recorded retail store revenues of $2,976,255 and $6,720,030 during the three and nine months ended September 30, 2021, respectively. The Company recorded retail store revenues of $887,922 and $2,785,288 during the three and nine months ended September 30, 2020, respectively.

The Company 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 $132,175 and $318,074 during the three and nine months ended September 30, 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company recorded revenue from royalties of $88,059 and $261,838 during the three and nine months ended September 30, 2020, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Franchise Royalties and Fees, continued

The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for the multi-unit development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee, these fees are then recognized as franchise fee revenue on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. The Company recorded revenues from franchise fees of $234,670 and $256,808, respectively, during the three and nine months ended September 30, 2021, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. The Company recorded revenues from franchise fees of $125,710 and $215,340, respectively, during the three and nine months ended September 30, 2020, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.

The Company 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 $6,335 and $54,761 during the three and nine months ended September 30, 2021, respectively, which is included in franchise royalties and fees on the accompanying consolidated statements of operations. The Company recorded revenue from rebates of $37,722 and $92,637 during the three and nine months ended September 30, 2020, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. Rebates earned on purchases by Company owned stores are recorded as a reduction of food and beverage costs during the period in which the related food and beverage purchases are made.

Other Revenues

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption. Gift card liability is recorded in other current liabilities on the condensed consolidated balance sheet. As of September 30, 2021 and December 31, 2020, the gift card liability was $93,146 and $91,034, respectively. For the three and nine months ended September 30, 2021, the Company determined that no gift card breakage is necessary based on current redemption rates.

Deferred Revenue

Deferred revenue primarily includes initial franchise fees received by the Company, which are being amortized over the life of the Company’s franchise agreements, as well as unearned vendor rebates. Deferred revenue is recognized in income over the life of the franchise agreements and vendor rebates are recognized in income as performance obligations are satisfied.

Franchise Advertising Fund Contributions

Under the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and, therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under general and administrative expenses. When an advertising contribution fund is over-spent at year end, advertising expenses will be reported on the consolidated statement of operations in an amount that is greater than the revenue recorded for advertising contributions. Conversely, when an advertising contribution fund is under-spent at a period end, the Company will accrue advertising costs up to advertising contributions recorded in revenue. The Company recorded contributions from franchisees of $670 and $19,499, respectively, during the three and nine months ended September 30, 2021, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations. The Company recorded contributions from franchisees of $13,132 and $45,587, respectively, during the three and nine months ended September 30, 2020, which is included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations.

Advertising

Advertising costs are charged to expense as incurred. Advertising costs were approximately $4,771 and $29,529 for the three and nine months ended September 30, 2021, and approximately $26,001 and $154,736 for the three and nine months ended September 30, 2020 respectively, and are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

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 September 30, 2021 and 2020, respectively, because their inclusion would have been anti-dilutive:

	September 30,
	2021		2020
Warrants		6,605,516		2,582,857
Options		100,000		-
Convertible debt		32,350		32,350
Total potentially dilutive shares		6,737,866		2,615,207

Major Vendor

The Company engages various vendors to distribute food products to their Company-owned restaurants. Purchases from the Company’s largest supplier totaled 54% and 62% of the Company’s purchases for the three and nine months ended September 30, 2021, respectively. Purchases from the Company’s largest supplier totaled 85% and 84% of the Company’s purchases for the three and nine months ended September 30, 2020, respectively.

Fair Value of Financial Instruments

The Company measures the fair value of financial assets and liabilities based on the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”).

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

The carrying amounts of accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts of our short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of common stock and warrants, are comparable to rates of returns for instruments of similar credit risk.

See Note 13 – Equity – Warrant and Options Valuation for details related to the accrued compensation liability being fair valued using Level 1 inputs.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported net loss.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

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 is 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 to be held for six months before being registered. The remaining $25,000 shall be paid in shares of common stock provided that the seller meets various obligation, within 60 days, as outline in the purchase agreement. As of September 30, 2021, the Company and former owner agreed that not all obligations were met, and we have no further obligation to issue the $25,000 shares of common stock. As of September 30, 2021, the Company has accrued for the liability in accounts payable and accrued expenses.

The Company acquired the following assets as part of the purchase agreement:

Furniture and equipment	$	82,000
Vehicles		55,000
Tradename		45,000
Customer list		140,000
Domain name		125,000
Proprietary Recipes		160,000
Non-compete agreement		260,000
Goodwill		283,000
Total assets acquired	$	1,150,000

The unaudited pro-forma financial information in the table below summarizes the consolidated results of operations of the Company and SuperFits Foods, LLC as though the acquisition had occurred as of January 1, 2020. 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.

	2021			2020			2021			2020
	Pro Forma						Pro Forma
	(Unaudited)						(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenues	$	3,350,105		$	2,014,395		$	7,876,672		$	4,262,540
Restaurant operating expenses		3,453,244			2,010,918			8,508,874			4,378,577
Total cost and expenses		4,986,404			2,661,445			15,487,578			11,660,079
Loss from Operations		(1,636,299	)		(647,050	)		(7,610,906	)		(7,397,539	)

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”).

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

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”.

The Company acquired the following assets as part of the purchase agreement:

Purchase Price	$	5,980,000

Assets
Cash	$	1,184,610
Accounts Receivables		60,208
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
	$	6,877,368
Liabilities
Accounts payable and accrued expenses	$	282,457
Other notes payable		1,462,453
Deferred revenue		123,416
Operating lease liability		751,258
	$	2,619,584

Fair value of identifiable net assets acquired		4,257,784

Goodwill	$	1,722,216

Identifiable intangible assets acquired include the following:

	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 consolidated results of operations of the Company and Pokemoto, LLC as though the acquisition had occurred as of January 1, 2020. 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.

	2021			2020			2021			2020
	Pro Forma						Pro Forma
	(Unaudited)						(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenues	$	3,350,105		$	2,025,219		$	8,666,00		$	5,227,429
Restaurant operating expenses		3,453,244			1,855,289			8,919,110			4,940,589
Total cost and expenses		4,986,404			2,632,971			16,170,438			12,510,336
Loss from Operations		(1,636,299	)		(607,752	)		(7,504,434	)		(7,282,907	)

Combined Results

The unaudited pro-forma financial information in the table below summarizes the consolidated results of operations of the Company for both acquisitions, SuperFit Foods, LCC and Pokemoto, LLC as though the acquisition had occurred as of January 1, 2020. 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 acquisitions had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.

	2021			2020			2021			2020
	Pro Forma						Pro Forma
	(Unaudited)						(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenues	$	3,350,105		$	2,887,069		$	9,173504		$	6,089,279
Restaurant operating expenses		3,453,244			2,627,597			9,373,883			5,712,897
Total cost and expenses		4,986,404			3,405,279			16,625,211			13,282,644
Loss from Operations		(1,636,299	)		(518,210	)		(7,451,707	)		(7,193,365	)

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 4 - LOANS RECEIVABLE

At September 30, 2021 and December 31, 2020, the Company’s loans receivable consists of the following:

SCHEDULE OF LOANS RECEIVABLES

	September 30, 2021			December 31, 2020
Loans receivable, net	$	8,209		$	3,390
Less: current portion		(8,209	)		(2,394	)
Loans receivable, non-current	$	-		$	996

Loans receivable includes loans to franchisees and a former franchisee totaling, in the aggregate, $8,209 and $3,390, net of reserves for uncollectible loans of $61,275 and $106,900 at September 30, 2021 and December 31, 2020, respectively. The remaining loan has an original term of 10 years, earn interest at rate of 12% annually, and is being paid on a monthly basis.

NOTE 5 – PREPAID EXENSES AND OTHER CURRENT ASSETS

At September 30, 2021 and December 31, 2020, the Company’s prepaid expenses and other current assets consists of the following:

	September 30, 2021		December 31, 2020

Prepaid expenses	$	68,418	$	23,446
Preopening expenses		1,556		17,457
Other receivables		998,758		-
Prepaid and Other Current Assets	$	1,068,732	$	40,903

Include in prepaid and other current assets is a receivable of $998,758 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.

NOTE 6 – PROPERTY AND EQUIPMENT, NET

As of September 30, 2021 and December 31, 2020 property and equipment consists of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT, NET

	September 30, 2021			December 31, 2020

Furniture and equipment	$	1,373,405		$	1,143,320
Vehicles		55,000			-
Leasehold improvements		2,174,899			1,940,907
Property and equipment, gross		3,603,304			3,084,227
Less: accumulated depreciation and amortization		(1,114,639	)		(741,504	)
Property and equipment, net	$	2,488,665		$	2,342,723

Depreciation expense amounted to $146,656 and $435,421 for the three and nine months ended September 30, 2021, respectively. Depreciation expense amounted to $64,030 and $240,716 for the three and nine months ended September 30, 2020, respectively. During the three and nine months ended September 30, 2021, the Company wrote off property and equipment with an original cost value of $0 and $99,313 related to a closed location and a future location that was terminated due to the economic environment as a result of COVID-19 and recorded a loss on disposal of $0 and $37,027 after accumulated depreciation of $0 and $62,286 in the unaudited condensed consolidated statement of operations. During the three and nine months ended September 30, 2020, the Company wrote off property and equipment with an original cost value of $151,111 related to a closed location and a future location that was terminated due to the economic environment as a result of COVID-19 and recorded a loss on disposal of $41,480 after accumulated depreciation of $109,631 in the unaudited condensed consolidated statement of operations.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The Company’s intangible assets include a trademark with an indefinite useful life as well as franchise agreements which are amortized over useful lives of thirteen years.

A summary of the intangible assets is presented below:

SCHEDULE OF INTANGIBLE ASSETS

Intangible Assets	Trademark		Franchise Agreements			Trademark Superfit			Domain Name Superfit			Customer List Superfit			Proprietary Recipes Superfit			Non-Compete Agreement Superfit			Trademark Pokemoto			Franchisee License Pokemoto			Proprietary Recipes Pokemoto			Non-Compete Agreement Pokemoto			Total
Intangible assets, net at December 31, 2020	$	2,524,000	$	354,278		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	2,878,278
Superfit acquisition		-		-			45,000			125,000			140,000			160,000			260,000			-			-			-			-			730,000
Pokemoto acquisition		-		-			-			-			-			-			-			175,000			2,775,000			1,130,000			480,000			4,560,000
Amortization expense		-		(37,777	)		(4,658	)		(12,938	)		(14,491	)		(16,561	)		(44,836	)		(13,321	)		(105,620	)		(61,427	)		(91,397	)		(403,026	)
Intangible assets, net at September 30, 2021	$	2,524,000	$	316,501		$	40,342		$	112,062		$	125,509		$	143,439		$	215,164		$	161,679		$	2,669,380		$	1,068,573		$	388,603		$	7,765,252

Weighted average remaining amortization period at September 30, 2021 (in years)				6.31			4.48			4.48			4.48			4.48			2.28			4.62			9.62			6.62			1.62

Amortization expense related to intangible assets amounted to $238,017 and $403,023 for the three and nine months ended September 30, 2021, respectively. Amortization expense related to intangible assets amounted to $16,083 and $47,899 for the three and nine months ended September 30, 2020, respectively.

NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payables and accrued expenses consist of the following:

	September 30, 2021		December 31, 2020
Accounts payable	$	891,540	$	692,966
Accrued payroll		156,107		78,667
Accrued professional fees		329,243		224,028
Accrued board members fees		42,275		36,697
Accrued rent expense		216,074		171,266
Sales taxes payable ⁽²⁾		228,323		231,177
Accrued interest		26,158		25,222
Other accrued expenses		89,213		40,912
Total Accounts Payable and Accrued Expenses	$	1,978,933	$	1,500,935

(2)	See Note 12 – Commitments and Contingencies –Taxes for detailed related to delinquent sales taxes.

NOTE 9 – DEFERRED REVENUE

At September 30, 2021 and December 31, 2020, deferred revenue consists of the following:

SCHEDULE OF DEFERRED REVENUE

	September 30, 2021			December 31, 2020
Franchise fees	$	890,200		$	983,958
Unearned vendor rebates		-			23,171
Less: Unearned vendor rebates, current		-			(23,171	)
Less: Franchise fees, current		(44,437	)		(39,687	)
Deferred revenues, non-current	$	845,763		$	944,271

See Note 12 – Commitments and Contingencies – Franchisee Agreements for details related to the sale of a Pokemoto franchisee agreement for three locations.

NOTE 10 – OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

SCHEDULE OF OTHER CURRENT LIABILITIES

	September 30, 2021		December 31, 2020
Gift card liability	$	93,146	$	91,034
Co-op advertising fund liability		299,922		299,490
Advertising fund liability		281,583		250,894
Other current liabilities	$	674,651	$	641,418

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 11 – NOTES PAYABLE

Convertible Notes

Convertible Note Payable to Former Parent

As of September 30, 2021, the Company had an amount of $82,458 in convertible notes payable to Former Parent outstanding.

Other Convertible Notes

As of September 30, 2021 and December 31, 2020, the Company has another convertible note payable in the amount of $100,000 which is included within convertible notes payable. See Note 12 – Commitments and Contingencies – Litigation, Claims and Assessments for details related to the $100,000 other convertible note payable.

Other Notes Payable

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.

As of September 30, 2021, the Company had an amount of $291,053 in paycheck protection loans second draw (the “PPP 2 Loan”) that was acquired in the Pokemoto acquisition.

The PPP 2 Loan is administered by the SBA. The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing ten months after the effective date of the PPP 2 Loan, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the five-year anniversary of the effective date of the PPP 2 Loan (the “Maturity Date”). The PPP 2 Loan contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP 2 Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP 2 Loan, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the terms of the CARES Act, PPP 2 loan recipients can apply for and be granted forgiveness for all, or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.

During the nine months ended September 30, 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 nine months ended September 30, 2021.

During the nine months ended September 30, 2021 and 2020, the Company repaid a total amount of $1,249,541 and $488,247, respectively, of the other notes payable.

As of September 30, 2021, the Company had an aggregate amount of $1,353,304 in other notes payable. The notes had interest rates ranging between 1% - 8% per annum, due on various dates through October 31, 2025.

The maturities of other notes payable as of September 30, 2021, are as follows:

SCHEDULE OF OUTSTANDING DEBT

	Principal
Repayments due as of	Amount
09/30/2022	$	186,035
09/30/2023		207,409
09/30/2024		216,706
09/30/2025		157,494
09/30/2026		585,660
	$	1,353,304

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Consulting Agreements

On February 7, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultant to provide the Company with business and marketing advice as needed. The term of the agreement is for five months from the effective date on February 7, 2021. Pursuant to the terms of the agreement the Company agreed to pay the consultant a total of 100,000 shares of the Company’s common stock. The Company issued 60,000 shares of common stock upon the effective date of the agreement with the remaining 40,000 to be issued upon the successful completion of the agreement. As of September 30, 2021, the consultant has not met the terms of the agreement and the remaining 40,000 shares has not been issued.

On March 8, 2021, the Company entered into a Consulting Agreement with consultants as a strategy business consultant to provide the Company with financial and business advice. The term of the agreement is for five months from the effective date on March 8, 2021. Pursuant to the terms of the agreement the Company agreed to pay the consultant a total of 100,000 shares of the Company’s common stock. The Company issued 70,000 shares of common stock upon the effective date of the agreement with the remaining 30,000 to be issued upon the successful completion of the agreement. As of September 30, 2021, the consultant has not met the terms of the agreement and the remaining 30,000 shares has not been issued.

On March 22, 2021, the Company entered into a Consulting Agreement with consultants with experience in the area of investor relations and capital introductions. The term of the agreement is for six months from the effective date on March 22, 2021. Pursuant to the terms of the agreement the Company agreed to pay $250,000 in cash for ancillary marketing, to be paid out at the Company’s discretion. In addition, the Company issued 150,000 shares of the Company’s common stock as a commencement incentive which is fully earned by entering into the agreement.

Company-Owned Restaurants

During the nine months ended September 30, 2021 and through the date of the issuance of these consolidated financial statements, the Company closed 5 delivery-only kitchen locations. The decision was made not to renew the monthly license agreement after their initial one-year term at these locations as a cost saving measure due to the location not performing as anticipated. Four of the locations were located in the Chicago market and the last one was located in Philadelphia. The existing assets at these locations were transfer to a storage unit and will be installed in future new locations.

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 September 30, 2021, the Company has accrued for the liability in convertible notes payable in the amount of $100,000 and accrued interest of $26,158 is included in accounts payable and accrued expenses.

In May 2018, Resolute Contractors, Inc., Quality Tile, MTL Construction, Genesis Electric, JNB Interiors and Captive Aire filed a Mechanics Lien for labor, service, equipment and materials in the total amount of $98,005. The Company intends to set up various payment plans with these vendors. As of September 30, 2021, the Company has accrued for the liability in accounts payable and accrued expenses.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12 – COMMITMENTS AND CONTINGENCIES, continued

Litigations, Claims and Assessments, continued

On or about March 7, 2019, the Company was listed as a defendant to a lawsuit filed by a contractor in the State of Texas. The contractor is claiming a breach of contract and is seeking approximately $32,809 in damages for services claimed to be rendered by the contractor. The Company is working with legal counsel in order to reach a settlement. As of September 30, 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 in the amount of $130,185 for a breach of a lease agreement in Chicago, Illinois, in connection with a Company owned store that was closed in 2018. As of September 30, 2021, the Company has accrued for the liability in accounts payable and accrued expenses.

On July 2, 2021, the Company was named as a defended in a wage dispute by a former employee. On July 27, 2021, the Company entered a settlement with the plaintiff for an amount of $18,500 which was paid as of September 30, 2021.

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.

Private Placement

On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4,115,227 shares of Common Stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of Common Stock (the “Pre-Funded Warrant”). Each share is being sold together at a combined offering price of $2.43 per share and Common Warrant, and each Pre-Funded Warrant and accompanying Common Warrant is being sold together at a combined offering price of $2.42 per Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrant is immediately exercisable, at a nominal exercise price of $0.01 per share, and may be exercised at any time until the Pre-Funded Warrant is fully exercised. The Common Warrant will have an exercise price of $2.43 per share, are immediately exercisable and will expire five and one-half (5.5) years from the date of issuance. The Private Placement closed on April 9, 2021.

The Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company is required to register the resale of the Shares and the shares issuable upon exercise of the Common Warrant and the Pre-Funded Warrant. The Company is required to prepare and file a registration statement with the Securities and Exchange Commission within 30 days of the date of the Securities Purchase Agreement and to use commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement.

Pursuant to a placement agency agreement, dated April 6, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8% of the gross proceeds raised in the Private Placement and a 164,609 common stock purchase warrant to purchase shares of Common Stock in an amount equal to 4% of the Shares and shares of Common Stock issuable upon exercise of the Warrants sold in the Private Placement, the warrant has an exercise price of $2.916 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement.

Franchising

On or about August 5, 2021, the Company entered into a franchise agreement for three Pokemoto locations with a franchisee. The Franchisee paid the Company $40,000 and this has been recorded in deferred revenue as of September 30, 2021.

Taxes

The Company failed in certain instances in paying sales taxes collected from customers in specific states that impose a tax on sales of the Company’s products. The Company had accrued $228,323 and $231,177 which includes penalties and interest as of September 30, 2021 and December 31, 2020, respectively, related to this matter.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 13 – EQUITY

Common Stock

On February 3, 2021, the Company issued an aggregate of 20,000 shares of common stock of the Company to a digital marketing consultant with an aggregate fair value of $42,600.

On February 3, 2021, the Company issued an aggregate of 16,126 shares of common stock of the Company to the members of the board of directors as compensation earned through the end of the fourth quarter of 2020.

On March 31, 2021, the Company authorized the issuance of an aggregate of 12,711 shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2021.

On April 30, 2021, the Company issued an aggregate of 10,000 shares of common stock of the Company to a digital marketing consultant, pursuant to their service agreement, with an aggregate fair value of $14,700.

On May 6, 2021, the Company issued an aggregate of 150,000 shares of common stock of the Company to a digital marketing consultant with an aggregate fair value of $214,500. The Company accrued for the liability as accrued compensation expense on the books as of March 31, 2021, as the share were fully earned pursuant to their service agreement. On the date of issues of the shares the Company recorded a gain on the change in fair value of the accrued compensation of $127,500 in the condensed consolidated statement of operations.

On May 27, 2021, the Company cancelled 11,879 shares of common stock previously issued to an investor pursuant a settlement agreement in exchange for $100,000 the portion paid by the Company in the Settlement. See Note 12 – Commitments and Contingencies – Litigation, Claims and Assessments for further details related to the settlement.

On August 24, 2021, the Company issued an aggregate of 15,000 shares of common stock of the Company to a digital marketing consultant, pursuant to their service agreement, with an aggregate fair value of $20,999.

On August 24, 2021, the Company authorized the issuance of an aggregate of 20,829 shares of common stock to the members of the board of directors as compensation earned during the second quarter of 2021.

On August 26, 2021, the Company issued an aggregate of 1,100 shares of common stock of the Company to an investor in the Company.

See Note 4 – Acquisitions – Pokemoto Acquisition and SupferFit Foods Acquisition for details related to the stock issuance in connection with the acquisitions.

See Note 12 – Commitments and Contingencies – Consulting Agreements for details related to additional stock issuances during the nine months ended September 30, 2021.

See Note 13 – Equity – warrants for details related to stock issuance in connection with the exercising of warrants.

Restricted Common Stock

On February 11, 2021, the Company issued an aggregate of 221,783 shares of restricted common stock of the Company to various executives and an employee. The restricted common stock is fully vested upon the date of grant.

A summary of the activity related to the restricted common stock for the six months ended September 30, 2021 is presented below:

			Weighted Average Grant
	Total		Date Fair Value
Outstanding at January 1, 2021		1,200	$	65.33
Granted		221,783		2.87
Forfeited		-		-
Vested		(222,983)		(3.21	)
Outstanding at September 30, 2021		-	$	-

Stock-Based Compensation Expense

Stock-based compensation related to restricted stock issued to employees, directors and consultants and warrants issued to consultants amounted to $51,702 and $1,779,248 for the three and nine months ended September 30, 2021, respectively, of which $50,488 and $1,774,876, respectively, was recorded in general and administrative expenses and $1,215 and $4,372, respectively, was recorded in labor expense within restaurant operating expenses. Stock-based compensation related to restricted stock issued to employees, directors and consultants and warrants issued to consultants amounted to ($1,005,698) and $2,619,522 for the three and nine months ended September 30, 2020, respectively, of which ($1,006,656) and $2,617,460, respectively, was recorded in general and administrative expenses and $958 and $2,062, respectively, was recorded in labor expense within restaurant operating expenses.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 13 – EQUITY, continued

Options

A summary of option activity during the three and nine months ended September 30, 2021 is presented below:

SCHEDULE OF OPTION ACTIVITY

						Weighted
						Average
				Weighted		Remaining
	Number of			Average		Life
	Options			Exercise Price		In Years
Outstanding, December 31, 2020		300,000		$	3.33		1.1
Issued		-			-
Exercised		-			-
Forfeited		(200,000	)		2.50
Outstanding, September 30, 2021		100,000		$	5.00		2.18

Exercisable, September 30, 2021		100,000		$	5.00		2.18

Warrants

A summary of warrants activity during the nine months ended September 30, 2020 is presented below:

SCHEDULE OF WARRANTS ACTIVITY

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Life In Years
Outstanding, December 31, 2020		2,582,857		$	4.08		3.3
Issued		6,980,454			1.44		-
Exercised		(2,865,227	)		0.01		-
Forfeited/cancelled		(92,568	)		19.99		-
Outstanding, September 30, 2021		6,605,516		$	2.83		4.1

Exercisable, September 30, 2021		6,605,516		$	2.83		4.1

See Note 12 – Commitments and Contingencies – Private Placement for details related to the warrants issued during the six months ended June 30, 2021.

On May 24, 2021, the Company issued 1,465,227 shares of common stock in connection with the exercising of the Pre-Funded Warrant for $14,652.

On May 28, 2021, the Company issued 1,400,000 shares of common stock in connection with the exercising of the Pre-Funded Warrant for $14,000.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 13 – SUBSEQUENT EVENTS

Company-Owned Restaurants

Subsequent to September 30, 2021, and through the date of the issuance of these consolidated financial statements, the Company closed 1 additional delivery-only kitchen locations. The decision was made not to renew the monthly license agreement after their initial one-year term at the location as a cost saving measure due to the location not performing as anticipated. The existing assets at the location were transfer to a storage unit and will be installed in future new locations.

On November 11, 2021, we completed the conversion from one of our existing Muscle Maker Grill location, located in Fort Meade, MD, to a Pokemoto location.

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 $150,000 upon execution of the Master Franchise Agreement, $20,000 upon the execution of each franchise agreement for each individual restaurant and a monthly royalty fee of $1,000 for each restaurant. Further, ACC is required to cause its franchisees to open the agreed upon restaurants during each development period during the Term.

Pokemoto Franchisee Sales

Subsequent to September 30, 2021, through the date of the filing of this report the Company entered into four franchisee agreement with various franchisee for a total of four future locations.

Common Stock Issuance

On October 11, 2021, the Company issued an aggregate of 40,000 shares of common stock of the Company to a consultant for general consulting services, pursuant to their service agreement, with an aggregate fair value of $40,800.

On October 21, 2021, the Company authorized the issuance of an aggregate of 24,275 shares of common stock to the members of the board of directors as compensation earned during the third quarter of 2021.

On October 22, 2021, the Company issued an aggregate of 15,000 shares of common stock of the Company to a digital marketing consultant, pursuant to their service agreement, with an aggregate fair value of $15,150.

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of the results of operations and financial condition of Muscle Maker, Inc. (“Muscle Maker”), together with its subsidiaries (collectively, the “Company”) as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to Muscle Maker. “Muscle Maker Grill” refers to the name under which our corporate and franchised restaurants do business. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “forecast,” “model,” “proposal,” “should,” “may,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. For a detailed discussion of risk factors affecting us, see “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

OVERVIEW

We operate under the name SuperFit Foods, Pokemoto and Muscle Maker Grill as a franchisor and owner-operator of Muscle Maker Grill restaurants and Healthy Joe’s restaurants. As of September 30, 2021, the Company’s restaurant system included twenty-five company-owned restaurants, nineteen franchise restaurants, which includes the two locations in Kuwait, and one meal prep business. Three of the company-owned restaurants are delivery-only locations, including SuperFit Foods.

We believe our healthy-inspired restaurant concept delivers a highly differentiated customer experience. We combine 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, but in a healthy-inspired way. The following core values form the foundation of our brand:

	●	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.

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®, Healthy Joe’s, 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® and Healthy Joe’s trademarks and intellectual property to our wholly owned subsidiaries, Muscle Maker Development and Muscle Maker Corp., and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® and Healthy Joe’s restaurants.

On March 25, 2021, we 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. In 2020 Superfit foods produced overs 220,000 fresh-prepared meals. 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, and 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 traditional Hawaiian poke classic. Pokemoto has 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.

As of September 30, 2021, we had an accumulated deficit of $68,027,592 and expect to continue to incur operating and net losses for the foreseeable future. In its report on our consolidated financial statements for the fiscal year ended December 31, 2020, our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern. See “Liquidity and Capital Resources – Availability of Additional Funds and Going Concern” and Note 1 – Business Organization and Nature of Operations, Going Concern and Management’s Plans to Notes to Consolidated Financial Statements for additional information describing the circumstances that led to the inclusion of this explanatory paragraph.

Key Financial Definitions

Total Revenues

Our revenues are derived from three primary sources: company restaurant sales, franchise revenues and vendor rebates from Franchisees. Franchise revenues are comprised of franchise royalty revenues collected based on 5% to 6% of franchisee net sales and other franchise revenues which include initial and renewal franchisee fees. Vendor rebates are received based on volume purchases or services from franchise owned locations.

Food and Beverage Costs

Food and beverage costs include the direct costs associated with food, beverage and packaging of our menu items at company-operated restaurants partially offset by vendor rebates from company-owned stores. The components of food, beverages and supplies are variable in nature, change with sales volume, are affected by menu mix and are subject to fluctuations in commodity costs.

Labor

Restaurant labor costs, including preopening labor, consists of company-operated restaurant-level management and hourly labor costs, including salaries, wages, payroll taxes, workers’ compensation expense, benefits and bonuses paid to our company-operated restaurant-level team members. Like other cost items, we expect restaurant labor costs at our company-operated restaurants to increase due to inflation and as our company restaurant revenues grow. Factors that influence labor costs include minimum wage and employer payroll tax legislation, mandated health care costs and operational productivity established by the management team.

Rent

Restaurant rent, including preopening rental charges, consist of company-operated restaurant-level rental or lease payments applicable to executed rental or lease agreements. In many cases these rental payments may include payments for common area maintenance as well as property tax assessments. Our rent strategy mostly consists of a variable rent structure calculated on net sales of the restaurant. While this can have a negative effect on higher volume locations where we cannot leverage a fixed rent, it provides downside protection for lower volume locations. While we cannot guarantee a favorable variable rent expense in all future leases, we have forecasted average rental costs as a percentage of total sales at 8%.

Other restaurant operating expenses

Other restaurant operating expenses, including preopening operating expenses, consist of company-operated restaurant-level ancillary expenses not inclusive of food and beverage, labor and rent expense. These expenses are generally marketing, advertising, merchant and bank fees, utilities, leasehold and equipment repairs, insurance and maintenance. A portion of these costs are associated with third party delivery services such as Uber Eats, Grub Hub, DoorDash, Seamless, and others. The fees associated with these third-party delivery services can range up to 25% of the total order being delivered. Management believes delivery is a critical component of our business model and industry trends will continue to push consumers towards delivery. Our cost structure will need to be adjusted to reflect a different pricing model, portion sizes, menu offerings, and other considerations to potentially offset these rising costs of delivery.

Other Expenses Incurred for Closed Locations

Other expenses incurred for closed locations consists primarily of restaurant operating expenses incurred subsequent to store closures as the Company still has to certain obligations to vendors due to signed agreements.

Depreciation and Amortization

Depreciation and amortization primarily consist of the depreciation of property and equipment and amortization of intangible assets.

General and Administrative Expenses

General and administrative expenses include expenses associated with corporate and administrative functions that support our operations, including wages, benefits, travel expense, stock-based compensation expense, legal and professional fees, training, and other corporate costs. We expect to incur incremental general and administrative expenses as a result of becoming a public listed company on the Nasdaq capital market. A certain portion of these expenses are related to the preparation of an initial stock offering and subsequent capital raises and should be considered one-time expenses.

Other Income (Expense), net

Other expenses primarily consist of amortization of debt discounts on the convertible notes payable and interest expense related to other notes payable and convertible notes payable.

Income Taxes

Income taxes represent federal, state, and local current and deferred income tax expense.

Consolidated Results of Operations

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

The following table represents selected items in our condensed consolidated statements of operations for the three months ended September 30, 2021 and 2020, respectively:

	For the Three Months Ended
	September 30,
	2021			2020

Revenues:
Company restaurant sales, net of discounts	$	2,976,255		$	887,922
Franchise royalties and fees		373,180			251,491
Franchise advertising fund contributions		670			13,132
Total Revenues		3,350,105			1,152,545

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		1,165,607			346,808
Labor		1,230,776			420,804
Rent		343,637			184,309
Other restaurant operating expenses		713,224			286,689
Total restaurant operating expenses		3,453,244			1,238,610
Depreciation and amortization		384,673			80,113
Impairment of intangible asset		-			100,000
Franchise advertising fund expenses		670			13,132
Preopening expenses		11,393			-
General and administrative expenses		1,136,424			457,282
Total Costs and Expenses		4,986,404			1,889,137
Loss from Operations		(1,636,299	)		(736,592	)

Other Income (Expense):
Other income (expense), net		1,006,152			(5,360	)
Interest expense, net		(2,483	)		(20,128	)
Change in fair value of accrued compensation		-			100,000
Gain on extinguishment of debt		200,000			-
Total Other Income, Net		1,203,669			74,512

Loss Before Income Tax		(432,630	)		(662,080	)
Income tax provision		-			-
Net Loss	$	(432,630	)	$	(662,080	)

Revenues

Company total revenues totaled $3,350,105 for the three months ended September 30, 2021 compared to $1,152,545 for the three months ended September 30, 2020. The $2,197,560 increase was primarily attributable to an increase in restaurant sales due to new store opening and stores acquired through our acquisitions.

We generated restaurant sales, net of discounts, of $2,976,255 for the three months ended September 30, 2021 compared to $887,922, for the three months ended September 30, 2020. This represented an increase of $2,088,333 which is primarily due to new store opening and store acquired subsequent to the prior period.

Franchise royalties and fees for the three months ended September 30, 2021 and 2020 totaled $373,180 compared to $251,491, respectively. The $121,689 increase is primarily attributable to an increase in royalty income of $44,116 due to additional franchisee locations as part of the Pokemoto acquisition and an increase of $108,960 in initial franchisee fees due to franchise agreements terminations as compared to the prior period, partially offset by a decrease in vendor rebates of $31,387 which is a direct result of the increase in vendor rebates earned by company owned stores as compared to franchisee locations as vendor rebates earned by company owned stores are accounted for as a reduction of restaurant food and beverage costs.

Franchise advertising fund contributions for the three months ended September 30, 2021 and 2020 totaled $670 compared to $13,132, respectively.

Operating Costs and Expenses

Operating costs and expenses primarily consist of restaurant food and beverage costs, restaurant labor expense, restaurant rent expense, other restaurant operating expenses, depreciation and amortization expenses and general and administrative expenses.

Restaurant food and beverage costs for the three months ended September 30, 2021 and 2020 totaled $1,165,607, or 37.5%, as a percentage of restaurant sales, and $346,808, or 39.1% as a percentage of restaurant sales, respectively. The $770,373 increase was primarily due to the cloud kitchens opened and the store acquired as compared to the prior period.

Restaurant labor for the three months ended September 30, 2021 and 2020 totaled $1,230,776, or 41.4%, as a percentage of restaurant sales, and $420,804, or 47.4%, as a percentage of restaurant sales, respectively. The $809,972 increase is a direct result of more company stores owned as compared to the prior period. The decrease in labor as percentage of restaurant sales is attributed partially to the increase in sales at our location and also an improvement in operating efficiencies but despite the decrease in labor as a percentage of sales management believes there is room for improvement as we are currently faced with the challenges of labor shortages.

Restaurant rent expense for the three months ended September 30, 2021 and 2020 totaled $343,637, or 11.55%, as a percentage of restaurant sales, and $184,309, or 20.8%, as a percentage of restaurant sales, respectively.

Other restaurant operating expenses for the three months ended September 30, 2021 and 2020 totaled $713,224, or 23.9% as a percentage of restaurant sales, and $286,689, or 32.3% as a percentage of restaurant sales, respectively. The $426,535 increase is attributed directly to the increase in our company store counts.

Depreciation and amortization expense for the three months ended September 30, 2021 and 2020 totaled $384,673 and $80,113, respectively. The $304,560 increase is primarily attributable to an increase in amortization expense, as compared to the prior period, due to the amortizable intangible’s assets acquired with our Pokemoto and SuperFit food acquisition. The remainder of the increase is attributed to depreciation expense related to additional property and equipment acquired for new store build outs and the assets acquired in our acquisitions.

Impairment of intangible asset expense for the three months ended September 30, 2020 totaled $100,000. The impairment was mainly attributed due to the acquisition of franchisee stores to be Company owned stores which reduce future cash flows. In addition, the permanent closures of various franchisee store that were included in the original valuation of the intangible asset also resulted in reduced future cash flows which attributed to the impairment being recognized.

General and administrative expenses for the three months ended September 30, 2021 and 2020 totaled $1,136,424, or 34.4% of total revenues, and $457.282, or 39.7% of total revenues, respectively. The $679,142 increase is primarily attributable to an increase in salaries and benefits of $1,172,413, as compared to the prior period which is a direct result of the reversal in stock-based compensation expense of $1,083,893 during the third quarter of 2020 that was originally recognized in the first quarter of 2020 as a result of restricted stock that were cancelled by the executive team on August 11, 2020, in exchange for no further compensation. This was offset by a decrease in professional fees and consulting expenses of $346,227, a decrease in write off fixed assets of $41,480 taken in the third quarter of 2020 and a decrease of $96,381 in various other expenses.

Loss from Operations

Our loss from operations for the three months ended September 30, 2021 and 2020 totaled $1,636,299 or 49.6% of total revenues and $736,592 or 63.9% of total revenues, respectively. The decrease of $899,707 in loss from operations is primarily attributable to an increase in total revenues of $2,149,134 as compared to the prior period partially offset by an increase of total costs and expenses of approximately $3,048,841.

Other Income, net

Other income, net for the three months ended September 30, 2021 and 2020 totaled $1,203,669 and $74,512, respectively. The $1,129,157 increase in other income was primarily attributable to an increase in other income consisting mainly of employee retention tax credits receivable from the Internal Revenue Services that was made available to companies effected by Covid-19 and a gain on extinguishment of debt of $200,000 which relates to old account payables.

Net Loss

Our net loss for the three months ended September 30, 2021 decreased by $229,450 to $432,630 as compared to $662,080 for the three months ended September 30, 2020, resulting from a increase in other income, net partially offset by an increase in our loss from operations as compared to the prior period.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

The following table represents selected items in our condensed consolidated statements of operations for the Nine Months ended September 30, 2020 and 2019, respectively:

	For the Nine Months Ended
	September 30,
	2021			2020

Revenues:
Company restaurant sales, net of discounts	$	6,720,030		$	2,785,288
Franchise royalties and fees		629,643			569,815
Franchise advertising fund contributions		19,499			45,587
Total Revenues		7,369,172			3,400,690

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		2,542,333			1,067,831
Labor		2,901,613			1,350,247
Rent		904,758			468,590
Other restaurant operating expenses		1,705,397			719,601
Total restaurant operating expenses		8,054,101			3,606,269
Preopening expenses		22,379			46,764
Depreciation and amortization		838,447			288,615
Impairment of intangible asset		-			100,000
Franchise advertising fund expenses		19,499			45,587
General and administrative expenses		6,098,379			6,800,536
Total Costs and Expenses		15,032,805			10,887,771
Loss from Operations		(7,663,633	)		(7,487,081	)

Other (Expense) Income:
Other (expense) income, net		1.232.461			(18,908	)
Interest expense, net		(38,817	)		(114,861	)
Gain on change in fair value of accrued compensation		127,500			4,000
Gain on debt extinguishment		1,075,974			-
Amortization of debt discounts		-			(38,918	)
Total Other Expense, Net		2,397,118			(168,687	)

Loss Before Income Tax		(5,266,515	)		(7,655,768	)
Income tax provision		-			-
Net Loss	$	(5,266,515	)	$	(7,655,768	)

Revenues

Company total revenues totaled $7,369,172 for the nine months ended September 30, 2021 compared to $3,400,690 for the nine months ended September 30, 2020. The $3,968,482 is primarily attributable to an increase in restaurant sales due to new store opening and stores acquired through our acquisitions.

We generated restaurant sales, net of discounts, of $6,720,030 for the nine months ended September 30, 2021 compared to $2,785,288, for the nine months ended September 30, 2020. This represented an increase of $3,934,742, or 141.3%, which is attributable to an increase of approximately $1,461,000 in restaurants sales due to additional of our Pokemoto company owned stores and approximately $1,103,000 sales through SuperFit Foods our meal prep company as compared to prior period. The remainder of the increase of approximately $ 1,370,000 is attributed to our Muscle Maker grill company owned stores.

Franchise royalties and fees for the nine months ended September 30, 2021 and 2020 totaled $629,643 compared to $569,815, respectively. The $59,828 increase is primarily attributable to an increase in initial franchise fees of $41,468 being recognized due to franchisee agreement terminations and normal amortization of franchise fees in the current period as compared to the prior period, and due to an increase in royalty income of $56,236 due to increased stores sales by our franchisees partly due to the acquisition of our Pokemoto concept. Partially offset by a decrease in vendor rebate revenues of $37,876 which is a direct result of the increase in vendor rebates earned by company owned stores as compared to franchisee locations as vendor rebates earned by company owned stores are accounted for as a reduction of restaurant food and beverage costs.

Franchise advertising fund contributions for the nine months ended September 30, 2021 and 2020 totaled $19,499 compared to $45,587, respectively.

Operating Costs and Expenses

Restaurant food and beverage costs for the nine months ended September 30, 2021 and 2020 totaled $2,542,333, or 37.8%, as a percentage of restaurant sales, and $1,067,831, or 38.3%, as a percentage of restaurant sales, respectively. The $1,474,502 increase primarily is due to a higher store count during the period as compared to the prior period which resulted in higher sales and directly increased food and beverage costs. Management believes there is room for improvement on restaurant food and beverage cost as a percentage of sales but we are currently facing shortages in supplies from various suppliers thus resulting in higher food costs at times.

Restaurant labor for the nine months ended September 30, 2021 and 2021 totaled $2,901,613, or 43.1%, as a percentage of restaurant sales, and $1,350,247, or 48.5%, as a percentage of restaurant sales, respectively. The $1,551,366 increase results primarily due a higher store count during the period as compared to the prior period as the Company opened and acquired more stores as compared to the prior period. The decrease in labor as percentage of restaurant sales is attributed partially to the increase in sales at our location and also an improvement in operating efficiencies but despite the decrease in labor as a percentage of sales management believes there is room for improvement as we are currently faced with the challenges of labor shortages.

Restaurant rent expense for the nine months ended September 30, 2021 and 2020 totaled $904,758, or 13.5%, as a percentage of restaurant sales, and $468,590, or 16.8%, as a percentage of restaurant sales, respectively. The increase of $436,168 is directly attributed to our new store openings and the stores acquired through our acquisitions.

Other restaurant operating expenses for the nine months ended September 30, 2021 and 2020 totaled $1,705,397, or 25.4% as a percentage of restaurant sales, and $719,601, or 25.8% as a percentage of restaurant sales, respectively. The $985,796 increase is primarily due to higher third party merchant fees, utility fees and insurance expenses attributed to a higher store count during the period as compared to the prior period as the Company opened new locations and acquired more franchisee stores as compared to the prior period.

Preopening expense for the nine months ended September 30, 2021, totaled $22,379 as compared to $46,764 for the nine months ended September 30, 2021.

Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 totaled $838,447 and $288,615, respectively. The $549,832 increase is primarily attributable to an increase in amortization expense of $354,852, as compared to the prior period, due to an increase in intangible assets acquired through our Pokemoto and SuperFit foods acquisition. The remaining increase of $194,979 is attributed to depreciation expense related to additional property and equipment acquired for new store build outs, remodeling of an existing company owned restaurant and the fixed assets acquired through our acquisitions compared to the prior period.

Impairment of intangible asset expense for the nine months ended September 30, 2020 totaled $100,000. The impairment was mainly attributed due to the acquisition of franchised store to be Company owned stores which reduces future discounted cash flows. In addition, the permanent closures of store included in the original valuation of the intangible asset due to the impact of COVID-19 attributed to the impairment being recognized.

General and administrative expenses for the nine months ended September 30, 2021 and 2020 totaled $6,098,379, or 82.8% of total revenues, and $6,800,536, or 200.0% of total revenues, respectively. The $702,157 decrease is directly attributed to a decrease in consulting expenses of approximately $1,815,000 which is mainly due to stock-based compensation expense for stock issued to various consultants in the prior period as compared to the current period, a decrease of approximately $125,000 in marketing and advertising fees, and a decrease of approximately $118,000 in various other expenses for example office supplies, utilities, rent etc. Partially offset by an increase in salaries and benefits of approximately $808,000, which includes stock based compensation of $636,517 for stock issued to employees and an increase in professional fees of approximately $541,000, which was mainly attributed to a onetime fee paid to a professional in connection with the private placement.

Loss from Operations

Our loss from operations for the nine months ended September 30, 2021 and 2020 totaled $7,663,633 or 104% of total revenues and $7,487,081 or 220.2% of total revenues, respectively. The increase of $176,552 in our loss from operations is primarily attributable to an increase in total costs and expenses of approximately $4,145,034, partially offset by the increase in total revenues of approximately $3,968,482.

Other Income (Expense), net

Other income (expense), net for the nine months ended September 30, 2021 and 2020 totaled $2,397,118 and ($168,687), respectively. The $2,565,805 decrease in expense was primarily attributable to a gain on extinguishment of debt of $1,075,974 due to the forgiveness of our PPP loan and accounts payable, an increase in other income of approximately $1,251,369 due to employee retention tax credits receivable of approximately $993,000 from the Internal Revenue Services that was made available to companies effected by Covid-19, including the revitalization fund grant of approximately $240,000 that was attributed to one of our store locations, an increase of $123,500 in the change in fair value of accrued compensation issued during the current period as compared to the prior period due to administrative delays by the Company as the shares were earned by the consultant but not issued in the correct period. Attributing to the increase in other income (expense) is a decrease in interest expense of $76,044 due to the reduction of interest-bearing instrument in the current period as compared to the prior period and finally a decrease in amortization of debt discounts of $38,918

Net Loss

Our net loss for the nine months ended September 30, 2021 decreased by $2,389,253 to $5,266,515 as compared to $7,655,768 for the nine months ended September 30, 2020, resulting from an increase in total revenues of $3,968,482 and an increase of total other income of $ 2,565,805 partially offset by an increase in total costs and expenses of $4,145,034.

Liquidity and Capital Resources

Liquidity

We measure our liquidity in a number of ways, including the following:

	September 30, 2021		December 31, 2020
Cash	$	3,616,845	$	4,195,932
Working Capital Surplus	$	2,130,015	$	1,383,568
Convertible notes payable, net of debt discount of $0 and $38,918, respectively	$	182,458	$	182,458
Other notes payable, including related party	$	1,353,304	$	1,276,692

Availability of Additional Funds and Going Concern

Although we have a working capital surplus of $2,130,015, we presently have an accumulated deficit of $68,460,222, as of September 30, 2021, and we utilized $4,941,096 of cash in operating activities during the nine months ended September 30, 2021, therefore we require additional equity and/or debt financing to continue our operations. These conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date of this filing.

Our principal source of liquidity to date has been provided by loans and convertible loans from related and unrelated third parties, (ii) the sale of common stock through private placements and the (iii) and the recent closed public offering.

The pandemic novel coronavirus (COVID-19) outbreak, federal, state and local government responses to COVID-19 and our Company’s responses to the outbreak have all disrupted and will continue to disrupt our business. In the United States, individuals are being encouraged to practice social distancing, restricted from gathering in groups and in some areas during the first quarter of 2020 continuing through the third quarter of 2020. As a result of the disruption and volatility in the global capital markets, we have seen an increase in the cost of capital which adversely impacts access to capital.

On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4,115,227 shares of Common Stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of Common Stock (the “Pre-Funded Warrant”). Each share and accompanying Common Warrant are being sold together at a combined offering price of $2.43 per share and Common Warrant, and each Pre-Funded Warrant and accompanying Common Warrant is being sold together at a combined offering price of $2.42 per Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrant is immediately exercisable, at a nominal exercise price of $0.01 per share, and may be exercised at any time until the Pre-Funded Warrant is fully exercised. The Common Warrant will have an exercise price of $2.43 per share, are immediately exercisable and will expire five and one-half (5.5) years from the date of issuance. The Private Placement closed on April 9, 2021.

We expect to have ongoing needs for working capital in order to (a) fund operations; plus (b) expand operations by opening additional corporate-owned restaurants. To that end, we may be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund our liabilities, or (d) seek protection from creditors.

In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.

If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.

Our condensed consolidated financial statements included elsewhere in this 10-Q document have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

Sources and Uses of Cash for the nine month ended September 30, 2021 and September 30, 2020

During the nine months ended September 30, 2021 and 2020, we used cash of $4,941,096 and $5,462,173, respectively, in operations. Our net cash used in operating activities for the nine months ended September 30, 2021 was primarily attributable to our net loss of $5,266,515, adjusted for net non-cash items in the aggregate amount of $1,656,768 and $1,331,349 of net cash provided by changes in the levels of operating assets and liabilities.

During the nine months ended September 30, 2021, net cash used in investing activities was $3,498,451, of which $183,861 was used to purchase property and equipment, $500,000 used in connection with acquisition of SuperFit foods a healthy meal prep Company, $2,815,390 used in connection with acquisition of Pokemoto a healthier modern culinary twist on traditional Hawaiian poke classic, partially offset by $800 of loans collections from franchisees. During the nine months ended September 30, 2020, net cash used in investing activities was $559,924, of which $568,733 was used to purchase property and equipment, partially offset by $8,809 of loans repayments by franchisees and a related party.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $7,860,460 of which $9,181,350 was contributed by proceeds from a private placement offering , net of offering costs, and proceeds from the exercising of the pre-funded warrants of $28,652, partially offset by repayments of various other notes payable of $1,249,541, which consisted mainly of SBA loans that was acquired through the Pokemoto acquisition and $100,000 cash paid to a former investor in connection with the cancellation of their shares. Net cash provided by financing activities for the nine months ended September 30, 2020 was $11,607,054 of which an aggregate of $11,720,001 proceeds from the offerings, net of underwriter’s discount and offering costs, $150,000 proceeds from other note payable, $866,300 proceeds from the PPP loan, partially offset by repayments of various convertible notes of $550,000 and $579,247 of repayments of other notes payables, including a related party.

Critical Accounting Policies

Use of Estimates

●	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.

Intangible Assets

We account for recorded intangible assets in accordance with ASC 350 “Intangibles - Goodwill and Other”. In accordance with ASC 350, we do not amortize intangible assets with indefinite useful lives. Our goodwill and trademarks are deemed to have indefinite lives, and accordingly are not amortized, but are evaluated for impairment at least annually, or more often whenever changes in facts and circumstances may indicate that the carrying value may not be recoverable. The Accounting Standards Codification (“ASC”) requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.

Other intangible assets include a trademark with an indefinite useful life. The other intangible assets estimated useful lives are as follows:

Franchisee agreements		13 years

Franchise license		10 years

Trademark – SuperFit, Trademark – Pokemoto, domain name, customer list and proprietary recipes		5 - 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, 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.

Revenue Recognition

During the first quarter 2019, the Company adopted Topic 606 “Revenue from Contracts with Customers” for revenue recognition related to contracts with customers and applied the guidance modified retrospectively. Under the new guidance, revenue is recognized in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model, we have made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and which represent separate performance obligations.

Restaurant Sales

Franchise Royalties and Fees

Other Revenues

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption. Gift card liability is recorded in other current liabilities on the condensed consolidated balance sheet. For the three and nine months ended September 30, 2021, the Company determined that no gift card breakage is necessary based on current redemption rates.

Deferred Revenue

Franchise Advertising Fund Contributions

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 general and administrative expenses in the condensed consolidated statements of operations.

Recently Issued Accounting Pronouncements

See Note 3 to our condensed consolidated financial statements for the nine months ended September 30, 2021.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting that existed as of September 30, 2021, as discussed below.

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, we identified the following material weaknesses:

●	The Company does not have sufficient resources in its accounting function, which restricts the Company’s ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.

●	The Company has inadequate controls to ensure that information necessary to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting.

●	The Company has significant deficiencies in the design and implementation of IT controls, specifically in the following areas: data center and network operations, access security and change management.

As a company with limited resources, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of the financial statements. This action, in addition to future improvements identified above, will minimize any risk of a potential material misstatement occurring.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. We record legal costs associated with loss contingencies as incurred and have accrued for all probable and estimable settlements.

We are currently involved in material pending legal proceedings that have been previously disclosed in our filings with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended. Below is a summary of the material legal proceedings that have become a reportable event or which have had material developments during the quarter ended September 30, 2021.

On March 27, 2018 a convertible note holder filed a complaint in the Iowa District Court for Polk County #CVCV056029 against the Company for failure to pay the remaining balance due on a promissory note in the amount of $100,000, together with interest, attorney fees and other costs of $171,035. On June 6, 2018 a default judgement was entered against the Company for the amount of $171,035. The Company repaid an aggregate amount of $71,035, consisting of principal and interest, as of the date of the filing of this report. As of September 30, 2021, the Company has accrued for the liability in convertible notes payable in the amount of $100,000 and accrued interest of $is included in accounts payable and accrued expenses.

In March 2021, the Company participated in a mediation concerning an investor who invested with American Restaurant Holdings, Inc and/or American Restaurants, LLC, our former parent company, from 2013 through 2015 in the total amount of $531,250. As of the filing of this report, the company entered into a settlement with American Restaurant, LLC and the investor in the amount of $160,000. The Company paid $100,000 as part of the settlement, including legal fees, while the remining balance was paid by the insurance carrier and American Restaurants, LLC.

In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management, such matters are currently not expected to have a material impact on the Company’s financial statements.

The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements after consulting legal counsel.

Muscle Maker or its subsidiaries failed in certain instances in paying past state and local sales taxes collected from customers in specific states that impose a tax on sales of the Company’s products during 2017 and 2018. The Company had accrued $228,323 and $231,177 which includes penalties and interest as of September 30, 2021 and December 31, 2020, respectively, related to this matter. The Company has completed or is in discussions on payment plans with the various state or local entities for these past owed amounts.

Item 1A. Risk Factors.

Not applicable. See, however, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results and Financial Condition”) of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 15, 2021.

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, 2020. In addition to our discussion in the MD&A, and other sections of this report, to address effects of the COVID-19 pandemic, we have provided an additional risk factor regarding COVID-19 below. The impact of COVID-19 can also exacerbate other risks discussed in the “Risk Factors” sections of our Form 10-K for the year ended December 31, 2020 and this Report, which could in turn have a material adverse effect on us. The risks discussed below and in the “Risk Factors” section in our Form 10-K for the year ended December 31, 2020 do not identify all risks that we face—our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

The COVID-19 pandemic has affected our business and could materially adversely affect our financial condition and results of operations and ability to continue as a going concern.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. In response to the COVID-19 outbreak, “shelter in place” orders and other public health measures have been implemented across much of the United States.

The COVID-19 global pandemic continues to rapidly evolve. The Company is continually monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. The pandemic has resulted in a negative impact on the Company’s operations during the quarter ended September 30, 2021. However, due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity is uncertain as of the date of this report. While there could ultimately be an additional material impact on operations and liquidity of the Company, the full impact could not be determined, as of the date of this report. As a result of the pandemic the restaurant industry has experience sporadic supply chain disruption resulting in potential increased food costs. In addition, labor shortages are more prevalent through out the food industry resulting in the potential labor cost increases. As a result the industry has adopted various hiring standards and methods to retain current employeesc.

Our Superfit Foods, LLC meal prep company located and operating in the Jacksonville, FL market is exposed to the risk of natural disasters.

Our meal prep service located and operating throughout the Jacksonville, Florida market could be subject to natural disasters such as hurricanes, fires, floods, or tornados. Adverse weather conditions could result in events that adversely affect our services. Such events could result in physical damage to our property and outlying areas where our consumer base is located delaying future services and our total revenue and operation profits could be materially adversely affected. These events could also result in indirect consequences such as increase in cost of insurance if they result in significant loss of property.

Due to COVID-19 and the ongoing pandemic, we and our franchisees may face labor shortages or increased labor costs due to local regulations associated with mandated vaccinations.

Labor is a primary component in the cost of operating our company-operated and franchised restaurants. Our success depends in part upon our and our franchisees’ ability to attract, motivate and retain a sufficient number of well-qualified restaurant operators, management personnel and other employees. Many industries, including the restaurant industry, are having difficulties in hiring and retaining qualified personnel as some employees have remained hesitant to rejoin the workforce. In addition to these factors, some parts of the country are instituting proof of vaccination requirements for indoor dining or be employed in restaurant positions that interact with the public, large group settings or office spaces. New York City has implemented these regulations as of August 16, 2021. The company may have to increase wages, reduce hours of operations or reduce menu offerings, among other tactics, to offset a potential lack of personnel to operate our restaurants. These events could materially affect our total revenue and operating profits.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On June 30, 2021, the Company authorized the issuance of an aggregate of 12,711 shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2021.

On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4,115,227 shares of Common Stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of Common Stock (the “Pre-Funded Warrant”). Each share and accompanying Common Warrant are being sold together at a combined offering price of $2.43 per share and Common Warrant, and each Pre-Funded Warrant and accompanying Common Warrant is being sold together at a combined offering price of $2.42 per Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrant is immediately exercisable, at a nominal exercise price of $0.01 per share, and may be exercised at any time until the Pre-Funded Warrant is fully exercised. The Common Warrant will have an exercise price of $2.43 per share, are immediately exercisable and will expire five and one-half (5.5) years from the date of issuance. The Private Placement closed on April 9, 2021.

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 August 26, 2021, the Company issued an aggregate of 1,100 shares of common stock of the Company to an investor in the Company.

The price per share was determine by using the 10-day trading average preceding the date of closing. The closing occurred on May 14, 2021.

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.

On May 4, 2021, Mr. Southall resigned from the compensation committee. On May 10, 2021, the Board appointed Major General (ret) Malcolm Frost to the compensation committee and added Philip Balatsos as an additional member to the compensation committee.

Item 6. Exhibits.

Exhibit No.		Exhibit Description

3.1		Certificate of amendment to Articles of Incorporation of Muscle Maker, Inc., a Nevada corporation

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 15, 2021	MUSCLE MAKER, INC.

	By:	/s/ Michael J. Roper
		Michael J. Roper
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Ferdinand Groenewald
		Ferdinand Groenewald
		Chief Financial Officer
		(Principal Financial and Accounting Officer)