Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2022

quarterly period ended March 31, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-39223

Muscle Maker, Inc.

(Exact name of registrant as specified in its charter)

Nevada47-2555533
(State or other jurisdiction(I.R.S. Employer
of incorporation)Identification No.)

1751 River Run, Suite 200,

Fort Worth,, Texas76107

(Address of principal executive offices)

2600 South Shore Blvd.,Suite 300,

League City, Texas77573

(Former name, former address and former fiscal year, if changed since last report)

Registrant’s telephone number, including area code: (832)604-9568

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

Title of each classTrading Symbol(s)Trading Symbol(s)Name of each exchange on which registered
Common Stock, $0,0001$0.0001 par valueGRILGRILThe 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 Yes☒ ☒ No ☐

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

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

Table of Contents

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 August 11, 2022,May 10, 2023, was 28,773,335.

32,197,066.


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Muscle Maker, Inc.
Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 2023



MUSCLE MAKER, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

TABLE OF CONTENTS

ITEM NO.Table of ContentsNAME OF ITEMPage
4
PART I - FINANCIAL INFORMATIONItem 1.
4
ITEM 1.
4
35
46
57
69
736
951
ITEM 2.Item 4.
3351
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK51
ITEM 4.CONTROLS AND PROCEDURES51
PART II- OTHER INFORMATIONII52
ITEM 1.LEGAL PROCEEDING52
ITEM 1A.RISK FACTORS52
ITEM 2.UNGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS52
ITEM 3.DEFAULTS UPON SENIOR SECURITIES53
ITEM 4.MINE SAFETY DISCLOSURES53
ITEM 5.53
ITEM 6Item 1.
5352
54
52

2
52
52
52
52
53
54

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Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Muscle Maker, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

March 31, 2023December 31, 2022
$’000$’000
Assets
Current assets:
Cash6,386 9,898 
Accounts receivable, net of allowance for doubtful accounts of $28.8 thousand and $23.4 thousand as of March 31, 2023 and December 31, 2022, respectively4,961 135 
Inventory35,145 298 
Prepaid expenses and other current assets206 317 
Total current assets46,698 10,648 
Right to use assets2,189 2,433 
Property and equipment, net1,680 1,895 
Goodwill2,626 2,626 
Intangible assets, net4,301 4,611 
Deposit on farmland5,002 4,914 
Security deposits and other assets102 103 
Total assets62,598 27,230 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses35,863 1,953 
Accrued stock-based compensation expense - related party3,400 3,603 
Notes payable, current225 222 
Operating lease liability, current505 560 
Deferred revenue, current90 95 
Other current liabilities195 182 
Total current liabilities40,278 6,615 
Notes payable, non-current722 759 
Operating lease liability, non-current1,800 2,019 
Deferred revenue, non-current1,228 1,276 
Total liabilities44,028 10,669 
Commitments and Contingencies
Stockholders’ equity:
Common stock, $0.0001 par value, 150 million shares authorized, 32.2 million and 29.3 million shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively3 3 
Additional paid-in capital98,988 95,913 
Accumulated deficit(80,421)(79,355)
Total stockholders’ equity18,570 16,561 
Total liabilities and stockholders’ equity62,598 27,230 

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

  June 30,  December 31, 
  2022  2021 
       
Assets        
Current Assets:        
Cash $13,465,538  $15,766,703 
Accounts receivable, net of allowance for doubtful accounts of $8,230 and $23,693 as of June 30, 2022 and December 31, 2021, respectively  353,115   155,167 
Inventory  213,549   258,785 
Current portion of loans receivable, net of allowance of $4,032 and $71,184 at June 30, 2022 and December 31, 2021, respectively  -   - 
Prepaid expenses and other current assets  595,440   1,789,328 
Total Current Assets  14,627,642   17,969,983 
Right to use assets  2,536,932   - 
Property and equipment, net  2,023,787   2,280,267 
Goodwill  2,626,399   2,626,399 
Intangible assets, net  5,678,589   6,387,464 
Security deposits and other assets  179,278   167,770 
Total Assets $27,672,627  $29,431,883 
         
Liabilities and Stockholders’ Equity        
Current Liabilities:        
Accounts payable and accrued expenses $1,597,175  $2,208,523 
Convertible note payable to Former Parent  82,458   82,458 
Convertible note payable  50,000   100,000 
Other notes payable  127,084   165,052 
Operating lease liability, current  561,623   - 
Deferred revenue, current  83,144   49,728 
Deferred rent, current  -   36,800 
Other current liabilities  195,429   286,088 
Total Current Liabilities  2,696,913   2,928,649 
Other notes payable, non-current  838,260   1,005,027 
Operating lease liability, non-current  2,129,600   - 
Deferred revenue, non-current  1,208,523   1,013,645 
Deferred rent, non-current  -   91,295 
Total Liabilities  6,873,296   5,038,616 
         
Commitments and Contingencies  -   - 
         
Stockholders’ Equity:        
Common stock, $0.0001 par value, 50,000,000 shares authorized, 28,699,316 and 26,110,268 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  2,870   2,611 
Additional paid-in capital  95,849,320   95,760,493 
Accumulated deficit  (75,052,859)  (71,369,837)
Total Stockholders’ Equity  20,799,331   24,393,267 
Total Liabilities and Stockholders’ Equity $27,672,627  $29,431,883 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

3
(Unaudited)

4

Table of Contents

Muscle Maker, Inc.
Condensed Consolidated Statement of Operations
(Unaudited)

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

  2022  2021  2022  2021 
  For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
Revenues:                
Company restaurant sales, net of discounts $2,750,734  $2,564,864  $5,444,926  $3,743,775 
Franchise royalties and fees  162,480   135,250   370,621   241,935 
Franchise advertising fund contributions  16,170   4,742   34,295   18,829 
Total Revenues  2,929,384   2,704,856   5,849,842   4,004,539 
                 
Operating Costs and Expenses:                
Restaurant operating expenses:                
Food and beverage costs  1,117,419   886,392   2,143,354   1,362,198 
Labor  903,062   888,895   1,976,109   1,643,059 
Rent  326,819   304,930   667,215   561,121 
Other restaurant operating expenses  687,823   666,946   1,337,547   1,019,769 
Total restaurant operating expenses  3,035,123   2,747,163   6,124,225   4,586,147 
Depreciation and amortization  489,654   284,646   965,381   453,774 
Franchise advertising fund expenses  16,170   4,742   34,295   18,829 
Preopening expenses  -   -   -   10,986 
Selling, general and administrative expenses  1,126,857   1,994,003   2,451,334   4,960,639 
Total Costs and Expenses  4,667,804   5,030,554   9,575,235   10,030,375 
Loss from Operations  (1,738,420)  (2,325,698)  (3,725,393)  (6,025,836)
                 
Other Income (Expenses) :                
Other income (expense)  (14,468)  223,681   (33,889)  226,309 
Interest expense, net  (9,945)  (22,596)  (28,437)  (36,770)
Change in fair value of accrued compensation  -   127,500   -   127,500 
Gain on debt extinguishment  -   875,974   141,279   875,974 
Total Other Income (Expenses), Net  (24,413)  1,204,559   78,953   1,193,013 
                 
Loss Before Income Tax  (1,762,833)  (1,121,139)  (3,646,440)  (4,832,823)
Income tax provision  (11,311)  (1,062)  (13,783)  (1,062)
Net Loss $(1,774,144) $(1,122,201) $(3,660,223) $(4,833,885)
                 
Net Loss Per Share:                
Basic and Diluted  (0.06)  (0.16)  (0.13)  (0.70)
                 
Weighted Average Number of Common Shares Outstanding:                
Basic and Diluted  28,668,116   6,916,218   28,235,052   6,916,218 

Three Months Ended March 31,
20232022
$’000$’000
Revenues:
Commodity sales210,366 — 
Company restaurant sales, net of discounts2,301 2,694 
Franchise royalties and fees284 208 
Franchise advertising fund contributions16 18 
Total revenues212,967 2,920 
Operating Costs and Expenses:
Commodity operating expenses:
Commodity cost205,055 — 
Labor620 — 
Other commodity operating expenses154 — 
Total commodity operating expenses205,829 — 
Restaurant operating expenses:
Food and beverage costs839 1,026 
Labor880 1,073 
Rent274 340 
Other restaurant operating expenses472 650 
Total restaurant operating expenses2,465 3,089 
Depreciation and amortization expenses633 476 
Franchise advertising fund expenses16 18 
Pre-opening expenses36 — 
Post-closing expenses94 — 
Stock-based consulting expenses3,359 — 
Sales, general and administrative expenses2,142 1,324 
Total costs and expenses214,574 4,907 
Loss from operations(1,607)(1,987)
Other Income:
Other income / (expense)— (19)
Interest income / (expense), net3 (18)
Change in fair value of accrued compensation541 — 
Gain on debt extinguishment— 140 
Total other income, net544 103 
Loss Before Income Tax(1,063)(1,884)
Income tax3 2 
Net loss(1,066)(1,886)
Net Loss Per Share:
Basic and Diluted(0.04)(0.07)
Weighted average Number of Common Shares Outstanding:
Basic and Diluted29,443,394 27,801,604 
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

4
(Unaudited)

5

Table of Contents

Muscle Maker, Inc.
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)

Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Total
SharesAmount
('000
$’000$’000$’000$’000
Balance at December 31, 202126,1103 95,760 (71,370)24,393 
Cumulative effect of change in accounting principal—— — (15)(15)
Cashless exercise of pre-funded warrants2,410 — — — — 
Common stock compensation to board of directors94 — 57 — 57 
Common stock issued as compensation for services30 — 16 — 16 
Net loss— — — (1,886)(1,886)
Balance at March 31, 202228,6443 95,833 (73,271)22,565 
Balance at December 31, 202229,2873 95,913 (79,355)16,561 
Common stock compensation to board of directors31— 28 — 28 
Common stock issued as compensation for services2,849— 3,020 — 3,020 
Stock-based compensation - options—— 27 — 27 
Net loss———(1,066)(1,066)
Balance at March 31, 202332,1673 98,988 (80,421)18,570 

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


        Additional       
  Common Stock  Paid-in  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
Balance - December 31, 2021  26,110,268  $2,611  $95,760,493  $(71,369,837) $24,393,267 
Cumulative effect of change in accounting principal  -   -   -   (15,010)  (15,010)
Cashless exercise of pre-funded warrants  2,409,604   241   (241)      - 
Common stock issued as compensation to board of directors  93,534   9   56,975       56,984 
Common stock issued as compensation for services  30,000   3   15,599       15,602 
Net loss  -   -   -   (1,886,079)  (1,886,079)
                     
Balance - March 31, 2022  28,643,406  $2,864  $95,832,826  $(73,270,926) $22,564,764 
                     
Cumulative effect of change in accounting principal  -   -   -   (7,789)  (7,789)
Common stock issued as compensation for employment  20,000   2   10,798   -   10,800 
Common stock issued as compensation for services  5,000   1   1,949   -   1,950 
Stock based compensation - options  -   -   3,750   -   3,750 
Reconciliation for shares outstanding per transfer agent  30,910   3   (3)  -   - 
Net loss  -   -   -   (1,774,144)  (1,774,144)
                     
Balance - June 30, 2022  28,699,316  $2,870  $95,849,320  $(75,052,859) $20,799,331 














See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

5
(Unaudited)

6

Muscle Maker, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
20232022
$’000$’000
Cash Flows from Operating Activities
Net loss(1,066)(1,886)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization633 476 
Stock-based compensation55 72 
Gain on extinguishments of debt— (140)
Stock-based consulting expenses3,359 — 
Change in fair value of compensation541 — 
Loss on disposal of assets— 240 
Bad debt expense(5)(9)
Changes in operating assets and liabilities:
Accounts receivable, net(4,821)(175)
Inventory(34,848)(1)
Prepaid expenses and other current assets111 698 
Security deposits and other assets— 16 
Accounts payable and accrued expenses33,910 (404)
Accrued stock-based compensation expense - related party(1,082)— 
Deferred rent— (128)
Operating right of use asset and liability, net(30)129 
Deferred revenue(53)191 
Other current liabilities14 (8)
Total adjustments(2,216)957 
Net cash used in operating activities(3,282)(929)
Cash Flows from Investing Activities
Deposit on farmland(87)— 
Purchases of property and equipment(109)(35)
Net cash used in investing activities(196)(35)
Cash Flows from Financing Activities
Repayments of notes payables(34)(32)
Net cash used in financing activities(34)(32)
Net Decrease in Cash(3,512)(996)
Cash – beginning of period9,898 15,767 
Cash – end of period6,386 14,771 


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 in connection of the acquisition of SuperFit Foods on March 25, 2021  268,240   27   624,973   -   625,000 
Restricted common stock issued as compensation to executives and employees  221,783   22   636,495   -   636,517 
Common stock issued as compensation to board of directors  28,837   3   57,199   -   57,202 
Common stock issued as compensation for services  300,000   30   676,670   -   676,700 
Amortization of restricted common stock  -   -   426   -   426 
Net loss  -   -   -   (3,711,684)  (3,711,684)
                     
Balance - March 31, 2021  12,545,824  $1,254  $70,983,426  $(66,905,391) $4,079,289 
Balance  12,545,824  $1,254  $70,983,426  $(66,905,391) $4,079,289 
                     
Common stock, pre-funded warrants and warrants 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 
Balance  17,689,454  $1,769  $81,572,113  $(68,027,592) $13,546,290 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

6
(Unaudited)

7

Muscle Maker, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)

Three Months Ended March 31,
20232022
$’000$’000
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest3 24 

MUSCLE MAKER, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


  2022  2021 
  For the Six Months Ended 
  June 30, 
  2022  2021 
       
Cash Flows from Operating Activities        
Net loss $(3,660,223) $(4,833,885)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  965,381   453,774 
Stock-based compensation  89,086   1,727,545 
Gain on extinguishments of debt  (141,279)  (875,974)
Loss on disposal of assets  266,573   37,027 
Loss on change in fair value of accrued compensation  -   (127,500)
Bad debt expense  (58,692)  18,676 
Changes in operating assets and liabilities:        
Accounts receivable, net  (123,256)  (102,563)
Inventory  45,236   (35,779)
Prepaid expenses and other current assets  1,193,888   (107,139)
Security deposits and other assets  (11,508)  (6,000)
Accounts payable and accrued expenses  (611,348)  208,164 
Deferred rent  (128,095)  (21,471)
Operating right of use asset and lease liability, net  131,492   - 
Deferred revenue  228,294   (45,803)
Other current liabilities  (90,659)  10,533 
Total Adjustments  1,755,113   1,133,490 
Net Cash Used in Operating Activities  (1,905,110)  (3,700,395)
         
Cash Flows from Investing Activities        
Purchases of property and equipment  (282,999)  (98,257)
Cash paid in connection with the acquisition of SuperFit Foods  -   (500,000)
Cash paid in connection with the acquisition of Pokemoto  -   (2,815,390)
Collections from loans receivable  400   800 
Net Cash Used in Investing Activities  (282,599)  (3,412,847)
         
Cash Flows from Financing Activities        
Proceeds from Private Placement offering, net of offering cost  -   9,181,350 
Proceeds from PPP loan  -   28,652 
Cash paid in connection with the cancellation of shares  -   (100,000)
Repayments of convertible note  (50,000)  - 
Repayments of other notes payables  (63,456)  (1,221,071)
Net Cash (Used in) Provided by Financing Activities  (113,456)  7,888,931 
         
Net (Decrease) Increase in Cash  (2,301,165)  775,689 
Cash - Beginning of Period  15,766,703   4,195,932 
Cash - End of Period $13,465,538  $4,971,621 






















See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

7
(Unaudited)

8

Table of Contents

Muscle Maker, Inc.
MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  For the Six Months Ended 
  June 30, 
  2022  2021 
       
Supplemental Disclosures of Cash Flow Information:        
Cash paid for interest $87,190  $66,179 
         
Supplemental Disclosures of non-cash investing and financing activities:        
Cashless exercise of pre-funded warrants $241  $- 

See Notes to the Unaudited CondensedConsolidated Financial Statements (Unaudited)

8


1.    Business Organization and Nature of Operations

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS

Muscle Maker, Inc. (“MMI”), a Nevada corporation was incorporated in Nevada on October 25, 2019. MMI was a wholly owned subsidiary of Muscle Maker, Inc (“MMI-Cal”), a California corporation incorporated on December 8, 2014, but the two merged on November 13, 2019, with MMI as the surviving entity. MMI wholly owns Muscle Maker Development, LLC (“MMD”), Muscle Maker Corp, LLC (“MMC”) and Muscle Maker USA, Inc (“Muscle USA”). MMD was formed on July 18, 2017, in the State of Nevada for the purpose of running our existing franchise operations and continuing to franchise the Muscle Maker Grill name and business system to qualified franchisees. MMC was formed on July 18, 2017, in the State of Nevada for the purpose of developing new corporate stores and operating new and existing corporate stores of MMI. Muscle USA was formed on March 14, 2019, in the State of Texas for the purpose of opening additional new corporate stores. Muscle Maker Development International.International LLC, a directly wholly owned subsidiary of MMI, which was formed in Nevada on November 13, 2020, to franchise the Muscle Maker GrillGrill® name, trademarks and business system to qualified franchisees internationally.

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

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

On March 25, 2021, MMI acquired the assets and trademarks of SuperFit Foods,Foods™, a subscription based fresh-prepared meal prep business located in Jacksonville, Florida. With this acquisition, we are also the owner of the trade name SuperFit Foods that we use in connection with the operations of SuperFit Foods. SuperFit Foods is differentiated from other meal prep services by allowing customers in the Jacksonville Florida market to order online via the Company’s website or mobile app and pick up their fully prepared meals from 29 Company-owned coolers located in gyms and wellness centers.

On May 14, 2021, MMI acquired the assets and trademarks of PKM Stamford, LLC, Poke Co., LLC, LB Holdings LLC, TNB Holdings, LLC, Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC, each a Connecticut limited liability company, (collectively, Pokemoto”an operator and franchisor of a fast casual restaurant chain concept, collectively known as “Pokémoto®.” On October 19, 2022, MMI formed Sadot LLC, a Delaware limited liability company and a wholly-owned subsidiary of MMI, ("Sadot"), for the purpose of shipping and trading agri-commodities on a healthier modern culinary twist onglobal basis.


With the traditional Hawaiian poke classic. Pokemoto had, at acquisition, fourteen locationsformation of Sadot in four states – Connecticut, Rhode Island, Massachusetts,late 2022, MMI has evolved from a U.S.-centric restaurant business into a global, food-focused organization. As of March 31, 2023, MMI consisted of two distinct operating units:

1.SADOT LLC: MMI’s largest operating unit is a global agri-commodities company engaged in trading and Georgiashipping of food and offers up chef-driven contemporary flavors with fresh delectable and healthy ingredientsfeed (e.g., soybean meal, wheat, corn, etc.) via dry bulk cargo ships to/from markets such as Atlantic salmon, sushi-grade tuna, fresh mango, roasted cashewsBrazil, Canada, China, India, Japan, Malaysia, Philippines, Poland, Romania, Ukraine and black caviar tobiko that appealsVietnam. Sadot competes with the ABCD commodity companies (ADM, Bunge, Cargill, Louis-Dreyfus) as well as many regional organizations. Sadot seeks to foodies, health enthusiasts,diversify over time into a sustainable and sushi-lovers everywhere.forward-looking global agri-foods company.
2.MMI RESTAURANT GROUP: This is MMI’s legacy business with two fast casual restaurant concepts, Pokémoto Hawaiian Poké® and Muscle Maker Grill®, plus a fresh-prep meal service, SuperFit Foods™, with 30+ points of distribution plus in-home and national delivery. As of March 31, 2023, the MMI Restaurant Group included 19 company-owned restaurants, including the SuperFit Foods™ kitchen, and 26 franchise restaurants. The 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 Restaurant Group seeks to develop Pokémoto® into a national restaurant brand through franchising.


MMI and its subsidiaries are hereinafter referred to as the “Company”.

As of June 30, 2022, MMI consisted of four operating segments:

●Muscle Maker Grill Restaurant Division
●Pokemoto Hawaiian Poke Restaurant Division
●

Non-Traditional (Hybrid) Division

●SuperFit Foods Meal Prep Division

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Liquidity

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS, continued

Non-Traditional (Hybrid) Division is a combination of the aforementioned brands and provides its own unique experience for the consumer. Non-Traditional (Hybrid) locations are designed for unique locations such as universities, military bases and cloud kitchens.

The Company operates under the name Muscle Maker Grill, Pokemoto and SuperFit Foods and is a franchisor and owner operator of Muscle Maker Grill and Pokemoto restaurants. As of June 30, 2022, the Company’s restaurant system included nineteen Company-owned restaurants, including the SuperFit Foods kitchen, and eighteen franchise restaurants.

Liquidity

Our primary source of liquidity is cash on hand. As of June 30, 2022,March 31, 2023, the Company had a cash balance, a working capital surplus and an accumulated deficit of $13,465,538, $11,930,729,$6.4 million, $6.4 million, and $75,052,859,$80.4 million, respectively. During the three and six months ended June 30, 2022,March 31, 2023, the Company incurred a pre-taxPre-tax net loss of $1,762,833$1.1 million and $3,646,440, respectively, and netNet cash used in operations of $1,905,110 and $3,700,395 for the six months ended June 30, 2022 and 2021, respectively.$3.3 million. The Company believes that itsour existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve12 months.
2.    Significant Accounting Policies

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statementsUnaudited 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
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Muscle Maker, Inc.
Notes to the CondensedConsolidated Financial Statements (Unaudited)
of the unaudited condensed consolidated financial statementsUnaudited Condensed Consolidated Financial Statements of the Company as of June 30, 2022,March 31, 2023, and for the three and six months ended June 30, 2022,March 31, 2023, and 2021.2022. The results of operations for the three and six months ended June 30,March 31, 2023, and 2022 are not necessarily indicative of the operating results for the full year. It is suggested that these unaudited condensed consolidated financial statementsUnaudited Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021.2022. The balance sheetBalance Sheet as of December 31, 2021,2022, has been derived from the Company’s audited financial statements.

Financial Statements.

Principles of Consolidation

The accompanying condensed consolidated financial statementsUnaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries and majority-owned subsidiary. Any intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain prior yearperiod balances have been reclassified in order to conform to current yearperiod presentation. These reclassifications have no effect on the previously reported results of operations or loss per share.

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MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Use of Estimates

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

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

the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets;

●the 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.

•

the estimated useful lives of intangible and depreciable assets;

•estimates and assumptions used to value warrants and options;
•the recognition of revenue; and
•the recognition, measurement and valuation of current and deferred income taxes.
Estimates and assumptions are periodically reviewed, and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

Cash and Cash Equivalents

The Company considers all highly-liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. There were 0no cash equivalents as of June 30, 2022March 31, 2023 or December 31, 2021.

2022.

Inventory

Inventories, which are stated at the lower of cost or net realizable value, consist primarily of commodity trade shipments in-transit, perishable food items and supplies. Cost is determined using the first-in, first outfirst-out method.

Deposit on Farmland

Deposit on farmland consists of funds paid as a deposit with the intent to acquire farmland in Africa by our Sadot subsidiary. As of March 31, 2023, the Company recorded a deposit of $5.0 million. The Company has entered into a letter of intent with a deposit to purchase undeveloped farmland. The Company is still in final negotiations with the intent to finalize the agreement by the end of the second quarter of 2023.
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Muscle Maker, Inc.
Notes to the Condensed

Consolidated Financial Statements (Unaudited)

Property and Equipment

Property and equipment are stated at cost less accumulated depreciationDepreciation and amortization.amortization expenses. Major improvements are capitalized, and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization expenses are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:

SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT

Furniture and equipment3 - – 7 years
Leasehold improvements1 - – 11 years

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MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Intangible Assets

The Company accounts for recorded intangible assets in accordance with ASCthe Accounting Standards Codification (“ASC’) 350 “Intangibles -– Goodwill and Other”. In accordance with ASC 350, the Company does not amortize intangible assets having indefinite useful lives. The Company’s trademark – Muscle Maker had an indefinite live as of December 31, 2021. The Company determined that as of January 1, 2022, – the trademark -– Muscle Maker had a finite life of 3 years and will beis amortizing the value over the new estimated life. The Company’s goodwill has an indefinite life and is accordingly not amortized, but are evaluated for impairment at least annually, or more often whenever changes in facts and circumstances may indicate that the carrying value may not be recoverable. The Accounting Standards Codification (“ASC”)ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.

The otheruseful lives of the Company’s intangible assets estimated original useful lives are as follows:

SCHEDULE OF ESTIMATED USEFUL LIVES OF OTHER INTANGIBLE ASSETS

are:
Franchisee agreements13 years
Franchise license10 years
Trademark – Muscle Maker, SuperFit, and PokemotoTrademarks3 – 5 years
Domain name, Customer list and Proprietary recipes3 – 7 years
Non-compete agreementagreements2 – 3 years

Impairment of Long-Lived Assets

When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company performs an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income.

Convertible Instruments

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

If the instrument is determined not to be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the market price of the Company’s common stock as of the commitment date to the effective conversion price of the instrument.
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Muscle Maker, Inc.
Notes to the Condensed

Consolidated Financial Statements (Unaudited)

As of June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company deemed the conversion feature was not required to be bifurcated and recorded as a derivative liability.

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Related Parties

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes

A party is considered to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

be related to the Company if the party directly, indirectly, or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

Revenue Recognition

The Company’s revenues consist of restaurantCommodity sales, franchiseRestaurant sales, Franchise royalties and fees, franchiseFranchise advertising fund contributions, and otherOther revenues. The Company recognizedrecognizes revenues according to Topic 606 of FASB, “Revenue from Contracts with Customers”. Under the guidance, revenue is recognized in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model, we made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and which represent separate performance obligations.

Commodity Sales
Commodity sale revenue is generated by our Sadot subsidiary and is recognized when the commodity is delivered as evidenced by the bill of lading and the invoice is prepared and submitted to the customer. During the three months ended March 31, 2023, the Company recorded Commodity sales revenues of $210.4 million. The Company did not have any Commodity sales revenue during the three months ended March 31, 2022.
Restaurant Sales

Retail store revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales relatedsales-related taxes. The Company recorded retail store revenues of $2,750,734$2.3 million and $5,444,926$2.7 million during the three and six months ended June 30,March 31, 2023 and 2022, respectively, and $2,564,864 and $3,743,775 during the three and six months ended June 30, 2021, respectively.

The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. The Company recognizes revenues from gift cards as restaurant revenues once the Company performs its obligation to provide food and beverage to the customer simultaneously with the redemption of the gift card or through gift card breakage, as discussed in Other Revenuesrevenues below.

Franchise Royalties and Fees

Franchise revenues consists of royalties, initial franchise fees and rebates. Royalties are based on a percentage of franchisee net sales revenue. The Company recognizes the royalties as the underlying sales occur. The Company recorded revenue from royalties of $121,001$0.2 million and $229,422$0.1 million during the three and six months ended June 30,March 31, 2023 and 2022, respectively, and $104,430 and $185,899 during the three and six months ended June 30, 2021, respectively, which is included in franchiseFranchise royalties and fees on the accompanying condensed consolidated statementsUnaudited Condensed Consolidated Statements of operations.

Operations.

The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for the multi-unit development fees and initial franchise fees. The Company capitalizes these fees upon collection from the franchisee, thesefranchisee. These initial fees are then recognized as franchise fee revenue on a straight-linestraight-
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Muscle Maker, Inc.
Notes to the CondensedConsolidated Financial Statements (Unaudited)
line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. If a franchise location closes or a franchise agreement is terminated for any reason, the unrecognized revenue will be recognized in full at that time. The Company recorded revenue from initial franchise fees of $15,315$0.1 million and $64,206$49.0 thousand during the three months ended March 31, 2023 and six month ended June 30, 2022, respectively, and $12,352 and $22,138 during the three and six month ended June 30, 2021, respectively, which is included in franchiseFranchise royalties and fees on the accompanying condensed consolidated statements of operations.

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MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Franchise Royalties and Fees, continued

of Operations.

The Company has supply agreements with certain food and beverage vendors. Pursuant to the terms of these agreements, rebates are provided to the Company based upon the dollar volume of purchases for all company-owned and franchised restaurants from these vendors. Rebates earned on purchases by franchise stores are recorded as revenue during the period in which the related food and beverage purchases are made. The Company recorded revenue from rebates of $26,164$26.0 thousand and $76,993$0.1 million during the three and six months ended June 30,March 31, 2023 and 2022, respectively, and $18,468 and $33,898 during the three and six months ended June 30, 2021, respectively, which is included in franchiseFranchise royalties and fees on the accompanying condensed consolidated statementsUnaudited Condensed Consolidated Statements of operations.Operations. Rebates earned on purchases by Company-owned stores are recorded as a reduction of foodFood and beverage costs during the period in which the related food and beverage purchases are made.

Franchise Advertising Fund Contributions

Under the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under selling,Sales, general and administrative expenses. When an advertising contribution fund is over-spent at year end,year-end, advertising expenses will be reported on the condensed consolidated statementUnaudited Condensed Consolidated Statement of operationsOperations 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,period-end, the Company will accrue advertising costs up to advertising contributions recorded in revenue. The Company recorded contributions from franchisees of $16,170$16.0 thousand and $34,295$18.0 thousand, respectively, during the three and six months ended June 30,March 31, 2023 and 2022, respectively, and $4,742 and $18,829 during the three and six months ended June 30, 2021, respectively, which are included in franchiseFranchise advertising fund contributions on the accompanying condensed consolidated statementsUnaudited Condensed Consolidated Statements of operations.

Operations.

Other Revenues

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. Gift card liability is recorded in other current liabilities on the condensed consolidated balance sheet. For the three and six months ended June 30, 2022 and 2021, respectively, the Company did not record any gift card breakage.

Unaudited Condensed Consolidated Balance Sheets.

Deferred Revenue

Deferred revenue primarily includes initial franchise fees received by the Company, which are being amortized over the life of the Company’s franchise agreements. Deferred revenue is recognized in income over the life of the franchise agreements and vendor rebates areagreements. If a franchise location closes or a franchise agreement is terminated for any reason, the remaining deferred revenue will be recognized in incomefull at that time.
Stock-Based Consulting Expense
Stock-based consulting expenses are for consulting fees due to Aggia related to ongoing Sadot operations and expansion of the global agri-commodities business. Based on the servicing agreement with Aggia LLC FZ, a Company formed under the laws of United Arab Emirates (“Aggia”), the consulting fees are calculated at approximately 80.0% of the Net Income generated by the Sadot business segment. For the three months ended March 31, 2023, $3.4 million is recorded as performance obligations are satisfied.Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and a corresponding liability is recorded as Accrued stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Balance Sheets. This expense is expected to be paid in stock in 2023.
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Muscle Maker, Inc.
Notes to the Condensed

Consolidated Financial Statements (Unaudited)

Advertising

Advertising costs are charged to expense as incurred. Advertising costs were approximately $750$0.1 million and $101,146 during$33.0 thousand for the three and six months ended June 30,March 31, 2023 and 2022, respectively, and $34,152 and $58,203 during the three and six months ended June 30, 2021, respectively, which are included in selling,Sales, general and administrative expenses and $40.0 thousand and $0.1 million, respectively, are included in Other restaurant operating expenses in the accompanying condensed consolidated statements of operations.

14

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

of Operations.

Net Loss per Share

Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the impact of potential common shares, if dilutive, resulting from the exercise of warrants, options or the conversion of convertible notes payable.

The following securities are excluded from the calculation of weighted average diluted common shares at June 30,March 31, 2023 and 2022, and 2021, respectively, because their inclusion would have been anti-dilutive:

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

  2022  2021 
  June 30, 
  2022  2021 
Warrants  17,873,906   6,615,302 
Options  412,500   100,000 
Convertible debt  27,076   32,350 
Total potentially dilutive shares  18,313,482   6,747,652 

March 31,
20232022
('000
('000
Warrants18,034 17,874 
Options1,013 100 
Convertible debt24 32 
Total potentially dilutive shares19,071 18,006
Major Vendor

The Company engages various vendors to purchase commodities for resale and distribute food products to their Company-owned restaurants. Purchases from the Company’s three largest suppliercommodity suppliers totaled 19% and 30%98% of the Company’s purchases for the three and six months ended June 30, 2022, respectively.March 31, 2023. Purchases from the Company’s largest food products supplier totaled 60.25% and 68.69%45% of the Company’s purchases for the three and six months ended June 30, 2021, respectively.

March 31, 2022.

Fair Value of Financial Instruments

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

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

15

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Fair Value of Financial Instruments, continued

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

liabilities.

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

observable.

Level 3 — inputs thatto the valuation methodology are unobservable (for example, cash flow modeling inputs based on assumptions)

and significant to the fair value measurement.

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

See Note 16–17 – Equity – Warrant and Options Valuation for details related to accrued compensation liability being fair valued using Level 1 inputs.

Leased Assets

The Company adopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit of $22,799 as of the adoption date. Lease right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments arising from the lease agreement. These assets and liabilities are recognized at the commencement of the lease based upon the present value of the future minimum lease payments over the lease term. The lease term reflects the no cancelable period of the lease together with periods covered by an option to extend or terminate the lease when management is reasonably certain that it will exercise such option. Changes in the lease term assumption could impact the right-of-use assets and lease liabilities recognized on the balance sheet. As our leases typically do not contain a readily determinable implicit rate, we determine the present value of the lease liability using our incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis.

Income Taxes

The Company accounts for income taxes under Accounting Standards Codification (“ASC”)ASC 740, Income Taxes“Income Taxes” (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Tax benefits claimed or expected to be claimed on a tax return are recorded in the Company’s financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Uncertain tax positions have had no impact on the Company’s financial condition, results of operations or cash flows. The Company does not expect any significant changes in its unrecognized tax benefits within years of the reporting date.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling,Sales, general and administrative expenses in the condensed consolidated statementsUnaudited Condensed Consolidated Statements of operations.

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Operations.

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Stock-Based Compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally recorded on the grant date and re-measured on financial reporting dates and vesting dates until the service period is complete. The fair value amount of the award is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”)ASU No. 2016-02, Leases (Topic 842), which requires companies to recognize lease liabilities and corresponding right-of-use leased assets on the balance sheetsBalance Sheets and to disclose key information about leasing arrangements. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2022,2021, with early adoption permitted.

Additionally, in 2018 and 2019, the FASB issued the following Topic 842–related ASUs:
•

● ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, which clarifies the applicability of Topic 842 to land easements and provides an optional transition practical expedient for existing land easements;

•

● ASU 2018-10, Codification Improvements to Topic 842, Leases, which makes certain technical corrections to Topic 842;

•

● ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows companies to adopt Topic 842 without revising comparative period reporting or disclosures and provides an optional practical expedient to lessors to not separate lease and non-lease components of a contract if certain criteria are met; and

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Muscle Maker, Inc.
Notes to the Condensed

● Consolidated Financial Statements (Unaudited)

•ASU 2019-01, Leases (Topic 842): Codification Improvements, which provides guidance for certain lessors on determining the fair value of an underlying asset in a lease and on the cash flow statement presentation of lease payments received; ASU No. 2019-01 also clarifies disclosures required in interim periods after adoption of ASU No. 2016-02 in the year of adoption.

The Company adopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit of $15,010$15.0 thousand as of the adoption date, and recognized an additional $7,789$7.8 thousand during the second quarter of 2022, based on updated information on two of our leases, for an aggregate cumulative-effect adjustment to accumulated deficit of $22,799.$22.8 thousand. See Note 11 – Leases for further details.

In October 2021, the FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue“Revenue from Contracts with Customers,Customers”, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the extent of the impact of this ASU, but do not expect theThe adoption of this standard toguidance did not have a significantmaterial impact on our condensed consolidated financial statements.

17

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes tothe Company’s Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

and related disclosures.

Subsequent Events

The Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements,Financial Statements, except as disclosed in Note 1619 – Subsequent Events.

NOTE 3 – ACQUISITIONS

SuperFit Foods Acquisition

On March 25, 2021, the Company entered into an asset purchase agreement with SuperFit Foods, LLC, a Florida limited liability company and SuperFit Foods, LLC, a Nevada limited liability company (the “SuperFit Acquisition”). The purchase price of the assets and rights was $1,150,000. The purchase price was payable as follows: $500,000 that was paid at closing, of which $25,000 was released from an escrow account held by our attorney, and $625,000 paid in 268,240 shares of common stock. The remaining $25,000, which was to be issued in the Company’s common stock, was forfeited as the Company and former owner agreed that not all obligations were met.

events.

3.    Loans Receivable
The Company acquired the following assets as part of the purchase agreement, adjusted for purchase accounting adjustments to reflect the fair value of the net assets acquired during 2021:

SCHEDULE OF ASSETS ACQUIRED IN BUSINESS COMBINATIONS

     
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 
Intangible assets, net  260,000 
Goodwill  258,000 
Total assets acquired $1,125,000 

The adjustment to the estimate identifiable net assets acquired resulted in a corresponding $25,000 decrease in estimated goodwill due to the Company havinghad no further obligation to issue the $25,000 shares of common stock as mentioned above.

The unaudited pro-forma financial information in the table below summarizes the condensed consolidated results of operations of the Company and SuperFit Foods, LLC as though the acquisition had occurred as of January 1, 2021. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken placeloan receivable balance at the beginning of the earliest period presented, nor does it intend to be a projection of future results.

SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION

  2022  2021  2022  2021 
  Pro Forma  Pro Forma 
  (Unaudited)  (Unaudited) 
  

For the Three Months

Ended

  

For the Six Months

Ended

 
  June 30,  June 30, 
  2022  2021  2022  2021 
Revenues $2,929,384  $2,739,155  $5,849,842  $4,574,993 
Restaurant operating expenses  3,035,123   2,781,644   6,124,225   5,104,056 
Total cost and expenses  4,667,804   5,066,351   9,575,235   10,549,600 
Loss from Operations  (1,738,420)  (2,327,196)  (3,725,393)  (5,974,607)

18

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 3 – ACQUISITIONS, continued

Pokemoto Acquisition

On May 14, 2021, the Company entered into Membership Interest Purchase Agreement with the members (the (“Poke Sellers”) of PKM Stamford, LLC, Poke Co., LLC, LB Holdings LLC, and TNB Holdings, LLC, each a Connecticut limited liability company (collectively, the “Poke Entities”) pursuant to which the Company acquired all of the issued and outstanding membership interest of the Poke Entities in consideration of $4,000,000 in cash and $730,000 payable in the form of a promissory note (the “Poke Note”).

In a related transaction, on May 14, 2021, the Company and the Poke Sellers entered into a Membership Interest Exchange Agreement pursuant to which the Company acquired Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC, each a Connecticut limited liability company (collectively, the Poke Entities II”) in exchange for shares of common stock of the Company valued at $1,250,000. The Company issued 880,282 shares of common stock of the Company on May 14, 2021. The price per share was determined by using the 10-day trading average preceding the date of closing. The closing occurred on May 14, 2021.

Poke Entities and Poke Entities II are hereinafter referred to as “Pokemoto”.

As of the date of the acquisition Pokemoto operated a total of 14 locations, six Company-owned restaurants and eight franchised restaurants, in four states, offering up chef-driven contemporary flavors with fresh delectable and healthy ingredients such as Atlantic salmon, sushi-grade tuna, fresh mango, roasted cashews and black caviar tobiko that appeals to foodies, health enthusiasts, and sushi-lovers everywhere.

The Company acquired the following assets as part of the purchase agreement, adjusted for purchase accounting adjustments to reflect our estimate of the fair value of the net assets acquired during 2021:

SCHEDULE OF ASSETS AND LIABILITIES ACQUIRED IN BUSINESS COMBINATIONS

     
Purchase Price $5,980,000 
     
Assets    
Cash $1,184,610 
Accounts Receivables  - 
Inventory  19,500 
Property and Equipment  297,529 
Intangible assets, net  4,560,000 
Operating lease right-of-use assets, net  719,941 
Security deposits and other assets  35,580 
  $6,817,160 
Liabilities    
Accounts payable and accrued expenses $296,224 
Other notes payable  1,462,453 
Deferred revenue  125,624 
Operating lease liability  751,258 
  $2,635,559 
     
Fair value of identifiable net assets acquired  4,181,601 
     
Goodwill $1,798,399 

19

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 3 – ACQUISITIONS, continued

Pokemoto Acquisition, continued

Identifiable intangible assets acquired include the following:

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS

  Fair Value  

Weighted average

amortization period

 
       
Tradename $175,000   5.00 
Franchise License  2,775,000   10.00 
Proprietary Recipes  1,130,000   7.00 
Non-Compete  480,000   2.00 
  $4,560,000   8.22 

The unaudited pro-forma financial information in the table below summarizes the condensed consolidated results of operations of the Company and Pokemoto, LLC as though the acquisition had occurred as of January 1, 2021. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.

SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION

  2022  2021  2022  2021 
  Pro Forma  Pro Forma 
  (Unaudited)  (Unaudited) 
  For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
Revenues $2,929,384  $3,052,164  $5,849,842  $5,364,325 
Restaurant operating expenses  3,035,123   2,926,106   6,124,225   5,514,292 
Total cost and expenses  4,667,804   5,160,154   9,575,235   11,232,460 
Loss from Operations  (1,738,420)  (2,107,990)  (3,725,393)  (5,868,135)

NOTE 4 - LOANS RECEIVABLE

At June 30, 2022March 31, 2023 and December 31, 2021, the Company’s loans receivable balance was $0, respectively.

2022. Loans receivable includesinclude loans to franchisees and a former franchisee totaling, in the aggregate, $0 and $0, net of reserves for uncollectible loans. There were no reserves for uncollectible loans at March 31, 2023 and $0.1 million at March 31, 2022. Loans receivable were paid in full during the third quarter of $4,0322022 and $71,184 at June 30, 2022the corresponding reserve for loan loss was reversed.

4.    Prepaid Expenses and Other Current Assets
At March 31, 2023 and December 31, 2021, respectively.

NOTE 5 –PREPAID EXPENSES AND OTHER CURRENT ASSETS

At June 30, 2022, and December 31, 2021, the Company’s prepaid expenses and other current assets consistedconsists of the following:

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

  June 30,  December 31, 
  2022  2021 
Prepaid expenses $358,585  $83,975 
Preopening expenses  50   602 
Other receivables  236,805   1,704,751 
Prepaid and Other Current Assets $595,440  $1,789,328 

20

As of
March 31, 2023December 31, 2022
$’000$’000
Prepaid expenses189 89 
Other receivables17 228 
Prepaid and Other Current Assets206 317 

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 5 –PREPAID EXPENSES AND OTHER CURRENT ASSETS, continued

Prepaid

Included in prepaid and other current assets at June 30, 2022is a receivable of $17.0 thousand and $0.2 million as of March 31, 2023 and December 31, 2022, respectively. The receivable reduced Labor expense for 2021 included a receivable of $236,805 and $1,704,751, respectively,in Restaurant operating expenses, related to the employee retention tax credits receivable from the Internal Revenue Services (“IRS”) that was made available to companies effected by Covid-19.COVID-19. The Company started to early access the credit in the fourth quarter of 2021 as allowed by the IRS.
5.    Deposit On Farmland
At December 31, 2022, the Company's deposit on farmland balance was $4.9 million. At March 31, 2023, the Company gave an additional $0.1 million deposit, totaling $5.0 million deposit on farmland balance. Deposit on farmland consists of
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Muscle Maker, Inc.
Notes to the Condensed

NOTE 6 – PROPERTY AND EQUIPMENT, NET

Consolidated Financial Statements (Unaudited)

funds paid as a deposit with the intent to acquire farmland in Africa by our Sadot subsidiary. The Company has entered into a letter of intent with a deposit to purchase undeveloped farmland. The Company is still in final negotiations with the intent to finalize the agreement by the end of the second quarter of 2023.
6.    Property and Equipment, Net
As of June 30, 2022March 31, 2023 and December 31, 2021, property2022, Property and equipment consist of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT, NET

  June 30,  December 31, 
  2022  2021 
       
Furniture and equipment $1,321,638  $1,397,098 
Vehicles  55,000   55,000 
Leasehold improvements  1,918,104   1,981,019 
Property and equipment, gross  3,294,742   3,433,117 
Less: accumulated depreciation and amortization  (1,270,955)  (1,152,850)
Property and equipment, net $2,023,787  $2,280,267 

As of
March 31, 2023December 31, 2022
$’000$’000
Furniture and equipment1,312 1,266 
Vehicles55 55 
Leasehold improvements2,102 2,062 
Construction in process27 5 
Property and equipment, gross3,496 3,388 
Less: accumulated depreciation(1,816)(1,493)
Property and equipment, net1,680 1,895 
Depreciation expense amounted to $133,259$0.3 million and $256,506$0.1 million for the three and six months ended June 30,March 31, 2023 and 2022, respectively. Depreciation expense amounted to $135,243 and $288,765 for the three and six months ended June 30, 2021, respectively. During the three and six months ended June 30,March 31, 2023 there were no write off's related to Property and equipment. For the three months ended March 31, 2022, the Company wrote off propertyProperty and equipment with an original cost value of $36,699 and $421,374, respectively,$0.4 million, related to closed locations and future locations that were terminated due to the economic environment as a result of COVID-19 and recorded a loss on disposal of $26,936increased Labor and $266,573, respectively, after accumulated depreciation of $9,764 and $138,402, respectively, in the condensed consolidated statement of operations.

During the three and six months ended June 30, 2021, the Company wrote off property and equipment with an originalFood 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$0.2 million, after accumulated depreciation of $0 and $62,286$0.1 million, in the unaudited condensed consolidated statementUnaudited Condensed Consolidated Statement of operations.

21
Operations.

7.    Goodwill and Other Intangible Assets, Net
The Company’s intangible assets include trademarks, franchisee agreements, franchise license, domain names, customer list, proprietary recipes and non-compete agreements. Intangible assets are amortized over useful lives ranging from 2 to 13 years.
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Muscle Maker, Inc.
MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to the CondensedConsolidated Financial Statements (Unaudited)

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Intangible Assets

A summary of the intangible assets is presented below:

SCHEDULE OF INTANGIBLE ASSETS

Intangible Assets 

Intangible

assets, net at

December 31,

2021

  Acquisitions  Impairment of intangible assets  Amortization expense  

Intangible

assets, net at

June 30,

2022

 
Trademark Muscle Maker Grill $         1,525,653  $-  $-  $(252,186) $       1,273,467 
Franchise Agreements  162,439            -           -   (13,280)  149,159 
Trademark SuperFit  38,075   -   -   (4,461)  33,614 
Domain Name SuperFit  105,764   -   -   (12,390)  93,374 
Customer List SuperFit  118,455   -   -   (13,877)  104,578 
Proprietary Recipes SuperFit  135,378   -   -   (15,860)  119,518 
Non-Compete Agreement SuperFit  193,339   -   -   (42,938)  150,401 
Trademark Pokemoto  152,862   -   -   (17,347)  135,515 
Franchisee License Pokemoto  2,599,473   -   -   (137,534)  2,461,939 
Proprietary Recipes Pokemoto  1,027,916   -   -   (79,988)  947,928 
Non-Compete Agreement Pokemoto  328,110   -   -   (119,014)  209,096 
                     
  $6,387,464  $-  $-  $(708,875) $5,678,589 

Intangible Assets, continued

Intangible
assets,
net at
December 31,
2021		Impairment of
intangible assets		Amortization
expense		Intangible
assets,
net at
March 31,
2022		Intangible
assets,
net at
December 31,
2022		Impairment of
intangible assets		Amortization
expense		Intangible
assets,
net at
March 31,
2023
$’000$’000$’000$’000$’000$’000$’000$’000
Trademark Muscle Maker Grill1,526 — (125)1,401 670 — (83)587 
Franchise Agreements Muscle Maker Grill162 — (6)156 136 — (7)129 
Trademark SuperFit38 — (2)36 29 — (2)27 
Domain Name SuperFit106 — (6)100 81 — (6)75 
Customer List SuperFit118 — (7)111 90 — (7)83 
Proprietary Recipes SuperFit135 — (8)127 103 — (8)95 
Non-Compete Agreement SuperFit193 — (21)172 107 — (21)86 
Trademark Pokemoto153 — (9)144 118 — (9)109 
Franchisee License Pokemoto2,599 — (68)2,531 2,322 — (68)2,254 
Proprietary Recipes Pokemoto1,028 — (40)988 867 — (40)827 
Non-Compete Agreement Pokemoto328 — (59)269 88 — (59)29 
6,386 — (351)6,035 4,611 — (310)4,301 
Amortization expense related to intangible assets was $356,395$0.3 million and $708,875$0.4 million for the three and six months ended June 30,March 31, 2023 and 2022, respectively. Amortization expense related
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Muscle Maker, Inc.
Notes to intangible assets was $149,403 and $165,009 for the three and six months ended June 30, 2021, respectively.Condensed

Consolidated Financial Statements (Unaudited)

The estimated future amortization expense is as follows:

SCHEDULE OF FUTURE AMORTIZATION EXPENSE

For the six months ended June 30, 2023  2024  2025  2026  2027  Thereafter  Total 
Trademark Muscle Maker Grill $508,551  $509,944  $254,972  $-  $-  $-  $1,273,467 
Franchise Agreements  26,780   26,853   26,780   26,780   26,780   15,186   149,159 
Trademark SuperFit  8,995   9,020   8,995   6,604   -   -   33,614 
Domain Name SuperFit  24,986   25,055   24,986   18,347   -   -   93,374 
Customer List SuperFit  27,985   28,061   27,985   20,547   -   -   104,578 
Proprietary Recipes SuperFit  31,982   32,070   31,982   23,484   -   -   119,518 
Non-Compete Agreement SuperFit  86,588   63,813   -   -   -   -   150,401 
Trademark Pokemoto  34,981   35,077   34,981   30,476   -   -   135,515 
Franchisee License Pokemoto  277,348   278,108   277,348   277,348   277,348   1,074,439   2,461,939 
Proprietary Recipes Pokemoto  161,302   161,744   161,302   161,302   161,302   140,974   947,928 
Non-Compete Agreement Pokemoto  209,096   -   -   -   -   -   209,096 
                             
Total $1,398,594  $1,169,745  $849,331  $564,888  $465,430  $1,230,601  $5,678,589 

Three Months Ended March 31,
20242025202620272028ThereafterTotal
$’000$’000$’000$’000$’000$’000$’000
Trademark Muscle Maker Grill252 335 — — — — 587 
Franchise Agreements Muscle Maker Grill20 27 27 27 27 1 129 
Trademark SuperFit7 9 9 2 — — 27 
Domain Name SuperFit19 25 25 6 — — 75 
Customer List SuperFit21 28 28 6 — — 83 
Proprietary Recipes SuperFit24 32 32 7 — — 95 
Non-Compete Agreement SuperFit65 21 — — — — 86 
Trademark Pokemoto26 35 35 13 — — 109 
Franchisee License Pokemoto209 278 277 277 277 936 2,254 
Proprietary Recipes Pokemoto122 162 161 161 161 60 827 
Non-Compete Agreement Pokemoto29 — — — — — 29 
794 952 594 499 465 997 4,301 
The Company determined that no impairment testing of the Company’s intangible assets was not deemed necessaryrequired as of June 30, 2022.March 31, 2023. Therefore, no impairment charge is required.

22
was recorded.

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET, continued

Goodwill

A summary of the goodwill assets is presented below:

SCHEDULE OF GOODWILL ASSETS

Goodwill Muscle Maker Grill  Pokemoto  SuperFit Food  Total 
Goodwill, net at December 31, 2021 $570,000  $1,798,399  $258,000  $2,626,399 
Impairment of goodwill ��-   -   -   - 
Goodwill, net at June 30, 2022 $570,000  $1,798,399  $258,000  $2,626,399 

Muscle Maker GrillPokemotoSuperFit FoodTotal
$’000$’000$’000$’000
Goodwill, net at December 31 2021570 1,798 258 2,626 
Impairment of goodwill— — — — 
Goodwill, net at March 31, 2022570 1,798 258 2,626 
Goodwill, net at December 31 2022570 1,798 258 2,626 
Impairment of goodwill— — — — 
Goodwill, net at March 31, 2023570 1,798 258 2,626 
The Company determined that no impairment testing of the Company’s goodwill was not deemed necessaryrequired as of June 30, 2022.March 31, 2023. Therefore, no impairment charge is required.was recorded.
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Muscle Maker, Inc.
Notes to the Condensed

NOTE 8 – ACCOUNTS PAYABLES AND ACCRUED EXPENSESConsolidated Financial Statements (Unaudited)

8.    Accounts Payables and Accrued Expenses
Accounts payables and accrued expenses consist of the following:

As of
March 31, 2023December 31, 2022
$’000$’000
Accounts payable699 1,085 
Accrued payroll and bonuses102 551 
Accrued expenses102 87 
Accrued professional fees73 185 
Accounts payable commodities34,830 — 
Sales taxes payable (1)
57 45 
35,863 1,953 
SCHEDULE OF ACCOUNTS PAYABLES AND ACCRUED EXPENSES(1)

  June 30,  December 31, 
  2022  2021 
Accounts payable $1,003,900  $734,688 
Accrued payroll  157,122   758,732 
Accrued professional fees  86,361   185,872 
Accrued board members fees  28,496   57,573 
Accrued rent expense  218,112   176,727 
Accrued compensation expense  -   36,600 
Sales taxes payable (1)  56,184   125,550 
Accrued interest  -   28,426 
Other accrued expenses  47,000   104,355 
Total Accounts Payable and Accrued Expenses $1,597,175  $2,208,523 

(1)See Note 14 – Commitments and Contingencies –Taxes for detailed related to delinquent sales taxes.

NOTE 9See Note 15 – Commitments and contingencies for details related to delinquent sales taxes.

CONVERTIBLE NOTE PAYABLE TO FORMER PARENT

9.    Accrued Stock-Based Consulting Expenses Due to Related Party
At March 31, 2023, Accrued stock-based consulting expenses due to related party was $3.4 million. At December 31, 2022, Accrued stock-based consulting expenses was $3.6 million. Accrued stock-based consulting expenses are related to consulting fees due to our newly established related party, Aggia, for Sadot operations. See Note 18 – Related party transactions for details. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 80.0% of the Net income generated by the Sadot business segment. For the three months ended March 31, 2023, $3.4 million are also recorded as Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations. The Stock-based consulting expense that is due to related party is expected to be paid in stock in 2023.
10.    Notes Payable
Convertible Notes Payable
On April 6, 2018, the Company issued a $475,000$0.5 million convertible promissory note (the “2018 ARH Note”) to the Former Parent for services rendered and expense paid on behalf of the Company. The 2018 ARH Note has no stated interest rate or maturity date and is convertible into shares of the Company’s common stock at a conversion price of $3.50$3.50 per share at a time to be determined by the lender.

On April 11, 2018, the Former Parent elected to partially convert the 2018 ARH Note for the principal of $392,542$0.4 million into 112,1540.1 million shares of the Company’s common stock.

The Company had an aggregate gross amount of $82,458,$0.1 million and $0.1 million of convertible notes payable as of June 30, 2022March 31, 2023 and December 31, 2021, respectively,2022 included in convertible notes payable to Former Parent outstanding.

23
on the Unaudited Condensed Consolidated Balance Sheets.

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 10 –NOTES PAYABLE

Convertible Notes

As of June 30, 2022 and December 31, 2021, the Company has convertible note payable in the amount of $50,000 and $100,000 which is included within convertible notes payable. See Note 14 – Commitments and Contingencies – Litigation, Claims and Assessments for details related to the convertible note payable.

Other Notes Payable

On October 10, 2019, the Company issued a note payable in connection with the acquisition of the franchisee location in the amount of $300,000. The note has a stated interest rate of 8% with monthly payments payable over 5 years.

On May 9, 2020, the Company entered into a Paycheck Protection Program Promissory Note and Agreement with Greater Nevada Credit Union, pursuant to which the Company received loan proceeds of $866,300 (the “PPP Loan”). The PPP Loan was made under, and is subject to the terms and conditions of, the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration.

On June 21, 2021, the U.S. Small Business Administration (the “SBA”) forgave the Company’s first Paycheck Promissory Note (“PPP loan”) entered into on May 9, 2020. The aggregate amount forgiven is $875,974, consisting of $866,300 in principal and $9,674 in interest expenses. The forgiven amount was accounted for as a gain on debt extinguishment of $875,974 and was recorded in our condensed consolidated statement of operations.

During the year ended December 31, 2021, as part of the Pokemoto acquisition, the Company acquired $1,171,400 loans issued by the Small Business Administration under its Economic Injury Disaster Loans (“EIDL”). The Company repaid all the loans in full during the year ended December 31, 2021.

During the year ended December 31, 2021, as part of the Pokemoto acquisition the Company acquired $291,053 in paycheck protection loans second draw (the “PPP 2 Loan”). The SBA forgave $0 and $139,877 in principal and $0 and $1,402 in interest expense during the three and six months ended June 30,March 31, 2023 and 2022, respectively.

During the six months ended June 30, 2022 and 2021, the Company repaid a total amount of $63,456$0.1 million and $1,221,071,$1.3 million, respectively, of the other notes payable.

As of June 30, 2022,March 31, 2023, the Company had an aggregate amount of $965,344$0.9 million in other notes payable. The notes had interest rates ranging between 1%3.75% - 8%8.00% per annum, due on various dates through May 2026.2027.
20
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Muscle Maker, Inc.
Notes to the Condensed

Consolidated Financial Statements (Unaudited)

The maturities of other notes payable as of June 30, 2022,March 31, 2023, are as follows:

SCHEDULE OF MATURITIES OF OTHER NOTES PAYABLE

  Principal 
Repayments due as of Amount 
06/30/2023 $127,062 
06/30/2024  143,887 
06/30/2025  110,200 
06/30/2026  584,195 
Thereafter  - 
Long term debt $965,344 

24

Principal Amount
$’000
2023225 
2024121 
202570 
2026531 
Thereafter— 
947 

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 11 –LEASES

The Company adopted Topic 842 as of January 1, 2022.

11.    Leases
The Company’s leases consist of restaurant locations. We determine if a contract contains a lease at inception. The leaseleases generally hashave remaining terms of 1-10 years and most leaseleases included the option to extend the lease for an additional 5-year period.

5 years.

The total lease cost associated with right of use assets and operating lease liabilities for the three and six months ended June 30, 2022,March 31, 2023, was $242,263 and $483,851$0.1 million and has been recorded in the condensed consolidated statementUnaudited Condensed Consolidated Statement of operationsOperations as rentRent expense within restaurantRestaurant operating expenses.

As of June 30, 2022,

The assets and liabilities related to the Company’s leases were as follows:

As of
March 31, 2023December 31, 2022
$’000$’000
Assets
Right to use asset2,189 2,433 
Liabilities
Operating leases – current505 560 
Operating leases – non-current1,800 2,019 
Total lease liabilities2,305 2,579 
21
SCHEDULE OF OPERATING LEASE ASSETS AND LIABILITIES

  June 30, 
  2022 
Assets    
Right to use asset $2,536,932 
Total lease assets $2,536,932 
     
Liabilities    
Current:    
Operating leases $561,623 
Noncurrent:    
Operating leases  2,129,600 
Total Lease liabilities $2,691,223 

AsTable of June 30, 2022,Contents

Muscle Maker, Inc.
Notes to the Company’s lease liabilities mature as follows:Condensed

SCHEDULE OF OPERATING LEASE LIABILITY MATURITY

  Operating Leases 
Fiscal Year:    
Remainder of 2022 $453,251 
2023  770,701 
2024  714,063 
2025  579,602 
2026  368,586 
Thereafter  778,328 
Total lease payments $3,664,531 
Less imputed interest  (973,308)
Present value of lease liabilities $2,691,223 

Consolidated Financial Statements (Unaudited)

The table below presents the future minimum lease payments under the noncancellable operating leases as of March 31, 2023:
Operating Leases
$’000
Fiscal Year:
2023565 
2024706 
2025556 
2026386 
2027300 
2028222 
Thereafter368 
Total lease payments3,103 
Less imputed interest(798)
Present value of lease liabilities2,305 
The Company’s lease term and discount rates were as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

June 30,
2022As of March 31, 2023
Weighted-average remaining lease term (in year)years)
Operating leases5.25.01
Weighted-average discount rate
Operating leases12.0 12%

25

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 12 – DEFERRED REVENUE

At June 30, 2022 and December 31, 2021,

12.    Deferred Revenue
The Company's deferred revenue consists of the following:
As of
 March 31, 2023December 31, 2022
$’000$’000
Deferred revenues, net1,318 1,371 
Less: deferred revenue, current(90)(95)
Deferred revenues, non-current1,228 1,276 
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Muscle Maker, Inc.
Notes to the CondensedSCHEDULE OF DEFERRED REVENUEConsolidated Financial Statements (Unaudited)

  June 30,  December 31, 
  2022  2021 
Deferred revenues, net $1,291,668  $1,063,373 
Less: Deferred revenues, current  (83,114)  (49,728)
Deferred revenues, non-current $1,208,524  $1,013,645 

NOTE 13 – OTHER CURRENT LIABILITIES

13.    Other Current Liabilities
Other current liabilities consist of the following:

SCHEDULE OF OTHER CURRENT LIABILITIES

  June 30,  December 31, 
  2022  2021 
Gift card liability $27,999  $27,633 
Co-op advertising fund liability  69,185   126,564 
Advertising fund liability  98,245   131,891 
Other current liabilities $195,429  $286,088 

As of
March 31, 2023December 31, 2022
$’000$’000
Gift card liability26 25 
Co-op advertising fund liability87 79 
Marketing development brand liability41 35 
Advertising fund liability41 43 
195 182 
See Note 2 – Significant Accounting Policies – Revenue Recognitionaccounting policies for details related to the gift card liability and advertising fund liability.
14.    Income Taxes
The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of March 31, 2023 and December 31, 2022 are presented below:
As of
March 31, 2023December 31, 2022
$’000$’000
Deferred tax assets:
Net operating loss carryforwards10,693 10,615 
Receivable allowance6 5 
Stock-based compensation313 15 
Intangible assets38 314 
Deferred revenues273 204 
Leases25 32 
Gross deferred tax asset11,348 11,185 
Deferred tax liabilities:
Property and equipment(103)(160)
Gross deferred tax liabilities(103)(160)
Net deferred tax assets11,246 11,025 
Valuation allowance(11,246)(11,025)
Net deferred tax asset, net of valuation allowance— — 
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Muscle Maker, Inc.
Notes to the Condensed

NOTEConsolidated Financial Statements (Unaudited)

The income tax expense for the periods shown consist of the following:
As of
March 31, 2023December 31, 2022
$’000$’000
Federal:
Current— — 
Deferred— — 
State and local:
Current3 25 
Deferred— — 
3 25 
Change in valuation allowance— — 
Income tax expense3 25 
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the periods shown, are as follows:
As of
March 31, 2023December 31, 2022
Federal income tax benefit at statutory rate21.0 %21.0 %
State income tax benefit, net of federal impact(0.2)%(0.5)%
Permanent differences(1.9)%(0.1)%
PPP loan forgiveness— %0.4 %
Return to provision adjustments— %3.3 %
Deferred tax asset true up- State— %(14.5)%
Deferred tax asset true up- Federal— %(6.8)%
Other0.1 %— %
Change in valuation allowance(20.7)%(3.3)%
Effective income tax rate(1.7)%(0.5)%
The Company has filing obligations in what it considers its U.S. major tax jurisdictions as follows: Nevada, California, Connecticut, Florida, New Jersey, Texas, Virginia, New York State and New York City. The earliest year that the Company is subject to examination is the year ended December 31, 2015.
The Company has approximately $63.6 million of Federal and State Net operating loss (“NOLs”) available to offset future taxable income. The net operating loss carryforwards generated prior to 2018, if not utilized, will expire from 2035 to 2037 for federal and state purposes.
As of March 31, 2023 and December 31, 2022, the Company has determined that it is more likely than not that the Company will not recognize the future tax benefit of the loss carryforwards and has recognized a valuation allowance of $11.2 million and $11.0 million, respectively. The valuation allowance increased by approximately $0.2 million.
Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5 percent stockholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36-month time period testing period or beginning the day after the most recent ownership change, if shorter.
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Table of Contents
Muscle Maker, Inc.
Notes to the CondensedConsolidated Financial Statements (Unaudited)
15.    Commitments and Contingencies
Consulting Agreements
On November 14, – 2022 (the “Effective Date”), the Company, Sadot and Aggia entered into a Services Agreement (the “Services Agreement”) whereby Sadot engaged Aggia to provide certain advisory services to Sadot for creating, acquiring and managing Sadot’s business of wholesaling food and engaging in the purchase and sale of physical food commodities.
As consideration for Aggia providing the services to Sadot, the Company agreed to issue shares of common stock of the Company, par value $0.0001 per share, to Aggia subject to Sadot generating net income measured on a quarterly basis at per share price of $1.5625, subject to equitable adjustments for any combinations or splits of the common stock occurring following the Effective Date. Upon Sadot generating net income for any fiscal quarter, the Company shall issue Aggia a number of shares of common stock equal to the net income for such fiscal quarter divided by the per share price (the “Shares”). The Company may only issue authorized, unreserved shares of common stock. The Company will not issue Aggia in excess of 14.4 million shares representing 49.9% of the number of issued and outstanding shares of common stock as of the Effective Date. Further, once Aggia has been issued a number of shares constituting 19.99% of the issued and outstanding shares of common stock of the Company, no additional shares shall be issued to Aggia unless and until this transaction has been approved by the shareholders of the Company. The shareholders approved the Services Agreement on February 28, 2023. In the event that the shares cap has been reached, then the remaining portion of the net income, if any, not issued as shares shall accrue as debt payable by Sadot to Aggia until such debt has reached a maximum of $71.5 million. The Company will prepare the shares earned calculation after the annual audit or quarter review is completed by the auditors. The shares will be issued within 10 days of the final calculation.
COMMITMENTS AND CONTINGENCIES

Additionally, for the three months ended March 31, 2023, the Company reimbursed Aggia for all operating costs related to Sadot including labor, operating and general administrative expenses of $0.6 million, $0.2 million and $0.1 million, respectively.
Franchising

During the three and six months ended June 30,March 31, 2023 and 2022, the Company entered into a various Pokemoto franchise agreementagreements for a total of four5 and seventeen11, respectively, potentially new Pokemoto locations with various franchisees. The franchiseesFranchisees paid the Company an aggregate of $52,500$0.1 million and $292,500 for the three and six months ended June 30, 2022, respectively,$0.2 million and this has been recorded in deferred revenue as of June 30, 2022.March 31, 2023 and 2022, respectively.
Master Franchise Agreement
On October 25, 2021, Muscle Maker Development International LLC (“MMDI”), a wholly-owned subsidiary of Muscle Maker Inc., entered into a Master Franchise Agreement (the “Master Franchise Agreement”) with Almatrouk Catering Company – OPC (“ACC”) providing ACC with the right to grant franchises for the development of 40 “Muscle Maker Grill” restaurants through December 31, 2030 (the “Term”) in the Kingdom of Saudi Arabia (“KSA”).
Under the Master Franchise Agreement, MMDI has granted to ACC an exclusive right to establish and operate Muscle Maker restaurants in the KSA. MMDI will not own or operate restaurants in KSA, grant franchises for the restaurants in KSA, or grant Master Franchise Rights for the restaurants to other persons within the KSA. ACC will be solely responsible for the development, sales, marketing, operations, distribution and training of all franchise locations sold in the KSA.
ACC is required to pay MMDI $0.2 million pursuant to the Master Franchise Agreement upon the occurrence of various events. ACC is required to pay MMDI $20.0 thousand upon the execution of each franchise agreement for each individual restaurant and a monthly royalty fee of $1.0 thousand for each restaurant. Further, ACC is to adhere to the agreed upon development schedule as outlined in the master franchise agreement. An initial $20.0 thousand deposit was paid on the agreement and no other amount is due at this time. ACC has not performed against this agreement.
Taxes
The Company failed in certain instances in paying past state and local sales taxes collected from customers in specific states that impose a tax on sales of the Company’s products during 2017 and 2018. As of the second quarter 2022, all past
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Muscle Maker, Inc.
Notes to the Condensed

Consolidated Financial Statements (Unaudited)

due tax on sales from 2017 and 2018 has been paid in full. The Company had accrued a sales tax liability for approximately $0.1 million and $44.6 thousand as of March 31, 2023, and December 31, 2022, respectively. All current state and local sales taxes from January 1, 2018, for open Company-owned locations have been fully paid and in a timely manner. The Company has completed all the payment plans with the various state or local entities for these past owed amounts.
Litigations, Claims and Assessments

On April 24, 2022, the Company and a convertible note holder entered into an agreement in which the Company will repay a total of $110,000$0.1 million in connection with the default judgement issued on June 22, 2018, by the Iowa District Court for Polk County #CVCV056029, filed against the Company for failure to pay the remaining balance due on a promissory note in the amount of $100,000,$0.1 million, together with interest, attorney fees and other costs of $171,035.The$0.2 million. The Company agreed to pay $40,000$40.0 thousand on or before May 1, 20202022 and to make seven installment payments of $10,000$10.0 thousand per month starting on or before June 1, 2022. As of JuneDecember 30, 2022, the Company has accrued for the liabilityhad paid this note in convertible notes payable in the amount of $50,000 which is included in accounts payable and accrued expenses.

full.

On or about March 7, 2019, the Company was listed as a defendant to a lawsuit filed by a contractor in the State of Texas in El Paso County #2019DCV0824. The contractor is claiming a breach of contract and is seeking approximately $32,809$33.0 thousand in damages for services claimed to be rendered by the contractor. As of December 31, 2021, theThe Company accrued $30,000$30.0 thousand for the liability in accounts payable and accrued expenses.

26
expenses as of March 31, 2023 and December 31, 2022.

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued

Litigations, Claims and Assessments, continued

On January 23, 2020, the Company was served a judgment issued by the Judicial Council of California in the amount of $130,185$0.1 million for a breach of a lease agreement in Chicago, Illinois, in connection with a Company-owned store that was closed in 2018. As of June 30,March 31, 2023 and December 31, 2022, the Company has accrued for the liability in accounts payable and accrued expenses.

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

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

Employment Agreements

On January 2,November 16, 2022, the Company appointed Jennifer Black as Chief Financial Officer of the Company and entered into an Offer Letter with Ms. Black. Pursuant to the Offer Letter, Ms. Black will be employed as Chief Financial Officer of the Company on an at-will basis. Ms. Black is entitled to a base salary at the annualized rate of $190,000. The Company’s previous CFO, Ferdinand Groenewald, will remain and was appointed as the Chief Accounting Officer of the Company. The Company issued Ms. Black 20,000 shares of common stock upon completion of 90 days of employment. Ms. Black is entitled to receive stock options to acquire 20,000 shares of common stock subject to the approval of the Board of Directors and Compensation Committee and the terms and conditions will be subject to entering into a stock option agreement. See Note 16 – Equity – Common Stock and Options for details related to the issuance of the shares of common stock and stock options.

On February 10, 2022,, the Company entered into an Executive Employment Agreement with Michael Roper effective February 14, 2022,(the “Roper Agreement”), which replaced his prior employment agreement. Pursuant to the EmploymentRoper Agreement, Mr. Roper will continue to be employed as Chief Executive Officer of the Company on an at will basis.at-will-basis. During the term of the EmploymentRoper Agreement, Mr. Roper is entitled to a base salary at the annualized rate of $350,000, will be increased to $375,000 upon the one-year anniversary.$0.4 million. Mr. Roper will be eligible for a discretionary performance bonus to be paid in cash or equity. Within 90 daysdetermined by the Board annually. Further, Mr. Roper will be entitled to an additional bonus of $0.1 million upon the Company obtaining approval of the effective date,Shareholder Matters and $25.0 thousand upon the Company issuedDesignated Directors representing a majority of the Board of Directors. If Mr. Roper stock optionsis terminated for any reason, he will be entitled to receive 100,000 sharesaccrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of commonthe term applicable to such stock which vest over a term of five years.option. If Mr. Roper is terminated by the Company for any reason other than cause including termination without cause in connection withor resigns for a change in control,good reason, Mr. Roper will be entitled to a severance package of 18payment equal to 36 months of salary, which will be reduced to 18 months following the second anniversary of the Roper Agreement, and healthall equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Roper Agreement will automatically terminate and dental benefits paidthe prior employment agreement will again be in accordancefull effect.

On March 21, 2023, the Company entered into an Executive Employment Agreement with the Company’s payroll schedule, but subjectJennifer Black (the “Black Agreement”), which replaced her prior employment agreement. Pursuant to the execution of a valid release in favor of the Company and its related parties. See Note 16 – Equity – Options for details related to the issuance of the stock options.

On February 10, 2022, the Company and Kevin Mohan, Chief Investment Officer, entered a letter agreement providing that Mr. MohanBlack Agreement, Ms. Black will continue to be engaged byemployed as Chief Financial Officer of the Company on an at-will basis withat-will-basis. During the term of the Black Agreement, Ms. Black is entitled to a base salary at the annualized rate of $$0.2 million. Ms. Black will be eligible for a discretionary performance bonus up to 50% of her annual salary. Further, Ms. Black will be entitled to an additional bonus of $0.1 million upon the Company obtaining approval of the Shareholder Matters and $25.0 thousand upon the Designated Directors representing a majority of the Board of Directors. If Ms. Black is terminated for any reason, she will be entitled to receive accrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to

26
200,000Table of Contents effective February 14, 2022.
Muscle Maker, Inc.
Notes to the CondensedConsolidated Financial Statements (Unaudited)
exercise any equity compensation rights through the last day of the term applicable to such stock option. If Ms. Black is terminated by the Company for any reason other than cause or resigns for a good reason, Ms. Black will be entitled to a severance payment equal to 36 months of salary, which will be reduced to six months following the second anniversary of the Black Agreement, and all equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Black Agreement will automatically terminate and the prior employment agreement will again be in full effect.
On November 16, 2022, the Company entered into an Executive Employment Agreement with Kenneth Miller (the “Miller Agreement”), which replaced his prior employment agreement. Pursuant to the Miller Agreement, Mr. Miller will continue to be employed as Chief Operating Officer of the Company on an at-will-basis. During the term of the Miller Agreement, Mr. Miller is entitled to a base salary at the annualized rate of $0.3 million. Mr. Miller will be eligible for a discretionary performance bonus up to 75% of his annual salary. Further, Mr. Miller will be entitled to an additional bonus of $25.0 thousand upon the Designated Directors representing a majority of the Board of Directors. If Mr. Miller is terminated for any reason, he will be entitled to receive accrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of the term applicable to such stock option. If Mr. Miller is terminated by the Company for any reason other than cause or resigns for a good reason, Mr. Miller will be entitled to a severance payment equal to 36 months of salary, which will be reduced to 12 months following the second anniversary of the Miller Agreement, and all equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Miller Agreement will automatically terminate and the prior employment agreement will again be in full effect.
On November 16, 2022, the Company entered into an Executive Employment Agreement with Kevin Mohan (the “Mohan Agreement”), which replaced his prior employment agreement. Pursuant to the Mohan Agreement, Mr. Mohan will continue to be employed as Chief Investment Officer of the Company on an at-will-basis. During the term of the Employment Agreement, Mr. Mohan is entitled to a base salary at the annualized rate of $0.2 million. Mr. Mohan will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 75%75% of his annual salary. Within 90 daysFurther, Mr. Mohan will be entitled to an additional bonus of $0.1 million upon the Company obtaining approval of the effective date,Shareholder Matters and $25.0 thousand upon the Company issuedDesignated Directors representing a majority of the Board of Directors. If Mr. Mohan stock optionsis terminated for any reason, he will be entitled to receive 75,000 sharesaccrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of commonthe term applicable to such stock which vest over a term of five years.option. If Mr. Mohan is terminated by the Company for any reason other than cause including termination without cause in connection withor resigns for a change in control, hegood reason, Mr. Mohan will be entitled to a severance package of sixpayment equal to 36 months of salary, and health and dental benefits paid in accordance withwhich will be reduced to six months following the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favorsecond anniversary of the CompanyMohan Agreement, and its related parties. See Noteall equity compensation shall be fully accelerated. In the event the Shareholder Matters are not approved by the shareholders, the Mohan Agreement will automatically terminate and the prior employment agreement will again be in full effect.
On November 16, – Equity – Options for details related to the issuance of the stock options.

27

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued

Employment Agreements, continued

On February 9, 2022, the Company and Kenn Miller, Chief Operations Officer, entered a letter agreement providing that Mr. Millerinto an Executive Employment Agreement with Aimee Infante (the “Infante Agreement”), which replaced her prior employment agreement. Pursuant to the Infante Agreement, Ms. Infante will continue to be engaged byemployed as Chief Marketing Officer of the Company on an at-will basis withat-will-basis. During the term of the Infante Agreement, Ms. Infante is entitled to a base salary at the annualized rate of $275,000 effective February 14, 2022. Mr. Miller will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 75% of his salary. Within 90 days of the effective date, the Company issued Mr. Miller stock options to receive 50,000 shares of common stock which vest over a term of five years. If Mr. Miller is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a severance package of 12 months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 16 – Equity – Options for details related to the issuance of the stock options.

On February 9, 2022, the Company and Aimee Infante, Chief Marketing Officer, entered a letter agreement providing that Ms. Infante will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $175,000 effective February 14, 2022.$0.2 million. Ms. Infante will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 25%25% of her annual salary. Within 90 daysFurther, Ms. Infante will be entitled to an additional bonus of $25.0 thousand upon the Designated Directors representing a majority of the effective date, the Company issuedBoard of Directors. If Ms. Infante stock optionsis terminated for any reason, she will be entitled to receive 42,500 sharesaccrued salary and vacation pay, accrued bonus payments, all expense reimbursements and shall be entitled to exercise any equity compensation rights through the last day of commonthe term applicable to such stock which vest over a term of five years.option. If Ms. Infante is terminated by the Company for any reason other than cause including termination without cause in connection withor resigns for a change in control, shegood reason, Ms. Infante will be entitled to a severance package of sixpayment equal to 36 months of salary, and health and dental benefits paid in accordance withwhich will be reduced to six months following the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favorsecond anniversary of the Company and its related parties. See Note 16 – Equity – Options for details related to the issuance of the stock options.

On February 9, 2022, the Company and Ferdinand Groenewald, Chief Accounting Officer, entered a letter agreement providing that Mr. Groenewald will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $175,000 effective February 14, 2022. Mr. Groenewald will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 25% of his salary. Within 90 days of the effective date, the Company issued Mr. Groenewald stock options to receive 25,000 shares of common stock which vest over a term of five years. If Mr. Groenewald is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 16 – Equity – Options for details related to the issuance of the stock options.

Departure of Officer

On June 21, 2022, the Company advised Ferdinand Groenewald that the position of Chief Accounting Officer has been eliminated. Mr. Groenewald has agreed to continue his employment with the Company through July 29, 2022, at which time he became entitled to the severance for termination without cause as outlined in the letter agreement between the Company and Mr. Groenewald dated February 9, 2022.

Nasdaq Notice

On February 1, 2022, the Company received notice from The Nasdaq Stock Market (“Nasdaq”) that the closing bid price for the Company’s common stock had been below $1.00 per share for the previous 30 consecutive business days, and that the Company is therefore not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Rule”).

Nasdaq’s notice has no immediate effect on the listing or trading of the Company’s common stock on The Nasdaq Capital Market.

28

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 – COMMITMENTS AND CONTINGENCIES, continued

Nasdaq Notice, continued

The notice indicates that the Company will have 180 calendar days, until August 1, 2022, to regain compliance with this requirement. The Company can regain compliance with the $1.00 minimum bid listing requirement if the closing bid price of its common stock is at least $1.00 per share for a minimum of ten (10) consecutive business days during the 180-day compliance period. If the Company does not regain compliance during the initial compliance period, it may be eligible for additional time of 180 calendar days to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of our publicly held sharesInfante Agreement, and all other Nasdaq initial listing standards, except the bid price requirement, and will need to provide written notice to Nasdaq of its intention to cure the deficiency during the second compliance period. If the Company is not eligible or it appears to Nasdaq that the Company will notequity compensation shall be able to cure the deficiency during the second compliance period, Nasdaq will provide written notice to the Company that the Company’s common stock will be subject to delisting.fully accelerated. In the event of such notification, the Company may appeal Nasdaq’s determination to delist its securities, but there can be no assurance that Nasdaq would grantShareholder Matters are not approved by the Company’s request for continued listing.

The Company intends to actively monitorshareholders, the minimum bid price of its common stockInfante Agreement will automatically terminate, and may, as appropriate, consider available options to regain compliance with the Rule. There can be no assurance that the Companyprior employment agreement will be able to regain compliance with the Rule or will otherwiseagain be in compliance with other Nasdaq listing criteria.

full effect.

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Taxes

The Company failed in certain instances in paying past state and local sales taxes collected from customers in specific states that impose a tax on salesTable of the Company’s products during 2017 and 2018. As of the second quarter June 30, 2022, all past due tax on sales from 2017 and 2018 has been paid in full. The Company had accrued a sales tax liability for approximately $56,184Contents and $125,550 as of June 30, 2022, and December 31, 2021, respectively. All current state and local sales taxes from January 1, 2018, for open Company-owned locations have been fully paid and in a timely manner. The Company has completed all the payment plans with the various state or local entities for these past owed amounts.

29

Muscle Maker, Inc.

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to the CondensedConsolidated Financial Statements (Unaudited)

NOTE 15 – REPORTABLE OPERATING SEGMENTS

16.    Reportable Operating Segments
See Note 1 – Business Organizationorganization and Naturenature of Operationsoperations for descriptions of our operating segments.
The following table sets forth the results of operations for the relevant segments for the three months ended March 31, 2023:
For the Three Months Ended March 31, 2023
Restaurant divisionSadot divisionCorporate adj.Total segments
$’000$’000$’000$’000
Revenues:
Commodity sales— 210,366 — 210,366 
Company restaurant sales, net of discounts2,301 — — 2,301 
Franchise royalties and fees284 — — 284 
Franchise advertising fund contributions16 — — 16 
Total revenues2,601 210,366 — 212,967 
Operating Costs and Expenses:
Commodity operating expenses:
Commodity cost— 205,055 — 205,055 
Labor— 620 — 620 
Other commodity operating expenses— 154 — 154 
Total commodity operating expenses— 205,829 — 205,829 
Restaurant operating expenses:
Food and beverage costs839 — — 839 
Labor880 — — 880 
Rent274 — — 274 
Other restaurant operating expenses472 — — 472 
Total restaurant operating expenses2,465 — — 2,465 
Depreciation and amortization expenses316 — 317 633 
Franchise advertising fund expenses16 — — 16 
Pre-opening expenses36 — — 36 
Post-closing expenses93 — 1 94 
Stock-based consulting expenses— — 3,359 3,359 
Sales, general and administrative expenses82 286 1,774 2,142 
Total costs and expenses3,008 206,115 5,451 214,574 
(Loss) / income from operations(407)4,251 (5,451)(1,607)
Other Income:
Interest income / (expense), net2 — 1 3 
Change in fair value of accrued compensation— — 541 541 
Total other income, net2 — 542 544 
(Loss) / Income Before Income Tax(405)4,251 (4,909)(1,063)
Income tax— — 3 3 
Net (loss) / income(405)4,251 (4,912)(1,066)
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Muscle Maker, Inc.
SUMMARY OF OPERATING SEGMENTSNotes to the Condensed

Consolidated Financial Statements (Unaudited)

  2022  2021  2022  2021 
  For The Three Months Ended  For The Six Months Ended 
  June 30,  June 30, 
  2022  2021  2022  2021 
Revenues                
Muscle Maker Grill Division $1,140,721  $1,436,779  $2,412,657  $2,600,455 
Pokemoto Division  1,313,737   571,026   2,472,672   579,878 
Non-traditional (Hybrid) Division  100,042   152,515   228,743   279,671 
SuperFit Foods Division  374,884   544,536   735,770   544,535 
Revenues $2,929,384  $2,704,856  $5,849,842  $4,004,539 
                 
Operating Loss                
Muscle Maker Grill Division $(134,654) $(124,997) $(438,369) $(472,765)
Pokemoto Division  36,327   141,755   58,119   88,908 
Non-Traditional (Hybrid) Division  (224,781)  (187,409)  (269,439)  (482,496)
SuperFit Division  67,940   (11,641)  84,504   (33,835)
Corporate and unallocated G&A expenses (a)  (1,126,857)  (1,994,003)  (2,451,334)  (4,960,639)
Unallocated operating other income (expense) (b)  (356,395)  (149,403)  (708,874)  (165,009)
Operating Loss $(1,738,420) $(2,325,698) $(3,725,393) $(6,025,836)
Gain in debt extinguishment  -   875,974   141,279   875,974 
Interest expense, net  (14,468)  (22,596)  (28,437)  (36,770)
Other non-operating income (expense)  (9,945)  351,181   (33,889)  353,809 
Loss before income taxes $(1,762,833) $(1,121,139) $(3,646,440) $(4,832,823)

(a)

Includes charges related to corporate expense that the Company does not allocate to the respective divisions. For the three months ended June 30, 2022 and 2021, largest portion of this expense relates to payroll, benefits and other compensation expense of $752,416 and $618,482, respectively, professional fees of $143,136 and $1,146,072, respectively and consulting fees of $55,005 and $44,849, respectively. For the six months ended June 30, 2022 and 2021, largest portion of this expense relates to payroll, benefits and other compensation expense of $1,532,134 and $1,826,218, respectively, professional fees of $241,099 and $1,577,237, respectively and consulting fees of $63,650 and $1,082,549, respectively.

(b)This includes amortization of intangible assets. See Note 7.

NOTE 16 – EQUITY

Common Stock

On January 3,

The following table sets forth the results of operations for the relevant segments for the three months ended March 31, 2022:
For the Three Months Ended March 31, 2022
Restaurant divisionSadot divisionCorporate adj.Total segments
$’000$’000$’000$’000
Revenues:
Company restaurant sales, net of discounts2,694 — — 2,694 
Franchise royalties and fees208 — — 208 
Franchise advertising fund contributions18 — — 18 
Total revenues2,920 — — 2,920 
Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs1,026 — — 1,026 
Labor1,073 — — 1,073 
Rent340 — — 340 
Other restaurant operating expenses650 — — 650 
Total restaurant operating expenses3,089 — — 3,089 
Depreciation and amortization expenses119 — 357 476 
Franchise advertising fund expenses18 — — 18 
Sales, general and administrative expenses257 — 1,067 1,324 
Total costs and expenses3,483 — 1,424 4,907 
Loss from operations(563)— (1,424)(1,987)
Other Income:
Other income / (expense)2 — (21)(19)
Interest income / (expense), net3 — (21)(18)
Gain on debt extinguishment140 — — 140 
Total other income, net145 — (42)103 
Loss Before Income Tax(418)— (1,466)(1,884)
Income tax— — 2 2 
Net loss(418)— (1,468)(1,886)
With the creation of our Sadot subsidiary in late 2022, we began to transform from a U.S.-centric restaurant business into a global, food-focused organization with two distinct segments. As a result, we have reevaluated and changed our operating segments during the three months ended March 31, 2023. Previously we split out Muscle Maker Grill, Pokemoto, and SuperFit Foods as their own restaurant operating segments. Since Sadot's operations is primarily in commodities trading and is such a large portion of the Companies business, the Company authorizedsegregated it into its own segment and combined all restaurant operations into a segment.
The Company will continue to evaluate its operating segments and update as necessary.
17.    Equity
Stock Option and Stock Issuance Plan
2021 Plan
The Company’s board of directors and shareholders approved and adopted on October 7, 2021 the issuance2021 Equity Incentive Plan (“2021 Plan”), effective on September 16, 2020 under which stock options and restricted stock may be granted to
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Table of an aggregateContents
Muscle Maker, Inc.
Notes to the CondensedConsolidated Financial Statements (Unaudited)
officers, directors, employees and consultants in the form of 1,200,000non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Under the 2021 Plan, the Company reserved 1.5 million shares of common stock for issuance. As of March 31, 2023, 1.2 million shares have been issued and 0.3 million options to purchase shares have been awarded under the 2021 Plan.
2023 Plan
The Company’s board of directors and shareholders approved and adopted on February 28, 2023 the 2023 Equity Incentive Plan (“2023 Plan”) under which stock options and restricted stock may be granted to officers, directors, employees and consultants in connection with the cashless exerciseform of non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock Units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the Pre-Funded Warrants. Pursuantforegoing. Under the 2023 Plan, the Company reserved 2.5 million shares of common stock for issuance. As of March 31, 2023 no shares have been issued and 68.9 thousand option to purchase shares have been awarded under the terms of the Pre-Funded Warrants a total of 1,200,215 warrants were exercised.

2023 Plan.

Common Stock Issuances
On January 6, 2022, the Company authorized the issuance of an aggregate of 39,57339.6 thousand shares of common stock to the members of the board of directors as compensation earned during the fourthfirst quarter of 2021. 2022. The Company accrued for the liability as of DecemberMarch 31, 2021.

2022.

On January 18, 2022, the Company issued an aggregate of 30,00030.0 thousand shares of common stock of the Company to a consultant that assisted with the acquisition of SuperFit Foods and Pokemoto, with an aggregate fair value amount of $15,600.$15.6 thousand. The Company accrued for the liability as of DecemberMarch 31, 2021.

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2022.

MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 16 – EQUITY, continued

Common Stock

On February 24, 2022, the Company authorized the issuance of an aggregate of 1,209,604 shares of common stock in connection with the cashless exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,210,110 warrants were exercised.

On March 31, 2022, the Company authorized the issuance of an aggregate of 53,9610.1 million shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2022.

On April 4, 2022, the Company authorized the issuance of 20,00020.0 thousand shares of common stock to a member of the executive team per the employment agreement. The stock was not fully earned until April 4, 2022.

On June 8, 2022, the Company authorized the issuance of 5,0005.0 thousand shares of common stock to a contractor for work done at a Company owned location

location.

On June 30, 2022, the Company recognized 30,91030.9 thousand shares of common stock for book purpose to reconcile the shares outstanding to the transfer agent report.

Options

On May 2, 2022, the Company, pursuant to the employment agreements, issued options to purchase an aggregate of 312,500 shares of the Company’s common stock. The options had an exercise price of $0.41 per share and vest ratably over twenty quarters with the first vesting occurring on June 30, 2022.

A summary of options activity during the three months ended June 30, 2022 is presented below:

SCHEDULE OF OPTION ACTIVITY

        Weighted 
     Weighted  Average 
     Average  Remaining 
  Number of  Exercise  Life 
  Options  Price  In Years 
Outstanding, December 31, 2021  100,000  $5.00   1.92 
Issued  312,500   0.41     
Exercised  -   -     
Forfeited      -     
Outstanding, June 30, 2022  412,500  $1.21   4.04 
             
Exercisable, June 30, 2022  115,625  $4.38   1.89 

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MUSCLE MAKER, INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 16 – EQUITY, continued

Warrants

A summary of warrants activity during the three months ended June 30, 2022 is presented below:

SCHEDULE OF WARRANTS ACTIVITY

        Weighted 
     Weighted  Average 
     Average  Remaining 
  Number of  Exercise  Life 
  Warrants  Price  In Years 
Outstanding, December 31, 2021  20,284,016  $1.66   3.99 
Issued  -   -     
Exercised  (2,410,110)  0.01     
Forfeited  -   -     
Outstanding, June 30, 2022  17,873,906  $1.89   4.03 
             
Exercisable, June 30, 2022  17,873,906  $1.89   4.03 

Stock-Based Compensation Expense

Stock-based compensation related to restricted stock issued to employees, directors and consultants, warrants and warrants to consultants amounted to $44,996 and $117,582 for the three and six months ended June 30, 2022, respectively, of which $44,996 and $117,334, respectively, was recorded in selling, general and administrative expenses and $0 and $248, 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 $14,700 and $1,727,545 for the three and six months ended June 30, 2021, respectively, of which $14,700 and $1,727,297, respectively, was recorded in general and administrative expenses and $0 and $248, respectively, was recorded in labor expense within restaurant operating expenses.

NOTE 17 – SUBSEQUENT EVENTS

Common Stock

On July 14, 2022, the Company authorized the issuance of an aggregate of 72,0910.1 million shares of common stock to the members of the board of directors as compensation earned during the second quarter of 2022.

On October 12, 2022, the Company authorized the issuance of an aggregate of 0.1 million shares of common stock to the members of the board of directors as compensation earned during the third quarter of 2022.
On November 29, 2022, the Company authorized the issuance of an aggregate of 0.4 million shares of common stock in connection with the exercise of pre-funded warrants.
On January 5, 2023, the Company authorized the issuance of an aggregate of 31.3 thousand shares of common stock to the members of the board of directors as compensation earned during the fourth quarter of 2022.
On March 27, 2023, the Company authorized the issuance of 2.8 million shares of common stock to Aggia as consulting fees earned during the fourth quarter of 2022.
Change in fair vale of accrued compensation on the Unaudited Condensed Consolidated Statement of Operations is made up of the difference between the agreed upon issuance price, per the servicing agreement with Aggia and the market price
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Muscle Maker, Inc.
Notes to the Condensed

Operating LeaseConsolidated Financial Statements (Unaudited)

on the day of issuance. For three months ended March 31, 2023, Change in fair value of accrued compensation was $0.5 million.
Private Placements
On JulyApril 7, 2022,2021, the Company entered into sublease agreementa Securities Purchase Agreement with a sublessor in Wichita, KSan accredited investor (the “Securities Purchase Agreement”) for a newprivate placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company owned location. The termfor an aggregate purchase price of approximately $10.0 million (i) 1.3 million shares of common stock of the subleaseCompany (ii) a common stock purchase warrant to purchase up to 4.1 million shares of common stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2.9 million shares of common stock (the “pre-funded warrant”). Each share and accompanying common warrant is from August 1, 2022, through Augusts 31, 2024 with monthly rent paymentsbeing sold together at a combined offering price of $1,815 plus all other property expenses. In addition,$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 Company agreed to pay a security deposit of $3,850.pre-funded warrant are fully exercised. The Companycommon warrant will have an option to enter into a lease agreement for an additional 5exercise price of $2.43 per share, are immediately exercisable and will expire 5.5 years upon termination 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 sublease.

ForfeitureCompany and the Purchaser and customary indemnification rights and obligations of Stock Option

On July 29, 2022, Ferdinand Groenewald employmentthe parties thereto. Pursuant to the Securities Purchase Agreement, the Company was terminatedrequired to register the resale of the shares and the shares issuable upon exercise of the common warrant and the pre-funded warrant. The Company prepared and filed a registration statement with the company, which resulted inSecurities and Exchange Commission within 30 days of the forfeituredate of 23,750 unvested stock options. As outlined in the stock optionSecurities Purchase Agreement and to used commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement.

Pursuant to a placement agency agreement, dated April 6, 2021, between the Company and Mr. Groenewald, heA.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8.0% of the gross proceeds raised in the Private Placement and a common stock purchase warrant to purchase shares of common stock in an amount equal to 4.0% of the Shares and shares of common stock issuable upon exercise of the warrants sold in the Private Placement, the warrant has an exercise price of $2.916 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement.
On November 17, 2021, the Company entered into a Securities Purchase Agreement with accredited investors (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investors (the “Purchasers”) agreed to purchase from the Company for an aggregate purchase price of approximately $15.0 million (i) 6.8 million shares (the “Shares”) of common stock, par value $0.0001 per share, of the Company (the “common stock”) (ii) a common stock purchase warrant to purchase up to 10.8 million shares of common stock (the “common warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 4.1 million shares of common stock (the “pre-funded warrant”). Each share and accompanying common warrant were being sold together at a combined offering price of $1.385 per share and common warrant, and each pre-funded warrant and accompanying Common Warrant is being sold together at a combined offering price of $1.3849 per pre-funded warrant and accompanying common warrant. The pre-funded warrant is immediately exercisable, at a nominal exercise price of $0.0001 per share, and may be exercised at any time until the pre-funded warrant is fully exercised. The common warrant will have an exercise price of $1.385 per share, are immediately exercisable and will expire 5 years from the date of issuance. The Private Placement closed on November 22, 2021.
The Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company is required to register the resale of the shares and the shares issuable upon exercise of the common warrant and the pre-funded warrant. The Company was required to prepare and file a registration statement with the Securities and Exchange Commission within 30 days of the date of the Securities Purchase Agreement and used
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Muscle Maker, Inc.
Notes to exercise or forfeit his the Condensed1,250Consolidated Financial Statements (Unaudited)
commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement.
Pursuant to a placement agency agreement, dated November 17, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8.0% of the gross proceeds raised in the Private Placement and a common stock purchase warrant to purchase shares of vestedCommon Stock in an amount equal to 4.0% of the Shares and shares of common stock options.issuable upon exercise of the warrants sold in the Private Placement, which warrant has an exercise price of $1.662 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement. The warrants for the November 17, 2021, private placement for the Placement Agents were issued in the fourth quarter of 2022.
Warrant and Option Valuation
The Company has computed the fair value of warrants granted and options accrued for as accrued compensation expense using the Black-Scholes option pricing model. The expected term used for warrants and options issued to non-employees is the contractual life. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected term of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
Options
On February 27, 2023, the Company issued options to purchase an aggregate of 0.5 million shares of the Company's common stock to officers and directors. The options had an exercise price of $1.51 per share and vest ratably over 20 quarters with the first vesting occurring March 31, 2023.
On March 15, 2023, the Company issued options to purchase 0.1 million shares of the Company's common stock. The options had an exercise price of $1.51 per share and vest ratably over 20 quarters with the first vesting occurring March 31, 2023.
A summary of option activity during the three months ended March 31, 2023 and 2022 is presented below:
Weighted-average
exercise
price		Number of
options		Weighted-average
remaining life
(in years)		Aggregate intrinsic value
$$’000
Outstanding, December 31, 20215.00 100,0001.90— 
Issued— —N/A— 
Exercised— —N/A— 
Forfeited— —N/A— 
Outstanding, March 31, 20225.00 100,0001.66— 
Exercisable, March 31, 20225.00 100,0001.66— 
Outstanding, December 31, 20221.52 412,5003.56156 
Issued1.51 600,0006.17— 
Exercised— —N/A— 
Forfeited— —N/A— 
Outstanding, March 31, 20231.52 1,212,5005.00206 
Exercisable, March 31, 20233.00 190,0191.5140 
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Muscle Maker, Inc.
Notes to the Condensed

Nasdaq NoticeConsolidated Financial Statements (Unaudited)

The Company has estimated the fair value of the options using the Black-Scholes model using the following assumptions:
Three Months Ended
March 31, 2023
Risk free interest rate1.53-4.33%
Expected term (years)5
Expected volatility59.10-156.87%
Expected dividends— 
Warrants
On August 2,January 3, 2022, the Company receivedissued 1.2 million shares of common stock in connection with the cashless exercise of the pre-funded warrants. Pursuant to the terms of the pre-funded warrants a second letter from the Staff advising thattotal of 1.2 million warrants were exercised.
On February 24, 2022, the Company had been granted an additional 180 calendar days, or to January 30, 2023, to regain complianceissued 1.2 million shares of common stock in connection with the Minimum Bid Price Requirement,cashless exercise of the pre-funded warrants. Pursuant to the terms of the pre-funded warrants a total of 1.2 million warrants were exercised.
On November 29, 2022, the Company issued 0.4 million shares of common stock in accordanceconnection with Nasdaqthe exercising of pre-funded warrants for $44.
A summary of warrants activity during the three months ended March 31, 2023 and 2022 is presented below:
Number of
Warrants		Weighted-average
exercise
price		Weighted-average
remaining life
(in years)
Outstanding, December 31, 202120,284,016$1.60 4.00
Issued—— N/A
Exercised(2,410,110)— N/A
Forfeited—— N/A
Outstanding, March 31, 202217,873,906$1.90 4.30
Exercisable, March 31, 202217,873,906$1.90 4.30
Outstanding, December 31, 202218,033,640$1.93 3.51
Issued—— N/A
Exercised—— N/A
Forfeited—— N/A
Outstanding, March 31, 202318,033,640$1.93 3.26
Exercisable, March 31, 202318,033,640$1.93 3.26
Stock-Based Compensation Expense
Stock-based compensation related to restricted stock issued to employees, directors and consultants, warrants and warrants to consultants amounted to $3.4 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, of which $58.7 thousand and $0.1 million, respectively, was recorded in Sales, general and administrative expenses. There was $3.4 million recorded in Stock-based consulting expense for the three months ended March 31, 2023. There were no expenses recorded in Stock-based consulting expense for the three months ended March 31, 2022.
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Muscle Maker, Inc.
Notes to the CondensedConsolidated Financial Statements (Unaudited)
18.    Related Party Transactions
The Company held a Special Meeting on February 28, 2023. Of the 29.3 million shares of Common Stock outstanding on January 19, 2023, the record date, 17.2 million shares were represented at the Special Meeting, in person or by proxy, constituting a quorum. At the meeting, the shareholders approved (i) the Services Agreement whereby Sadot engaged Aggia, to provide certain advisory services to Sadot for managing Sadot’s business of wholesaling food and engaging in the purchase and sale of physical food commodities (the “Sadot Transaction”); (ii) an amendment of the Company’s articles of incorporation to increase the number of authorized shares of common stock from 50.0 million to 150.0 million; (iii) for purposes of complying with NASDAQ Listing Rule 5810(c)(3)(A).5635(b), the issuance of the Shares pursuant to the Services Agreement entered between the Company, Sadot and Aggia representing more than 20% of our common stock outstanding, which would result in a “change of control” of the Company under applicable Nasdaq listing rules; (iv) for purposes of complying with NASDAQ Listing Rule 5635(c), the issuance of up to 14.4 million Shares of Common Stock to Aggia pursuant to the Services Agreement and net income generated thresholds; (v) the right of Aggia to nominate up to eight directors to the Board of Directors subject to achieving net income thresholds as set forth in the Services Agreement; and (vi) the adoption of the 2023 Equity Incentive Plan.
In April of 2023, MMI recognized a related party relationship between newly appointed directors of the Company and Aggia. As of March 31, 2023, Aggia owned 8.9% of the Company's commons stock. While a related party relationship exists, the amounts recognized during the period are immaterial to the Company's consolidated results.

During the three months ended March 31, 2023, the Company recorded Stock-based consulting expense of $3.4 million to its related party, Aggia for consulting services rendered. As of March 31, 2023 the Company accrued stock-based compensation expense due to related party of $3.4 million.

Additionally, for the three months ended March 31, 2023, the Company reimbursed Aggia for all operating costs related to Sadot including labor, operating and general administrative expenses of $0.6 million, $0.2 million and $0.1 million, respectively.

The Company will continue to monitor and evaluate its related party transactions to ensure that they are conducted in accordance with applicable laws and regulations and in the closing bid pricebest interests of the Company and its shareholders.
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Muscle Maker, Inc.
Notes to the CondensedConsolidated Financial Statements (Unaudited)
19.    Subsequent Events
Stock Issuance
On April 5, 2023, the Company authorized the issuance of an aggregate of 29.7 thousand shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2023. The Company accrued for the liability as of March 31, 2023.
Appointment of Directors
On April 3, 2023, the Board appointed Marvin Yeo and Paul Sansom to the Board of Directors, effective April 10, 2023.
Repurchase Program
On April 13, 2023, the Company announced that its Board of Directors had approved a share repurchase program. Under the program, the Company is authorized to purchase shares of its Common Stock and seekcommon stock with a value of up to regain compliance with$2.0 million in open market transactions at the Minimum Bid Price Requirement within the allotted compliance period. If the Company does not regain compliance within the allotted compliance period, Nasdaq will provide notice that the Company’s Common Stock will be subject to delisting. The Company would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that the Company will regain compliance with the Minimum Bid Price Requirement during the 180-day extension.

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discretion of management.

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ITEM

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 June 30, 2022 and December 31, 2021 and for the three months ended June 30, 2022 and 2021 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Management's Discussion and Analysis of Financial Condition and Results of Operations

Preliminary Note

The following Management’s Discussion and Analysis (“MD&A”), prepared as of May 10, 2023, should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements of Muscle Maker, Inc., for the three months ended March 31, 2023 together with the audited financial statements of the Company for the year ended December 31, 2022 and the accompanying MD&A for that fiscal year appearing in our Annual Report on 2022 Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2023. Unless otherwise indicated or the context otherwise requires, all references to “us,the terms “Company,” “company,” “Muscle Maker,” “we,” “our,“us,” “our”, “Group” and similar terms refer to Muscle Maker. “Muscle Maker, Grill”Inc., “SuperFit Foods”together with its consolidated subsidiaries.

Our website address is http://musclemakerinc.com. The information on, or that can be accessed through, our website is not part of this Report. The SEC also maintains an Internet website that contains reports, proxy and “Pokemoto” refersinformation statements, and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the names under which our corporate and franchised restaurants do business dependingpublic through the SEC’s website at www.sec.gov.

This MD&A is the responsibility of management. Prior to its release, the Company’s Board of Directors (the “Board”) approved this MD&A on the concept. Audit Committee’s recommendation. The Company presents its financial statements in U.S. Dollars. Amounts in this MD&A are stated in U.S. Dollars unless otherwise indicated.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. TheForward-looking statements generally relate to future events described inor our future financial or operating performance. These forward-looking statements contained in this Quarterly Report mayare not occur. Generally, these statements relate to business plansguarantees of future performance, conditions, or strategies, projected or anticipated benefits orresults, and involve a number of known and unknown risks, uncertainties, assumptions and other consequencesimportant factors, many of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspectswhich are outside of our operating results.Muscle Maker’s management’s control. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “forecast,“forecast,” “model,” “proposal,” “should,” “may,” “intend,“intend,” “estimate,” and “continue,” and their opposites and similar expressions (or the negative versions of such words or expressions), are intended to identify forward-looking statements. These forward-looking statements include, without limitation, information concerning Muscle Maker’s possible or assumed future results of operations, business strategies, debt levels, competitive position, industry environment and possible growth opportunities. 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. ForReference is made to “Factors That May Affect Future Results and Financial Condition” in this Item 2 for a detailed discussion of risk factors affecting us, see “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K forsome of the year ended December 31, 2021.uncertainties, risks and assumptions associated with these statements.

OVERVIEW

The Company operates under the names

Muscle Maker, Grill, Pokemoto and SuperFit Foods and is a franchisor and owner operator of Muscle Maker Grill and Pokemoto restaurants. As of June 30, 2022, the Company’s restaurant system included nineteen Company-owned restaurants, including the SuperFit Foods kitchen, and eighteen franchise restaurants. In addition to these restaurants, the Company also operates from time to time with the following brand names under our ghost kitchen model: Meal Plan AF, Muscle Maker Burger Bar, Bowls Deep, Burger Joe’s, Wrap It Up, Salad Vibes, Mr. T’s House of Boba and Gourmet Sandwich. Our direct mail to consumer meal prep/plan program operates under the musclemakerprep.com and superfitfoods.com websites.

As of June 30, 2022, MMI consisted of four operating segments:

●Muscle Maker Grill Restaurant Division
●Pokemoto Hawaiian Poke Restaurant Division
●Non-Traditional (Hybrid) Division
●SuperFit Foods Meal Prep Division

MMIInc. ("MMI") is our parent company. Wecompany and is headquartered in Ft. Worth, Texas. In late 2022, MMI began a transformation from a U.S.-centric restaurant business into a global, food-focused organization with two distinct business units.

1.Sadot LLC is an international agri-commodities company engaged in trading and shipping of food and feed (e.g., soybean meal, wheat and corn) via dry bulk cargo ships to/from markets such as Brazil, Canada, China, India, Japan, Malaysia, Philippines, Poland, Romania, Ukraine and Vietnam. Sadot competes with the ABCD commodity companies (ADM, Bunge, Cargill, Louis-Dreyfus) as well as many regional organizations. Sadot was formed as part of the Company’s diversification strategy to own and operate, through its subsidiaries, the business lines throughout the food value chain. Sadot is MMI's largest operating unit.
2.MMI Restaurant Group has three unique “healthier for you” concepts, including two fast casual restaurant concepts, within our portfolio of companies:Pokémoto and Muscle Maker Grill, restaurants,plus one subscription-based fresh prep meal concept, SuperFit Foods meal prep and Pokemoto Hawaiian Poke restaurants.Foods. Our Company was founded on the belief of taking every-day menu options and converting them into “healthier for you” menu choices. Consumers are demanding healthier choices, customization, flavor and convenience. We believe our portfolio of companies directly satisfy these consumer needs. We focus on lean proteins, fresh fruits and vegetables, proprietary sauces, whole grains and various other items like protein shakes, meal plans, specialty drinks and super foods. Each of our three concepts offers different menus that are tailored to specific consumer segments. We operate in the fast-casual and meal prep segments of the restaurant industry. We believe our “healthier for you” inspired concepts deliver a highly differentiated customer experience.experiences.

Muscle Maker Grill Restaurants (“Muscle Maker Grill”): our Muscle Maker Grill restaurants are fast casual style restaurants specializing in “healthier for you” high quality, made to order, lean protein-based meals. These meals feature all-natural chicken breast, grass fed beef, lean turkey, shrimp and plant-based items. We pair these lean proteins with super foods such as avocado, quinoa, spinach, kale and broccoli, while also offering cauliflower rice, whole wheat pasta, sweet potato fries and proprietary specialty sauces like zero carb, fat free or gluten free options. Our products are made to order. The menu features bowls, wraps, salads and burgers. We also offer protein shakes and fruit smoothies along with meal plans and catering. Customers can dine in or take out or have their meals delivered to their door via Company delivery personnel or third-party services such as Uber Eats, DoorDash and GrubHub.

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SuperFit Foods Meal Prep (“SuperFit Foods”): SuperFit Foods is a wholly owned meal prep division located in Jacksonville, Florida and focuses solely on meal plans. The terms meal prep and meal plans will be used interchangeably throughout this document. The business operates with a centralized kitchen that prepares all meals for distribution to consumers twice per week. This is a subscription-based business model where consumers order their meals via the SuperFitfoods.com website and are charged automatically every week. There are over 150 meal plan options to choose from as well as various healthy juices, snacks and desserts. Meal plans focus on specific dietary needs such as vegetarian, high protein, gluten free and low calorie.

SuperFit Foods’ distribution process is different than most meal prep companies. The business operates with a centralized kitchen that prepares all meals for distribution to consumers twice per week. While other meal plan companies ship meals directly to consumer’s homes, the SuperFit Foods model uses Company-owned coolers placed at designated pick-up locations throughout the Jacksonville, Florida market. Pick up locations are placed inside wellness centers such as gyms, yoga studios, and various lifestyle locations. SuperFit Foods delivers twice per week by independent contractors to these locations and consumers conveniently pick up their orders after their workouts or during their daily routines. This model allows us to keep food fresh and refrigerated (even in the summer months), reduces shipping costs to consumers and provides an easier distribution model for the Company. While we do offer direct shipment or drop-offs to homes, this represents a smaller percentage of overall Company revenue. As the lockdowns and restrictions from Covid are reducing, we believe our distribution model becomes even more attractive for consumers.

Pokemoto Hawaiian Poke restaurants (“Pokemoto”): Pokemoto restaurants are fast casual style restaurants that specialize in Hawaiian inspired poke bowls, wraps and salads. Poke is native Hawaiian cuisine made up of diced fresh fish served as an appetizer or main course with strong influences of Japanese and Korean cuisine. Think of it as deconstructed sushi that a consumer can customize into a bowl, salad or wrap every time. Hawaiian Poke is trending in the restaurant industry. It is a unique segment that is healthy, customizable, popular with millennials and Gen-Zs, offers unique flavor profiles and is “Instagrammable.”

Pokemoto offers consumers the possibility to customize their order every time. Consumers move down a linear production line (similar to Chipotle or Subway customer interaction and operations) customizing their bowl from a wide selection of ingredients. Pokemoto offers five types of protein including sushi grade tuna, salmon, chicken, shrimp or tofu. Consumers pick a base of white/brown rice or salad, select from over 25 mix-ins/toppings including avocado, kani salad, pickled daikon, hijiki seaweed, masago, caviar, mandarin oranges, edamame, mango, roasted cashews or wonton crisps to name a few and topped off with over eight proprietary sauces that are made in house. All this gets mixed together creating a flavor explosion that is customized for every consumer.

Pokemoto requires little to no cooking. Everything is either raw (tuna, salmon, veggies and fruits) or comes in pre-cooked (chicken and shrimp). The only cooking we do is soup and rice. It’s that simple. Because we have little cooking and consumers customize their orders, our labor requirements compared to most restaurants may be reduced. In addition, we believe training becomes much easier when you are not cooking or requiring recipes to be followed while consumers customize their menu options. This creates a consistent product across all our Pokemoto restaurants as we expand into more markets. Finally, because we have little to no cooking, our build outs usually do not require expensive hoods, fire suppression systems, deep fryers, grills, ovens, etc. making the potential cost of building out a location very favorable.

Non-Traditional (Hybrid) Division is a combination of the aforementioned brands and provides its own unique experience for the consumer. Non-Traditional (Hybrid) locations are designed for unique locations such as universities, military bases and cloud kitchens.

We believe our healthy-inspired restaurant concept delivers a highly differentiated customer experience by combining the quality and hospitality that customers commonly associate with our full service and fast casual restaurant competitors with the convenience and value customers generally expect from traditional fast-food restaurants. The foundation of our brand is based on our core values of quality, empowerment, respect, service and value.

●Quality. Commitment to provide high quality, healthy-inspired food for a perceived wonderful experience for our guests.
●Empowerment and Respect. We seek to empower our employees to take initiative and give their best while respecting themselves and others to maintain an environment for team work and growth.
●Service. Provide world class service to achieve excellence each passing day.
●Value. Our combination of high-quality, healthy-inspired food, empowerment of our employees, world class service, all delivered at an affordable price, strengthens the value proposition for our customers.

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In striving for these goals, we aspire to connect with our target market and create a great brand with a strong and loyal customer base.

We are the owner of the trade name and service mark Muscle Maker Grill®, SuperFit Foods®, Pokemoto®, MMG Burger Bar®, Meal Plan AF® and other trademarks and intellectual property we use in connection with the operation of Muscle Maker Grill® restaurants. We license the right to use the Muscle Maker Grill®, Pokemoto®, and SuperFit Foods ® trademarks and intellectual property to our wholly owned subsidiaries, Muscle Maker Development, Poke Co Holdings LLC and Muscle Maker Corp., and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® and Pokemoto® restaurants.

As of June 30, 2022,March 31, 2023, the Company had a cash balance, a working capital surplus and an accumulated deficit of $13,465,538, $11,930,729,$6.4 million, $6.4 million and $75,052,859,$80.4 million, respectively. During the three and six months ended June 30, 2022,March 31, 2023, the Company incurred a pre-taxPre-tax net loss of $1,762,833$1.1 million and $3,646,440, respectively and netNet cash used in operations of $1,905,110 and $3,700,395 for the six months ended June 30, 2022.$3.3 million. The Company believes that our

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existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve12 months.

Key Financial Definitions
We review a number of financial and operating metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Governmental and other economic factors affecting our operations may vary.

For the Three Months Ended March 31,
20232022
 $’000 $’000
Revenues:
Commodity sales210,366 — 
Company restaurant sales, net of discounts2,301 2,694 
Franchise royalties and fees284 208 
Franchise advertising fund contributions16 18 
Total revenues212,967 2,920 
Operating Costs and Expenses:
Commodity operating expenses:
Commodity cost205,055 — 
Labor620 — 
Other commodity operating expenses154 — 
Total commodity operating expenses205,829 — 
Restaurant operating expenses:
Food and beverage costs839 1,026 
Labor880 1,073 
Rent274 340 
Other restaurant operating expenses472 650 
Total restaurant operating expenses2,465 3,089 
Depreciation and amortization expenses633 476 
Franchise advertising fund expenses16 18 
Preopening expenses36 — 
Post-closing expenses94 — 
Stock-based consulting expenses3,359 — 
Sales, general and administrative expenses2,142 1,324 
Loss from operations(1,607)(1,987)
EBITDA(427)(1,426)
Adjusted EBITDA2,391 (1,547)

The breakout of our main revenue streams by business segment is shown below:
Total
Three Months Ended March 31,
20232022
Sadot Division98.8 %— 
Restaurant Division1.2 %100.0 %


Our key business and financial metrics are explained in detail below.

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Revenues

Our revenues are derived from threefour primary sources: Physical Commodity sales, Company restaurant sales, franchise feeFranchise revenues and vendor rebates from Franchisees. Franchise revenues are comprised of franchiseFranchise royalty revenues collected based on 2% to 6% of franchisee net sales and other franchise revenues which include initial transfer and renewal franchisee fees. Vendor rebates are received based on volume purchases or services from franchise owned locations. In addition, we have otherOther revenues which consists of gift card breakage, which is recognized when we determine that there is no further legal obligation to remit the unredeemed gift card balance.

Commodity Operating Expenses
Commodity Cost
Commodity costs include the direct cost associated with purchasing the physical food commodities. The cost includes the cost of the inventory, insurance, shipping and other cost associated with transporting the physical food commodity. The components of Commodity cost are variable in nature, change with sales volume, logistics and are subject to fluctuations in Commodity costs.
Labor
Commodity labor cost consists of consulting fees paid for traders, logistics, and operations personnel to perform the purchases and sale of physical food commodities. Similar to other cost items, we expect total Commodity labor costs to increase as our Commodity sales revenues grows.
Other Commodity Operating Expenses
Other commodity operating expenses consist of food commodity purchase and sales expenses not inclusive of Commodity cost and Labor. These expenses are generally travel and office expenses.
Restaurant Operating Expenses
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 commodityCommodity costs.

Labor

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

Rent

Restaurant rent including preopening rental charges, consist of Company-operated restaurant-level rental or lease payments applicable to executed rental or lease agreements. In many cases these rental payments may include payments for common area maintenance as well as property tax assessments. Our rent strategy in some locations consists of a variable rent structure calculated on net sales of the restaurant. While this can have a negative effect on higher volume locations where we cannot leverage a fixed rent, it provides downside protection for lower volume locations. The Company does incur rent for some closed locations while we seek to negotiate lease terminations or sublease to other companies.

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Other Restaurant Operating Expenses

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

Depreciation and Amortization

Expenses

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

Franchise Advertising Expenses

In accordance with Topic 606, the Company recognizes

Franchise advertising expenses are recognized sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under Sales, general and administrative expenses.

Selling,

Pre-Opening Expenses
Pre-opening expenses primarily consist of expenses associated with opening a Company-operated location and expenses related to Company-operated locations prior to the location opening.
Post-Closing Expenses
Post-closing expenses primarily consist of expenses associated with closing a Company-operated location and expenses related to Company-operated locations after the location has closed.
Stock-based Consulting Expenses
Stock-based consulting expenses are related to consulting fees due to Aggia for Sadot operations. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 80.0% of the Net income generated by the Sadot business segment. For the three months ended March 31, 2023, $3.4 million is recorded as Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and a corresponding liability is recorded as Accrued stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Balance Sheets. This expense is expected to be paid in stock in 2023.
Sales, General and Administrative Expenses

Selling,

Sales, general and administrative expenses include expenses associated with corporate marketing and administrative functions that support our operations, including wages, benefits, advertising, travel expense, stock-based compensation expense, legal and professional fees, training, investor relations and other corporate costs. We incur incremental Sales, general and administrative expenses as a result of being a publicly listed company on the NasdaqNASDAQ 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 (Expense) / Income (Expense)

Other (expense) / income (expenses) consists of amortization of debt discounts on the convertible notes, interest expense related to convertible notes payable, changeChange in fair value of accrued compensation and gains on debt extinguishments in connection with the PPPPaycheck Protection Program, (“PPP”) loan forgiveness.
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Income Taxes

Income taxes represent federal, state and local current and deferred income tax expense.expenses.
Non-GAAP Measures

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP measures. We define EBITDA as Net loss, adjusted for depreciation, amortization, interest income / (expense), and income taxes. We define Adjusted EBITDA as Net loss, adjusted for depreciation, amortization, net interest (income) expense, income taxes, impairment expenses, stock-based consulting expense, derived from amounts presented in the Unaudited Condensed Consolidated Statement of Operations and the associated Notes to the Unaudited Condensed Consolidated Financial Statements. We believe that EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, (collectively, the “Non-GAAP Measures”) are useful metrics for investors to understand and evaluate our operating results and ongoing profitability because they permit investors to evaluate our recurring profitability from our ongoing operating activities.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, have certain limitations, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported under U.S. GAAP. We caution investors that amounts presented in accordance with our definitions of any of the Non-GAAP Measures may not be comparable to similar measures disclosed by other issuers, because some issuers calculate certain of the Non-GAAP Measures differently or not at all, limiting their usefulness as direct comparative measures.

Reconciliations of EBITDA, Adjusted EBITDA and Other Non-GAAP Measures

The following table presents a reconciliation of EBITDA and Adjusted EBITDA from the most comparable U.S. GAAP measure, Net loss, and the calculations of the Net loss Margin and Adjusted EBITDA Margin for the three months ended March 31, 2023 and 2022:


For the Three Months Ended March 31,
20232022
 $’000 $’000
Net loss(1,066)(1,886)
Adjustments to EBITDA:
Depreciation and amortization expenses633 476 
Interest expense, net3 (18)
Income tax3 2 
EBITDA(427)(1,426)
Adjustments to Adjusted EBITDA:
Other income / (expense)— 19 
Change in fair value of accrued compensation(541)— 
Gain on debt extinguishment— (140)
Stock-based consulting expenses3,359 — 
Adjusted EBITDA2,391 (1,547)
Total revenue212,967 2,920 
Net loss Margin(0.5)%(64.6)%
Adjusted EBITDA Margin1.1 %(53.0)%


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Unaudited

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Condensed

Consolidated Results of Operations

- Three Months Ended June 30, 2022March 31, 2023 Compared withto the Three Months Ended June 30, 2021March 31, 2022


The following table represents selected items in our condensed consolidated statementsUnaudited Condensed Consolidated Statements of operationsOperations for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively:

  For the Three Months Ended 
  June 30, 
  2022  2021 
Revenues:        
Company restaurant sales, net of discounts $2,750,734  $2,564,864 
Franchise royalties and fees  162,480   135,250 
Franchise advertising fund contributions  16,170   4,742 
Total Revenues  2,929,384   2,704,856 
         
Operating Costs and Expenses:        
Restaurant operating expenses:        
Food and beverage costs  1,117,419   886,392 
Labor  903,062   888,895 
Rent  326,819   304,930 
Other restaurant operating expenses  687,823   666,946 
Total restaurant operating expenses  3,035,123   2,747,163 
Depreciation and amortization  489,654   284,646 
Franchise advertising fund expenses  16,170   4,742 
Preopening expenses  -   - 
Selling, general and administrative expenses  1,126,857   1,994,003 
Total Costs and Expenses  4,667,804   5,030,554 
Loss from Operations  (1,738,420)  (2,325,698)
         
Other Income (Expenses) :        
Other income (expense)  (14,468)  223,681 
Interest expense, net  (9,945)  (22,596)
Change in fair value of accrued compensation  -   127,500 
Gain on debt extinguishment  -   875,974 
Total Other Income (Expenses), Net  (24,413)  1,204,559 
         
Loss Before Income Tax  (1,762,833)  (1,121,139)
Income tax provision  (11,311)  (1,062)
Net Loss $(1,774,144) $(1,122,201)

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Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Revenues:
Commodity sales210,366 — 210,366 NM
Company restaurant sales, net of discounts2,301 2,694 (393)(14.6)%
Franchise royalties and fees284 208 76 36.5 %
Franchise advertising fund contributions16 18 (2)(11.1)%
Total revenues212,967 2,920 210,047 7193.4 %
Operating Costs and Expenses:
Commodity operating expenses:
Commodity cost205,055 — 205,055 NM
Labor620 — 620 NM
Other commodity operating expenses154 — 154 NM
Total commodity operating expenses205,829 — 205,829 NM
Restaurant operating expenses:
Food and beverage costs839 1,026 (187)(18.2)%
Labor880 1,073 (193)(18.0)%
Rent274 340 (66)(19.4)%
Other restaurant operating expenses472 650 (178)(27.4)%
Total restaurant operating expenses2,465 3,089 (624)(20.2)%
Depreciation and amortization expenses633 476 157 33.0 %
Franchise advertising fund expenses16 18 (2)(11.1)%
Pre-opening expenses36 — 36 NM
Post-closing expenses94 — 94 NM
Stock-based consulting expenses3,359 — 3,359 NM
Sales, general and administrative expenses2,142 1,324 818 61.8 %
Total costs and expenses214,574 4,907 209,667 4272.8 %
Loss from operations(1,607)(1,987)380 (19.1)%
Other Income:
Other income / (expense)— (19)19 (100.0)%
Interest income / (expense), net3 (18)21 (116.7)%
Change in fair value of accrued compensation541 — 541 NM
Gain on debt extinguishment— 140 (140)(100.0)%
Total other income, net544 103 441 428.2 %
Loss Before Income Tax(1,063)(1,884)821 (43.6)%
Income tax3 2 1 50.0 %
Net loss(1,066)(1,886)820 (43.5)%
NM= not meaningful

Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021





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The following table sets forth our results of operations as a percentage of total revenue for each period presented preceding:

Three Months Ended March 31,
20232022
$’000$’000
Revenues:
Commodity sales98.8 %— 
Company restaurant sales, net of discounts1.1 %92.3 %
Franchise royalties and fees0.1 %7.1 %
Franchise advertising fund contributions— 0.6 %
Total revenues100.0 %100.0 %
Operating Costs and Expenses:
Commodity operating expenses:
Commodity cost96.3 %— 
Labor0.3 %— 
Other commodity operating expenses0.1 %— 
Total commodity operating expenses96.6 %— 
Restaurant operating expenses:
Food and beverage costs0.4 %35.1 %
Labor0.4 %36.7 %
Rent0.1 %11.6 %
Other restaurant operating expenses0.2 %22.3 %
Total restaurant operating expenses1.2 %105.8 %
Depreciation and amortization expenses0.3 %16.3 %
Franchise advertising fund expenses— 0.6 %
Pre-opening expenses— — 
Post-closing expenses— — 
Stock-based consulting expenses1.6 %— 
Sales, general and administrative expenses1.0 %45.3 %
Total costs and expenses100.8 %168.0 %
Loss from operations(0.8)%(68.0)%
Other Income:
Other income / (expense)— (0.7)%
Interest income / (expense), net— (0.6)%
Change in fair value of accrued compensation0.3 %— 
Gain on debt extinguishment— 4.8 %
Total other income, net0.3 %3.5 %
Loss Before Income Tax(0.5)%(64.5)%
Income tax— %0.1 %
Net loss(0.5)%(64.6)%
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Revenues

Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Revenues:
Commodity sales210,366 — 210,366 NM
Company restaurant sales, net of discounts2,301 2,694 (393)(14.6)%
Franchise royalties and fees284 208 76 36.5 %
Franchise advertising fund contributions16 18 (2)(11.1)%
Total revenues212,967 2,920 210,047 7193.4 %
NM= not meaningful
Our revenues totaled $2,929,384$213.0 million for the three months ended June 30, 2022March 31, 2023, compared to $2,704,856$2.9 million for the three months ended June 30, 2021.March 31, 2022. The $224,528$210.0 million increase is primarily attributed to an increase in restaurantCommodity sales and vendor rebates as a direct result of the acquisitionformation of PokemotoSadot and its added revenue.
We generated Commodity sales of $210.4 million for the net opening/closingthree months ended March 31, 2023. We did not have any Commodity sales for the three months ended March 31, 2022. This represented an increase of corporate and franchise locations.

$210.4 million, which is attributable to Sadot sales generated from physical food related commodities.

We generated Company restaurant sales, net of discounts, of $2,750,734$2.3 million for the three months ended June 30, 2022March 31, 2023, compared to $2,564,864$2.7 million for the three months ended June 30, 2021.March 31, 2022. This represented an increasedecrease of $185,870,$0.4 million, or 7.2%14.6%, which is mainly attributable to the Pokemoto restaurants sales and the net opening/closingclosures of corporate and franchisecertain unprofitable Muscle Maker Grill locations.

Franchise royalties and fees for the three months ended June 30, 2022 and 2021March 31, 2023 totaled $162,480$0.3 million compared to $135,250 respectively.$0.2 million for the three months ended March 31, 2022. This represents an increase of $27,230,$0.1 million, or 20.1%36.5%. AsIn 2023, the Company executes against its franchising strategy and expands its effortsfranchise fees were higher, primarily due to selltermination of one Muscle Maker Grill Franchise agreement, which corresponds to accelerating the recognition of initial franchise locations, management is anticipating that this number will likely increase over the coming years.

fees.

Franchise advertising fund contributions for the three months ended June 30, 2022 and 2021March 31, 2023 totaled $16,170$16.0 thousand compared to $4,742, respectively. In accordance with Topic 606,$18.0 thousand for the three months ended March 31, 2022. The Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. Thus, the increase has beenThe decrease of $2.0 thousand or 11.1%, is a direct result of us increasing our expenses incurred related to ourthe decrease in Muscle Maker Grill franchises and the national advertising services to benefit our franchisees and the brandsbrand as a whole.

Operating Costs and Expenses

Operating costs and expenses primarily consist of restaurantCommodity costs, Restaurant food and beverage costs, restaurantRestaurant labor expense, restaurantRestaurant rent expense, otherOther restaurant operating expenses, depreciationDepreciation and amortization expenses and selling,Sales, general and administrative expenses.
Commodity Costs
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Commodity cost205,055 — 205,055 NM
Commodity costs for the three months ended March 31, 2023, totaled $205.1 million or 97.5% as a percentage of Commodity sales. There was no Commodity cost for the three months ended March 31, 2022. The $205.1 million increase resulted from a new line of business operated by Sadot.

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Commodity Labor Cost
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Labor620 — 620 NM
Commodity labor costs for the three months ended March 31, 2023, totaled $0.6 million or 0.3% as a percentage of Commodity sales. There were no Commodity labor costs for the three months ended March 31, 2022. The $0.6 million increase resulted from a new line of business operated by Sadot.
Other Commodity Operating Expenses
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Other commodity operating expenses154 — 154 NM
Other commodity operating expenses for the three months ended March 31, 2023 totaled $0.2 million or 0.1% as a percentage of Commodity sales There were no Other commodity operating expenses for the three months ended March 31, 2022. The $0.2 million increase resulted from a new line of business operated by Sadot.

Restaurant Food and Beverage Costs
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Food and beverage costs839 1,026 (187)(18.2)%
Restaurant food and beverage costs for the three months ended June 30, 2022 and 2021March 31, 2023 totaled $1,117,419$0.8 million or 40.6%36.5% as a percentage of Company restaurant net sales, and $886,392$1.0 million or 34.7%38.1%, as a percentage of Company restaurant net sales, respectively. The $231,027 increase resulted from higher store counts during the current year as compared to the prior year resulting in higher sales. The Company has experienced an increase in food and beverage costs due to inflationary pressures and supply chain disruptions causing the company to find alternative vendors in some instances for key ingredients. The Company anticipates higher ingredient costs in the near term and has taken price increases, menu modifications and recipe changes to attempt to offset these higher prices.

Restaurant labor for the three months ended June 30, 2022March 31, 2022. The $0.2 million decrease resulted from a decrease in sales due to the closures of certain unprofitable Muscle Maker Grill locations. Total restaurant food and 2021beverage cost as a percentage of sales decreased by 1.6% as a result of higher commodity prices in 2023.

Restaurant Labor Expense
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Labor880 1,073 (193)(18.0)%
Restaurant labor expense for the three months ended March 31, 2023 totaled $903,062,$0.9 million, or 32.8%38.2%, as a percentage of Company restaurant net sales, and $888,895,$1.1 million, or 34.7%39.8%, as a percentage of Company restaurant net sales, respectively.for the three months ended March 31, 2022. The $14,167 increase$0.2 million decrease resulted duefrom a higher store count during the current year as compared to the prior year as the Company opened and acquired more stores as compared to the prior period. We were able to reduce (improve) our overall labor costs as a percentagereduction in Labor expense.

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Table of sales by 1.8% due to increased sales and also due to improvements in operations.Contents

Restaurant Rent Expense
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Rent274 340 (66)(19.4)%
Restaurant rent expense for the three months ended June 30, 2022 and June 30, 2021March 31, 2023 totaled $326,819$0.3 million, or 11.9% as a percentage of restaurant sales, and $304,930,$0.3 million, or 11.9%12.6%, as a percentage of restaurant sales, respectively.for the three months ended March 31, 2022. The increasedecrease of $21,889$0.1 million is directly attributed to the new Company-owned locations acquired during the second quarterclosure of 2021, which only included partial rent expense compared to the current period which includes the full periods rent expense.

a nonperforming corporate location. The percentage of total sales decreased by 0.7% as sales decreased overall.

Other Restaurant Operating Expenses
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Other restaurant operating expenses472 650 (178)(27.4)%
Other restaurant operating expenses for the three months ended June 30, 2022 and June 30, 2021March 31, 2023 totaled $687,823,$0.5 million, or 25.0%20.5% as a percentage of restaurant sales, and $666,946,$0.7 million, or 26.0%24.1% as a percentage of restaurant sales, respectively. The $20,877 increase is due to higher third-party merchant fees resulting from an increase in delivery orders and a higher store count during the year as compared to the prior year.

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Depreciation and amortization expense for the three months ended June 30, 2022March 31, 2022. The $0.2 million decrease is primarily due to a decrease in insurance costs resulting from a consolidation in insurance companies and June 30, 2021a decrease in third party processing fees, partially offset by an increase in merchant processing fees. The Other restaurant operating expenses as a percent of total sales decreased by 3.6%.

Depreciation and Amortization Expenses
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Depreciation and amortization expenses633 476 157 33.0 %
Depreciation and amortization expenses for the three months ended March 31, 2023 totaled $489,654 and $284,646, respectively.$0.6 million compared to $0.5 million, for the three months ended March 31, 2022. The $205,960$0.2 million increase is mainly attributed to amortization expensethe accelerated depreciation of leasehold improvements for leases that were modified resulting in a shorter life.
Franchise Advertising Fund Expenses
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Franchise advertising fund expenses16 18 (2)(11.1)%
Franchise advertising fund expenses for the three months ended March 31, 2023 totaled $16.0 thousand compared to $18.0 thousand, for the three months ended March 31, 2022. The $2.0 thousand decrease is mainly attributed to the additionsdecrease of definite life intangible assets$2.0 thousand or 11.1%, is a direct result of approximately $4,150,000 acquired through the various acquisitions duringdecrease in Muscle Maker Grill franchises and the national advertising services to benefit the brand.


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Table of Contents
Pre-Opening Expenses
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Pre-opening expenses36 — 36 NM
Pre-opening expenses for the three months ended March 31, 2023 totaled $36.0 thousand. There were no Pre-opening expenses for the three months ended March 31, 2022. The increase in pre-opening expense resulted from expenses incurred prior year as compared to the prior year.opening of our new Company-owned stores.
Post-ClosingExpenses
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Post-closing expenses94 — 94 NM
Post-closing expenses for the three months ended March 31, 2023 totaled $0.1 million. There were no Post-closing expenses for the three months ended March 31, 2022. The remainingincrease in Post-closing expenses resulted from expenses incurred after the closing of underperforming Company-owned stores.
Stock-Based Consulting Expenses
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Stock-based consulting expenses3,359 — 3,359 NM
Stock-based consulting expenses for the three months ended March 31, 2023, totaled $3.4 million. There were no Stock-based consulting expenses for the three months ended March 31, 2022. The increase in Stock-based consulting expenses is the result of consulting fees due to Aggia for Sadot operations. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 80.0% of the varianceNet income generated by the Sadot business segment. This expense is attributableexpected to depreciation expense related to additional propertybe paid in stock in 2023.
Sales, General and equipment acquired through acquisitions and additional property and equipment purchased for new store build outs and the remodeling of an existing and acquired Company-owned restaurant compared to the prior year.

Selling,Administrative Expenses

Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Sales, general and administrative expenses2,142 1,324 818 61.8 %
Sales, general and administrative expenses for the three months ended June 30, 2022 and 2021March 31, 2023 totaled $1,126,857,$2.1 million, or 38.5%1.0% of total revenue, and $1,994,003,compared to $1.3 million, or 73.7%45.3% of total revenue, respectively. The $867,146 decrease was mainly attributed to a decrease in professional fees of approximately $973,400 which resulted from changing our auditing firm and a one-time expense of $665,000 incurred in connection with the private placement in the prior period partially offset by an increase in salaries and wages of approximately $122,932 due to the addition of additional staff with the Pokemoto and SuperFit foods acquisition The remainder of the variance was attributed to various other expenses including recruiting, marketing, computer expenses etc.

Loss from Operations

Our loss from operations for the three months ended June 30, 2022 and 2021 totaled $1,738,420, or 59.3% of total revenues and $2,325,698, or 85.9% of total revenue, respectively.March 31, 2022. The decrease of $587,278 in loss from operations is$0.8 million increase was primarily attributable to thean increase in professional and consulting fees and employee salaries and benefits.


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Table of total revenues of $224,528 and a decrease in total cost and expenses of $362,750 as discussed above.Contents

Total Other Income, (Expense)

Net

Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Total other income / (expense), net544 103 441 428.2 %

OtherTotal other income / (expense), net for the three months ended June 30, 2022 and 2021March 31, 2023 totaled ($24,413) and $1,204,995, respectively.$0.5 million compared to $0.1 million, for the three months ended March 31, 2022. The $1,228,972$0.4 million decrease in Total other income / (expense) income, net was primarily attributable to a reductionan increase in the gainGain on extinguishment of debt of $875,974$0.1 million due to the forgiveness of our PPP loans, a decrease of $0.5 million in the decreaseChange in fair value of accrued compensation, of $127,500 and a decrease in other income of $238,149 which resulted from the revitalization fund grant in the prior period compared to the current period partially offset by an increase in other income (expenses) of $12,561 mainly attributed to a $21.0 thousand decrease in interestInterest expense increaseand a $19.0 thousand decrease in franchise sales and marketing expenses.Other income.

Net Loss

Income Tax
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Income tax3 2 1 50.0 %
Our net loss before incomeIncome tax for the three months ended June 30, 2022March 31, 2023, was $1,762,833$3.0 thousand which was an increase in our net loss of $641,694$1.0 thousand as compared to a net lossIncome taxes of $1,121,139$2.0 thousand for the three months ended June 30, 2021, resulting directly fromMarch 31, 2022 due to an increase in our other income (expense) of $1,228,972 partially offset by an increase in our total revenue of $224,528, and a decrease of our total cost and expenses of $362,750. current state taxes.
Net Loss
Three Months Ended March 31,Variance
20232022$%
$’000$’000$’000
Net loss(1,066)(1,886)820 (43.5)%
Our netNet loss for the three months ended June 30, 2022March 31, 2023, was $1,774,144$1.1 million which was an improvementa decrease of $651,943$0.8 million as compared to a netNet loss of $1,122,201$1.9 million for the three months ended June 30, 2021.

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Six Months Ended June 30,March 31, 2022, Compared with Six Months Ended June 30, 2021

  For the Six Months Ended 
  June 30, 
  2022  2021 
Revenues:        
Company restaurant sales, net of discounts $5,444,926  $3,743,775 
Franchise royalties and fees  370,621   241,935 
Franchise advertising fund contributions  34,295   18,829 
Total Revenues  5,849,842   4,004,539 
         
Operating Costs and Expenses:        
Restaurant operating expenses:        
Food and beverage costs  2,143,354   1,362,198 
Labor  1,976,109   1,643,059 
Rent  667,215   561,121 
Other restaurant operating expenses  1,337,547   1,019,769 
Total restaurant operating expenses  6,124,225   4,586,147 
Depreciation and amortization  965,381   453,774 
Franchise advertising fund expenses  34,295   18,829 
Preopening expenses  -   10,986 
Selling, general and administrative expenses  2,451,334   4,960,639 
Total Costs and Expenses  9,575,235   10,030,375 
Loss from Operations  (3,725,393)  (6,025,836)
         
Other Income (Expenses) :        
Other income (expense)  (33,889)  226,309 
Interest expense, net  (28,437)  (36,770)
Change in fair value of accrued compensation  -   127,500 
Gain on debt extinguishment  141,279   875,974 
Total Other Income (Expenses), Net  78,953   1,193,013 
         
Loss Before Income Tax  (3,646,440)  (4,832,823)
Income tax provision  (13,783)  (1,062)
Net Loss $(3,660,223) $(4,833,885)

Revenues

Our revenues totaled $5,849,842 for the six months ended June 30, 2022 compared to $4,004,539 for the six months ended June 30, 2021. The $1,845,303 increase is primarily attributed to an increase in restaurant sales as a direct result of the acquisition of Pokemoto and SuperFit Foods, in addition to the net opening/closing of company owned and franchise locations.

We generated Company restaurant sales, net of discounts, of $5,444,926 for the six months ended June 30, 2022 compared to $3,743,775 the six months ended June 30, 2021. This represented an increase of $1,701,151, or 45.4%, which is mainly attributable to the Pokemoto restaurants sales and SuperFit Foods sales generated during the current year since their dates of acquisition, in addition to the net opening/closing of corporate and franchise locations.

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Franchise royalties and fees for the six months ended June 30, 2022 and 2021 totaled $370,621 compared to $241,935 respectively. This represents an increase of $128,686, or 53.2%. As the Company executes against its franchising strategy and expands its efforts to sell franchise locations, management is anticipating that this number will likely increase over the coming years.

Franchise advertising fund contributions for the six months ended June 30, 2022 and 2021 totaled $34,295 compared to $18,829, respectively. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. Thus the increase has been a direct result of us increasing our expenses incurred related to our national advertising services to benefit our franchisees and the brands as a whole.

Operating Costs and Expenses

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

Restaurant food and beverage costs for the six months ended June 30, 2022 and 2021 totaled $2,143,354 or 39.4% as a percentage of Company restaurant net sales, and $1,362,198 or 36.4%, as a percentage of Company restaurant net sales, respectively. The $781,156 increase resulted from higher store counts during the current year as compared to the prior year resulting in higher sales. The Company has experienced an increase in food and beverage costs due to inflationary pressures and supply chain disruptions causing the company to find alternative vendors in some instances for key ingredients. The Company anticipates higher ingredient costs in the near term and has taken price increases, menu modifications and recipe changes to attempt to offset these higher prices.

Restaurant labor for the six months ended June 30, 2022 and 2021 totaled $1,976,109, or 36.3%, as a percentage of Company restaurant net sales, and $1,643,059, or 43.9%, as a percentage of Company restaurant net sales, respectively. The $333,050 increase resulted due a higher store count during the current year as compared to the prior year as the Company opened and acquired more stores as compared to the prior period. We were able to reduce (improve) our overall labor costs as a percentage of sales by 7.6% due to increased sales and also due to improvements in operations.

Restaurant rent expense for the six months ended June 30, 2022 and June 30, 2021 totaled $667,215 or 12.3% as a percentage of restaurant sales, and $561,121, or 15.0%, as a percentage of restaurant sales, respectively. The increase of $106,094 is directly attributed to the new Company-owned locations acquired during the current period as compared to the prior period thus increasing the store count from sixteen stores to nineteen stores as of June 30, 2022. The percent of total sales reduced (improved) by 2.7% as sales increased overall and we are able to leverage fixed rent against these higher sales levels.

Other restaurant operating expenses for the six months ended June 30, 2022 and June 30, 2021 totaled $1,337,547, or 24.6% as a percentage of restaurant sales, and $1,019,769, or 27.2% as a percentage of restaurant sales, respectively. The $317,778 increase is due to higher third-party merchant fees resulting from an increase in delivery orders and a higher store count during the year as compared to the prior year. The increased store count also resulted in an increase in utility fees and insurance expenses. The other restaurant operating expenses as a percent of total sales reduced (improved) by 2.7%.

Depreciation and amortization expense for the six months ended June 30, 2022 and June 30, 2021 totaled $965,381 and $453,774, respectively. The $511,607 increase is mainly attributed to amortization expense attributed to the additionsTotal revenues of definite life intangible assets of approximately $4,150,000 acquired through the various acquisitions during the prior year as compared to the prior year. The remaining of the variance is attributable to depreciation expense related to additional property and equipment acquired through acquisitions and additional property and equipment purchased for new store build outs and the remodeling of an existing and acquired Company-owned restaurant compared to the prior year.

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Selling, general and administrative expenses for the six months ended June 30, 2022 and 2021 totaled $2,451,334, or 41.9% of total revenue, and $4,960,639, or 123.9% of total revenue, respectively. The $2,509,305 decrease was mainly attributed to a reduction in consulting expenses of approximately $1,011,412 which is mainly due to stock-based compensation expense for stock issued to various consultants for various services rendered in the prior year as compared to the current year, a decrease in professional fees of approximately $1,240,211 which resulted from the private placement fees incurred in prior period not incurred in current period and the changing our auditing firm during 2021 and a decrease in salaries and wages of approximately $344,838 resulting from a reduction in employee stock based compensation expense as the executive received shares of common stock in the prior period as compared to the current period. The decrease was$210.0 million, partially offset by the write offs of fixed assets of approximately $131,370 due to closed locations in the current period as compared to the prior period. The remainder of the variance was attributed to various other expenses including recruiting, marketing, computer expenses, increase in franchise sales and marketing expense, etc.

Loss from Operations

Our loss from operations for the six months ended June 30, 2022 and 2021 totaled $3,725,393, or 63.7% of total revenues and $6,025,836, or 150.5% of total revenue, respectively. The decrease of $2,300,443 in loss from operations is primarily attributable to the increase of total revenues of $1,845,303 and a decrease in totalTotal cost and expenses of $455,140 as discussed above.

Other Income (Expense)

Other income (expense) for the six months ended June 30, 2022 and 2021 totaled $78,953 and $1,193,013, respectively. The $1,114,060 increase in other expense which was primarily attributable to a decrease in the gain on extinguishment of debt of $734,695 due to the forgiveness of our PPP loans, an increase in other expenses of $260,198, mainly attributed to settlement expense partially offset by a decrease in interest expense of $8,333 and the change in fair value of accrued compensation expense of $127,500 incurred in the prior period.

Net Loss

Our net loss before income tax for the six months ended June 30, 2022 was $3,646,440 which was an improvement of $1,186,383 as compared to a net loss of $4,832,823 for the six months ended June 30, 2021, resulting from an increase in our total revenue of $1,845,303, a decrease in our other income (expense) of $1,114,060$209.7 million and a $19.0 thousand decrease in Other income.




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Table of our total cost and expenses of $455,140. Our net loss for the six months ended June 30, 2022 was $3,660,223 which was an improvement of $1,173,662 as compared to a net loss of $4,833,885 for the six months ended June 30, 2021.Contents

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The following table represents selected items in our condensed consolidated statementsCondensed Consolidated Statements of operationsOperations for the three months ended June 30, 2022, respectivelyMarch 31, 2023, by our operating segments:

     Muscle Maker  Pokemoto  Non-Traditional  SuperFit Foods     
   Consolidated  Grill Division  Division  (Hybrid) Division  Division   Unallocated  
                    
Revenues:                         
Company restaurant sales, net of discounts $2,750,734  $1,031,532  $1,244,276  $100,042  $374,884  $-  
Franchise royalties and fees  162,480   93,019   69,461   -   -   -  
Franchise advertising fund contributions  16,170   16,170   -   -   -   -  
Total Revenues  2,929,384   1,140,721   1,313,737   100,042   374,884   -  
                          
Operating Costs and Expenses:                         
Restaurant operating expenses:                         
Food and beverage costs  1,117,419   458,897   497,244   52,269   109,009   -  
Labor  903,062   374,779   349,586   91,755   86,942   -  
Rent  326,819   120,307   94,374   82,538   29,600   -  
Other restaurant operating expenses  687,823   247,842   305,892   62,291   71,798   -  
Total restaurant operating expenses  3,035,123   1,201,825   1,247,096   288,853   297,349   -  
Depreciation and amortization  489,654   57,380   30,314   35,970   9,595   356,395 (b)
Franchise advertising fund expenses  16,170   16,170   -   -   -   -  
General and administrative expenses  1,126,857   -   -   -   -   1,126,857 (a)
Total Costs and Expenses  4,667,804   1,275,375   1,277,410   324,823   306,944   1,483,252  
(Loss) Income from Operations  (1,738,420)  (134,654)  36,327   (224,781)  67,940   (1,483,252) 
                          
Other Income:                         
Other income  (14,468)  -   -   -   -   (14,468) 
Interest expense, net  (9,945)  -   -   -   -   (9,945) 
Total Other Income, Net  (24,413)  -   -   -   -   (24,413) 
                          
Loss Before Income Tax  (1,762,833)  (134,654)  36,327   (224,781)  67,940   (1,507,665) 
Income tax provision  (11,311)  -   -   -   -   (11,311) 
Net (Loss) Income $(1,774,144) $(134,654) $36,327  $(224,781) $67,940  $(1,518,976) 

(a)Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $752,416, professional fees of $143,136, and consulting fees of $55,005.
(b)This includes amortization of intangible assets. See Note 7.

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Three Months Ended March 31, 2023
Restaurant divisionSadot DivisionCorporate adj.Consolidated
$’000$’000$’000$’000
Revenues:
Commodity sales— 210,366 — 210,366 
Company restaurant sales, net of discounts2,301 — — 2,301 
Franchise royalties and fees284 — — 284 
Franchise advertising fund contributions16 — — 16 
Total revenues2,601 210,366 — 212,967 
Operating Costs and Expenses:
Commodity operating expenses:
Commodity cost— 205,055 — 205,055 
Labor— 620 — 620 
Other commodity operating expenses— 154 — 154 
Total commodity operating expenses— 205,829 — 205,829 
Restaurant operating expenses:
Food and beverage costs839 — — 839 
Labor880 — — 880 
Rent274 — — 274 
Other restaurant operating expenses472 — — 472 
Total restaurant operating expenses2,465 — — 2,465 
Depreciation and amortization expenses316 — 317 633 
Franchise advertising fund expenses16 — — 16 
Preopening expenses36 — — 36 
Post-closing expenses93 — 1 94 
Stock-based consulting expenses— — 3,359 3,359 
Sales, general and administrative expenses82 286 1,774 2,142 
Total costs and expenses3,008 206,115 5,451 214,574 
(Loss) / income from operations(407)4,251 (5,451)(1,607)
Other Income:
Interest income , net2 — 1 3 
Change in fair value of accrued compensation— — 541 541 
Total other income, net2 — 542 544 
(Loss) / Income Before Income Tax(405)4,251 (4,909)(1,063)
Income tax— — 3 3 
Net (loss) / income(405)4,251 (4,912)(1,066)


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Table of Contents
The following table represents selected items in our condensed consolidated statementsUnaudited Condensed Consolidated Statements of operations for the six months ended June 30, 2022, respectively by our operating segments:

     Muscle Maker  Pokemoto  Non-Traditional  SuperFit Foods     
  Consolidated  Grill Division  Division  (Hybrid) Division  Division  Unallocated  
                    
Revenues:                         
Company restaurant sales, net of discounts $5,444,926  $2,139,731  $2,340,682  $228,743  $735,770  $-  
Franchise royalties and fees  370,621   238,631   131,990   -   -   -  
Franchise advertising fund contributions  34,295   34,295   -   -   -   -  
Total Revenues  5,849,842   2,412,657   2,472,672   228,743   735,770   -  
                          
Operating Costs and Expenses:                         
Restaurant operating expenses:                         
Food and beverage costs  2,143,354   924,581   880,125   96,565   242,083   -  
Labor  1,976,109   942,878   679,471   167,414   186,346   -  
Rent  667,215   327,641   191,981   87,834   59,759   -  
Other restaurant operating expenses  1,337,547   495,866   605,625   90,625   145,431   -  
Total restaurant operating expenses  6,124,225   2,690,966   2,357,202   442,438   633,619   -  
Depreciation and amortization  965,381   125,765   57,351   55,744   17,647   708,874 (b)
Franchise advertising fund expenses  34,295   34,295   -   -   -   -  
General and administrative expenses  2,451,334   -   -   -   -   2,451,334 (a)
Total Costs and Expenses  9,575,235   2,851,026   2,414,553   498,182   651,266   3,160,208  
(Loss) Income from Operations  (3,725,393)  (438,369)  58,119   (269,439)  84,504   (3,160,208) 
                          
Other Income:                         
Other income  (33,889)  -   -   -   -   (33,889) 
Interest expense, net  (28,437)  -   -   -   -   (28,437) 
Gain on debt extinguishment  141,279   -   -   -   -   141,279  
Total Other Income, Net  78,953   -   -   -   -   78,953  
                          
Loss Before Income Tax  (3,646,440)  (438,369)  58,119   (269,439)  84,504   (3,081,255) 
Income tax provision  (13,783)  -   -   -   -   (13,783) 
Net (Loss) Income $(3,660,223) $(438,369) $58,119  $(269,439) $84,504  $(3,095,038) 

(a)Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $1,532,134, professional fees of $241,099, and consulting fees of $63,650.
(b)This includes amortization of intangible assets. See Note 7.

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The following table represents selected items in our condensed consolidated statements of operationsOperations for the three months ended June 30, 2021, respectivelyMarch 31, 2022, by our operating segments:

     Muscle Maker  Pokemoto  Non-Traditional  SuperFit Foods     
  Consolidated  Grill Division  Division  (Hybrid) Division  Division  Unallocated  
                    
Revenues:                         
Company restaurant sales, net of discounts $2,564,864  $1,318,773  $549,040  $152,515  $544,536  $-  
Franchise royalties and fees  135,250   113,264   21,986   -   -   -  
Franchise advertising fund contributions  4,742   4,742   -   -   -   -  
Total Revenues  2,704,856   1,436,779   571,026   152,515   544,536   -  
                          
Operating Costs and Expenses:                         
Restaurant operating expenses:                         
Food and beverage costs  886,392   495,785   129,623   46,546   214,438   -  
Labor  888,895   528,696   114,249   99,411   146,539   -  
Rent  304,930   185,799   17,963   80,572   20,596   -  
Other restaurant operating expenses  666,946   302,996   152,892   88,402   122,656   -  
Total restaurant operating expenses  2,747,163   1,513,276   414,727   314,931   504,229   -  
Depreciation and amortization  284,646   43,758   14,544   24,993   51,948   149,403 (b)
Franchise advertising fund expenses  4,742   4,742   -   -   -   -  
General and administrative expenses  1,994,003   -   -   -   -   1,994,003 (a)
Total Costs and Expenses  5,030,554   1,561,776   429,271   339,924   556,177   2,143,406  
(Loss) Income from Operations  (2,325,698)  (124,997)  141,755   (187,409)  (11,641)  (2,143,406) 
                          
Other Income:                         
Other income  223,681   -   -   -   -   223,681 (c)
Interest expense, net  (22,596)  -   -   -   -   (22,596) 
Gain on debt extinguishment  875,974   -   -   -   -   875,974  
Change in fair value of accrued compensation  127,500   -   -   -   -   127,500  
Total Other Income, Net  1,204,559   -   -   -   -   1,204,559  
                          
Loss Before Income Tax  (1,121,139)  (124,997)  141,755   (187,409)  (11,641)  (938,847) 
Income tax provision  (1,062)  -   -   -   -   (1,062) 
Net (Loss) Income $(1,122,201) $(124,997) $141,755  $(187,409) $(11,641) $(939,909) 

(a)Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $618,482, professional fees of $1,146,072, and consulting fees of $44,849.
(b)This includes amortization of intangible assets. See Note 7.
(c)Included in other income is the revitalization fund grant of approximately $240,000 that was granted to one of our company owned location.

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Three Months Ended March 31, 2022
Restaurant divisionSadot DivisionCorporate adj.Consolidated
$’000$’000$’000$’000
Revenues:
Company restaurant sales, net of discounts2,694 — — 2,694 
Franchise royalties and fees208 — — 208 
Franchise advertising fund contributions18 — — 18 
Total revenues2,920 — — 2,920 
Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs1,026 — — 1,026 
Labor1,073 — — 1,073 
Rent340 — — 340 
Other restaurant operating expenses650 — — 650 
Total restaurant operating expenses3,089 — — 3,089 
Depreciation and amortization expenses119 — 357 476 
Franchise advertising fund expenses18 — — 18 
Sales, general and administrative expenses257 — 1,067 1,324 
Total costs and expenses3,483 — 1,424 4,907 
Loss from operations(563)— (1,424)(1,987)
Other Income:
Other income2 — (21)(19)
Interest income/ (expense), net3 — (21)(18)
Gain on debt extinguishment140 — — 140 
Total other income, net145 — (42)103 
Loss Before Income Tax(418)— (1,466)(1,884)
Income tax— — 2 2 
Net loss(418)— (1,468)(1,886)

The following table represents selected items in our condensed consolidated statements of operations for the six months ended June 30, 2021, respectively by our operating segments:

     Muscle Maker  Pokemoto  Non-Traditional  SuperFit Foods     
  Consolidated  Grill Division  Division  (Hybrid) Division  Division  Unallocated  
                    
Revenues:                         
Company restaurant sales, net of discounts $3,743,775  $2,361,677  $557,892  $279,671  $544,535  $-  
Franchise royalties and fees  241,935   219,949   21,986   -   -   -  
Franchise advertising fund contributions  18,829   18,829   -   -   -   -  
Total Revenues  4,004,539   2,600,455   579,878   279,671   544,535   -  
                          
Operating Costs and Expenses:                         
Restaurant operating expenses:                         
Food and beverage costs  1,362,198   902,041   141,817   103,437   214,903   -  
Labor  1,643,059   1,098,905   129,547   252,564   162,043   -  
Rent  561,121   357,700   23,507   159,318   20,596   -  
Other restaurant operating expenses  1,019,769   549,051   168,055   177,186   125,477   -  
Total restaurant operating expenses  4,586,147   2,907,697   462,926   692,505   523,019   -  
Depreciation and amortization  453,774   135,708   28,044   69,662   55,351   165,009 (b)
Franchise advertising fund expenses  18,829   18,829   -   -   -   -  
Preopening expenses  10,986   10,986   -   -   -   -  
General and administrative expenses  4,960,639   -   -   -   -   4,960,639 (a)
Total Costs and Expenses  10,030,375   3,073,220   490,970   762,167   578,370   5,125,648  
(Loss) Income from Operations  (6,025,836)  (472,765)  88,908   (482,496)  (33,835)  (5,125,648) 
                          
Other Income:                         
Other income  226,309   -   -   -   -   226,309 (c)
Interest expense, net  (36,770)  -   -   -   -   (36,770) 
Gain on debt extinguishment  875,974   -   -   -   -   875,974  
Change in fair value of accrued compensation  127,500   -   -   -   -   127,500  
Total Other Income, Net  1,193,013   -   -   -   -   1,193,013  
                          
Loss Before Income Tax  (4,832,823)  (472,765)  88,908   (482,496)  (33,835)  (3,932,635) 
Income tax provision  (1,062)  -   -   -   -   (1,062) 
Net (Loss) Income $(4,833,885) $(472,765) $88,908  $(482,496) $(33,835) $(3,933,697) 

(a)Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $1,826,218, professional fees of $1,577,237, and consulting fees of $1,082,549.
(b)This includes amortization of intangible assets. See Note 7.
(c)Included in other income is the revitalization fund grant of approximately $240,000 that was granted to one of our company owned location.

Liquidity and Capital Resources

Liquidity

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

  June 30,  December 31, 
  2022  2021 
Cash $13,465,538  $15,766,703 
Working Capital Surplus $11,930,729  $15,041,334 
Convertible notes payable, including related parties and Former Parent, net $132,458  $182,458 
Other notes payable, including related parties $965,344  $1,170,079 

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As of
March 31, 2023December 31, 2022
$’000$’000
Cash6,386 9,898 
Working capital surplus6,420 4,033 
Notes payable947 981 

Availability of Additional Funds

Although we have a working capital surplus of $11,930,729,$6.4 million, we presently have an accumulated deficit of $75,052,859,$80.4 million, as of June 30,December 31, 2022, and we utilized $1,905,110$3.3 million of cash in operating activities during the sixthree months ended June 30, 2022.March 31, 2023. We believe that our existing cash on hand and future cash flows from our franchise operations and commodity
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trading operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve12 months.

In the event we are required to obtain additional financing, either through borrowings, private placements, public offerings, or some type of business combination, such as a merger, or buyout, and there can be no assurance that we will be successful in such pursuits. We may be unable to acquire the additional funding necessary to continue operating. Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.

If we need to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities could dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrenceoccurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional funds on favorable terms could have a material adverse effect on our liquidity and financial condition.

Sources and Uses of Cash for the SixThree Months Ended June 30,March 31, 2023 and March 31, 2022 and June 30, 2021

For the sixthree months ended June 30, 2022 and 2021,March 31, 2023, we used Net cash of $1,905,110 and $3,700,395, respectively,$3.3 million compared to $0.9 million, for the three months ended March 31, 2022, in operations. Our Net cash used for the sixthree months ended June 30, 2022March 31, 2023, was primarily attributable to our netNet loss of $3,660,223,$1.1 million, adjusted for net non-cash income in the aggregate amount of $1,149,565, partially$4.6 million offset by $605,548$6.8 million of netNet cash provided by changes in the levels of operating assets and liabilities. Our netNet cash used in operating activities for the sixthree months ended June 30, 2021March 31, 2022, was primarily attributable to our netNet loss of $4,833,885,$1.9 million, adjusted for net non-cash itemsincome in the aggregate amount of $1,233,548 and $100,058$0.6 million, partially offset by $0.3 million of netNet cash provided byused in changes in the levels of operating assets and liabilities.

During

For the sixthree months ended June 30, 2022,March 31, 2023, Net cash used in investing activities was $282,599,$0.2 million, of which $282,999$0.1 million was used to purchase propertyProperty and equipment, partially offset by $400 of collections in loans receivable. Duringequipment. For the sixthree months ended June 30, 2021, netMarch 31, 2022, Net cash used in investing activities was $3,412,847,$35.0 thousand, of which $98,257$35.0 thousand was used to purchase property, $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, partially offset by $800 of loan collections from a former franchisee.

Property and equipment.

For the three months ended March 31, 2023, Net cash used byin financing activities for the six months ended June 30, 2022 was $113,456,$34.0 thousand, consisting of $63,456 of repayments of various other notes payable andof $34.0 thousand. For the repayment of $50,000 on a convertible note.three months ended March 31, 2022, Net cash usedprovided by financing activities for the six months ended June 30, 2021 was $7,888,931 of which $9,181,350 was contributed by proceeds from a private placement offering , net of offering costs, $790,000 and proceeds from the exercising of the pre-funded warrants of $28,652,$32.0 thousand, partially offset by repayments of various other notes payable of $1,221,071,$32.0 thousand.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which consisted mainly of SBA loans that was acquired through the Pokemoto acquisition and $100,000 cash paidrequires companies to a former investor in connection with the cancellation of their shares.

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Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets,recognize lease liabilities and corresponding right-of-use leased assets on the Balance Sheets and to disclose key information about leasing arrangements. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing, and uncertainty of contingent assetscash flows arising from leases. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2021, with early adoption permitted.

Additionally, in 2018 and liabilities at2019, the dateFASB issued the following Topic 842–related ASUs:
ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, which clarifies the applicability of Topic 842 to land easements and provides an optional transition practical expedient for existing land easements;
ASU 2018-10, Codification Improvements to Topic 842, Leases, which makes certain technical corrections to Topic 842;
ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows companies to adopt Topic 842 without revising comparative period reporting or disclosures and provides an optional practical expedient to lessors to not separate lease and non-lease components of a contract if certain criteria are met; and
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ASU 2019-01, Leases (Topic 842): Codification Improvements, which provides guidance for certain lessors on determining the financial statements and the reported amountsfair value of expenses during the reporting period.

Management bases its estimates on historical experiencean underlying asset in a lease and on various assumptions that are believed to be reasonable under the circumstances, the resultscash flow statement presentation of which form the basis for making judgments about the carrying valuelease payments received; ASU No. 2019-01 also clarifies disclosures required in interim periods after adoption of assets and liabilities that are not readily apparent from other sources. Significant estimates include:

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

Estimates and assumptions are periodically reviewed, and the effects of any material revisions are reflectedASU No. 2016-02 in the financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

Intangible Assets

year of adoption.

The Company accounts for recorded intangible assets in accordance with ASC 350 “Intangibles - Goodwill and Other”. In accordance with ASC 350, the Company does not amortize intangible assets having indefinite useful lives. The Company’s trademark – Muscle Maker had a finite life as of December 31, 2021. The Company determined thatadopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the trademark - Muscle Maker had a finite lifeopening balance of 3 years and will be amortizing the value over the new estimated life. The Company’s goodwill has an indefinite life, and is accordingly not amortized, but are evaluated for impairment at least annually, or more often whenever changes in facts and circumstances may indicate that the carrying value may not be recoverable. The Accounting Standards Codification (“ASC”) requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment). Applicationaccumulated deficit of $15.0 thousand as of the goodwill impairment testadoption date, and recognized an additional $7.8 thousand during the second quarter of 2022, based on updated information on two of our leases, for an aggregate cumulative-effect adjustment to accumulated deficit of $22.8 thousand.
In October 2021, the FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires judgment, including the identification of reporting units, assigningcontract assets and contract liabilities acquired in a business combination to reporting units, assigning goodwill to reporting units,be recognized and determining the fair value. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.

The other intangible assets estimated original useful lives are as follows:

Franchisee agreements13 years
Franchise license10 years
Trademark – Muscle Maker, SuperFit, and Pokemoto3 – 5 years
Domain name, Customer list and Proprietary recipes3 – 7 years
Non-compete agreement2 – 3 years

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Impairment of Long-Lived Assets

When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, we perform an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income.

Deferred Revenue

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

Revenue Recognition

The Company’s revenues consist of restaurant sales, franchise royalties and fees, franchise advertising fund contributions, and other revenues. The Company recognized revenues according to Topicaccordance with ASC 606, “Revenue from Contracts with Customers”., as if it had originated the contracts. Under the current business combinations guidance, revenue is recognized in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model, we made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and which represent separate performance obligations.

Restaurant Sales

Retail store revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales related taxes. The Company recorded retail store revenues of $2,750,734 and $5,444,926 during the three and six months ended June 30, 2022, respectively, and $2,564,864 and $3,743,775 during the three and six months ended June 30, 2021, respectively.

The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. The Company recognizes revenues from gift cards as restaurant revenues once the Company performs its obligation to provide food and beverage to the customer simultaneously with the redemption of the gift card or through gift card breakage, as discussed in Other Revenues below.

Franchise Royalties and Fees

Franchise revenues consists of royalties, franchise fees and rebates. Royalties are based on a percentage of franchisee net sales revenue. The Company recognizes the royalties as the underlying sales occur. The Company recorded revenue from royalties of $121,001 and $229,422 during the three and six months ended June 30, 2022, respectively, and $104,430 and $185,899 during the three and six months ended June 30, 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.

The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for the multi-unit development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee, these fees are then recognized as franchise fee revenue on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. The Company recorded revenue from franchise fees of $15,315 and $64,206 during the three and six month ended June 30, 2022, respectively, and $12,352 and $22,138 during the three and six month ended June 30, 2021, respectively which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.

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The Company has supply agreements with certain food and beverage vendors. Pursuant to the terms of these agreements, rebates are provided to the Company based upon the dollar volume of purchases for all company-owned and franchised restaurants from these vendors. Rebates earned on purchases by franchise stores are recorded as revenue during the period in which the related food and beverage purchases are made. The Company recorded revenue from rebates of $26,164 and $76,993 during the three and six months ended June 30, 2022, respectively, and $18,468 and $33,898 during the three and six months ended June 30, 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations. Rebates earned on purchases by Company-owned stores are recorded as a reduction of food and beverage costs during the period in which the related food and beverage purchases are made.

Franchise Advertising Fund Contributions

Under the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under selling, general and administrative expenses. When an advertising contribution fund is over-spent at year end, advertising expenses will be reported on the condensed consolidated statement of operations in an amount that is greater than the revenue recorded for advertising contributions. Conversely, when an advertising contribution fund is under-spent at a period end, the Company will accrue advertising costs up to advertising contributions recorded in revenue. The Company recorded contributions from franchisees of $16,170 and $34,295 during the three and six months ended June 30, 2022, respectively, and $4,742 and $18,829 during the three and six months ended June 30, 2021, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations.

Other Revenues

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. Gift card liability is recorded in other current liabilities on the condensed consolidated balance sheet. For the three and six months ended June 30, 2022 and 2021, respectively, the Company did not record any gift card breakage.

Deferred Revenue

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

Income Taxes

We account for income taxes under Accounting Standards Codification (“ASC”) 740 Income Taxes (“ASC 740”). Under ASC 740, deferred taxsuch assets and liabilities are determined basedwere recognized by the acquirer at fair value on the difference between the financial reportingacquisition date. The ASU is effective for fiscal years, and tax basesinterim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The adoption 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 tothis guidance did not have a material 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.

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Company’s Unaudited Condensed Consolidated Financial Statements and related disclosures.

Our policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses in the condensed consolidated statements of operations.

Recently Issued Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements for the six months ended June 30, 2022.

Off-Balance Sheet Arrangements

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

ITEM

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM

Item 4.CONTROLS AND PROCEDURES.

Evaluation of Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)13a-15€ promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the quarter ended June 30, 2022.March 31, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of such date our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information requested to be disclosed by us in our reports that we file or submit under the Exchange Act.

Changes in Internal Control over Financial Reporting

There

Our Company has added and will continue to add additional internal control procedures, additional resources and software to increase the internal control aspects of the company as we integrate our Sadot subsidiary into the overall business. Other than above changes, there were no other 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 sixthree months ended June 30, 2022March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM

Item 1.LEGAL PROCEEDINGS.

Legal Proceedings

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

We are currently involved in pending legal proceedings that have been previously disclosed in our filings with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended. Below is a summary of the legal proceedings that have become a reportable event or which have had developments during the six months ended June 30, 2022.

On April 24, 2022, the Company and a convertible note holder entered into an agreement in which the Company will repay a total of $110,000 in connection with the default judgement issued on June 22, 2018, by the Iowa District Court for Polk County #CVCV056029, filed against the Company for failure to pay the remaining balance due on a promissory note in the amount of $100,000, together with interest, attorney fees and other costs of $171,035.The Company agreed to pay $40,000 on or before May 1, 2020 and to make seven installment payments of $10,000 per month starting on or before June 1, 2022. As of June 30, 2022, the Company has accrued for the liability in convertible notes payable in the amount of $50,000 which is included in accounts payable and accrued expenses.

On or about March 7, 2019, the Company was listed as a defendant to a lawsuit filed by a contractor in the State of Texas in El Paso County #2019DCV0824. The contractor is claiming a breach of contract and is seeking approximately $32,809 in damages for services claimed to be rendered by the contractor. As of June 30, 2022, the Company accrued $30,000 for the liability in accounts payable and accrued expenses.

On January 23, 2020, the Company was served a judgment issued by the Judicial Council of California in the amount of $130,185 for a breach of a lease agreement in Chicago, Illinois, in connection with a Company-owned store that was closed in 2018. As of June 30, 2022, the Company has accrued for the liability in accounts payable and accrued expenses.

MMI or its subsidiaries failed in certain instances in paying past state and local sales taxes collected from customers in specific states that impose a tax on sales of the Company’s products during 2017 and 2018. As of the second quarter June 30, 2020, all past due tax on sales from 2017 and 2018 has been paid in full. The Company had accrued a sales tax liability for approximately $56,184 and $125,550 as of June 30, 2022, and December 31, 2021, respectively. All current state and local sales taxes from January 1, 2018, for open Company-owned locations have been fully paid and in a timely manner. The Company has completed all the payment plans with the various state or local entities for these past owed amounts.

ITEM 1A.RISK FACTORS.

Item 1.A. Risk Factors
Not applicable. See, however,However, see Item 7 (“Management’s("Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Thatthat May Affect Future Results and Financial Condition”Condition") of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on March 17, 2022.

21, 2023.

ITEM

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuance of Stock

On January 3, 2022,5, 2023, the Company authorized the issuance of an aggregate of 1,200,000 shares of common stock in connection with the cashless exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,200,215 warrants were exercised.

On January 6, 2022, the Company authorized the issuance of an aggregate of 39,57331.3 thousand shares of common stock to the members of the board of directors as compensation earned during the fourth quarter of 2021. The Company accrued for the liability as of December 31, 2021.

2022.

On January 18, 2022, the Company issued an aggregate of 30,000 shares of common stock of the Company to a consultant that assisted with the acquisition of SuperFit Foods and Pokemoto, with an aggregate fair value amount of $15,600. The Company accrued for the liability as of December 31, 2021.

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On February 24, 2022,March 27, 2023, the Company authorized the issuance of an aggregate of 1,209,604 shares of common stock in connection with the cashless exercise of the Pre-Funded Warrants. Pursuant to the terms of the Pre-Funded Warrants a total of 1,210,110 warrants were exercised.

On March 31, 2022, the Company authorized the issuance of an aggregate of 53,9612.8 million shares of common stock to the members of the board of directorsAggia as compensationconsulting fees earned during the firstfourth quarter of 2022.

On April 4, 2022, the Company authorized the issuance of 20,000 shares of common stock to a member of the executive team per the employment agreement. The stock was not fully earned until April 4, 2022.

On June 8, 2022, the Company authorized the issuance of 5,000 shares of common stock to a contractor for work done at a Company owned location

On June 30, 2022, the Company recognized 30,910 shares of common stock for book purpose to reconcile the shares outstanding to the transfer agent report.

On July 14, 2022, the Company authorized the issuance of an aggregate of 72,091 shares of common stock to the members of the board of directors as compensation earned during the second quarter of 2022.

The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.

ITEM

Item 3.DEFAULTS UPON SENIOR SECURITIES.

Defaults Upon Senior Securities

None.

ITEM

Item 4.MINE SAFETY DISCLOSURES.

Mine Safety Disclosures

Not applicable.

Item 5. Other Information
None.
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ITEM 5.OTHER INFORMATION.

ITEM

Item 6.EXHIBITS

Exhibits
Exhibit
No.		Exhibit Description
3.1
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document*
101.SCHInline XBRL Schema Document*
101.CALInline XBRL Calculation Linkbase Document*
101.DEFInline XBRL Definition Linkbase Document*
101.LABInline XBRL Label Linkbase Document*
101.PREInline XBRL Presentation Linkbase Document*
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

† Includes management contracts and compensation plans and arrangements

*Filed herewith.

+Previously filed.

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filed

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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: August 11, 2022
MUSCLE MAKER, INC.INC
By:/s/ Michael J. Roper
Michael J. Roper
Dated: May 10, 2023Chief Executive Officer
(Principal (Principal Executive Officer)
By:/s/ Jennifer Black
Jennifer Black
Chief Financial Officer
(Principal (Principal Financial and Accounting Officer)


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