Exhibit 99.1
| Poke Co Holdings LLC |
Financial Statements As of March 31, 2022 and for the three months ended March 31, 2022 |
Table of Contents
Poke Co Holdings LLC
Unaudited Statements of Balance Sheet
| | | As of
March 31, | |
| | | 2022 | |
| | | | |
| Assets | | | | |
| Current Assets: | | | | |
| Cash | | $ | 650,753 | |
| Accounts receivable | | | 44,982 | |
| Total Assets | | $ | 695,735 | |
| | | | | |
| Liabilities and Stockholders’ Equity | | | | |
| Current Liabilities: | | | | |
| Accounts payable and accrued expenses | | $ | 3,267 | |
| Accounts payable, affiliates | | | 20,986 | |
| Deferred revenue, current | | | 50,375 | |
| Other current liabilities | | | 19,975 | |
| Total Current Liabilities | | | 94,603 | |
| Deferred revenue, non-current | | | 520,916 | |
| Total Liabilities | | | 615,519 | |
| | | | | |
| Commitments and Contingencies | | | | |
| | | | | |
| Stockholders’ Equity: | | | | |
| Members’ equity | | | 80,216 | |
| Total Liabilities and Stockholders’ Equity | | $ | 695,735 | |
Poke Co Holdings LLC
Notes to audited Financial Statements
| | | For the Three Month | |
| | | Ended March 31, | |
| | | 2022 | |
| | | | |
| Revenues: | | | | |
| Royalties | | $ | 30,449 | |
| Franchise Fee | | | 4,500 | |
| Rebates | | | 26,629 | |
| Total Revenues | | | 61,578 | |
| | | | | |
| Operating Costs and Expenses: | | | | |
| General and administrative expenses | | | 42,635 | |
| Income from Operations | | | 18,943 | |
| | | | | |
| Net (Loss) Income Net Income | | $ | 18,943 | |
Poke Co Holdings LLC
Financial Statements
As of and for the years ended December 31, 2021
and 2020
Table of Contents
Poke Co Holdings LLC
Audited Statements of Balance Sheet
| | | As of December 31, | | | As of December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | |
| Assets | | | | | | | | |
| Current Assets: | | | | | | | | |
| Cash | | $ | 366,681 | | | $ | 64,108 | |
| Accounts receivable | | | 18,865 | | | | 13,615 | |
| Total Current Assets | | | 385,546 | | | | 77,723 | |
| Accounts receivable, affiliates | | | 25,848 | | | | - | |
| Total Assets | | $ | 411,394 | | | $ | 77,723 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | | - | | | | 10,959 | |
| Deferred revenue, current | | | 26,375 | | | | 13,500 | |
| Note payable | | | - | | | | 85,000 | |
| Other current liabilities | | | 14,330 | | | | - | |
| Total Current Liabilities | | | 40,705 | | | | 109,459 | |
| Deferred revenue, non-current | | | 309,416 | | | | 38,291 | |
| Total Liabilities | | | 350,121 | | | | 147,750 | |
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders’ Equity: | | | | | | | | |
| Members’ equity (deficit) | | | 61,273 | | | | (70,027 | ) |
| Total Liabilities and Stockholders’ Equity | | $ | 411,394 | | | $ | 77,723 | |
See Notes to the Audited Financial Statements
Poke Co Holdings LLC
Audited Statements of Income
| | | For the Year Ended | | | For the Year Ended | |
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | |
| Revenues: | | | | | | | | |
| Royalties | | $ | 171,638 | | | $ | 66,227 | |
| Franchise Fee | | | 14,083 | | | | 27,001 | |
| Rebates | | | 59,989 | | | | 52,915 | |
| Other income | | | - | | | | - | |
| Total Revenues | | | 245,710 | | | | 146,143 | |
| | | | | | | | | |
| Operating Costs and Expenses: | | | | | | | | |
| General and administrative expenses | | | 20,336 | | | | 24,404 | |
| Income from Operations | | | 225,374 | | | | 121,739 | |
| | | | | | | | | |
| Other (Expense) Income: | | | | | | | | |
| Interest expense, net | | | (3,748 | ) | | | - | |
| Gain on debt extinguishment | | | 52,907 | | | | - | |
| Total Other Income, Net | | | 49,159 | | | | - | |
| | | | | | | | | |
| Income Before Income Tax | | | 274,533 | | | | 121,739 | |
| Income tax provision | | | (9,749 | ) | | | (20,676 | ) |
| Net (Loss) Income Net Income | | $ | 264,784 | | | $ | 101,063 | |
See Notes to the Audited Financial Statements
Poke Co Holdings LLC
Audited Statements of Members’ (Deficit) Equity
| | | Members’ (Deficit) Equity | |
| | | | |
| Balance at December 31, 2019 | | $ | (63,100 | ) |
| | | | | |
| Contribution | | | - | |
| | | | | |
| Distribution | | | (107,990 | ) |
| | | | | |
| Net income | | | 101,063 | |
| | | | | |
| Balance at December 31, 2020 | | $ | (70,027 | ) |
| | | | | |
| Contribution | | | - | |
| | | | | |
| Distribution | | | (133,484 | ) |
| | | | | |
| Net income | | | 264,784 | |
| | | | | |
| Balance at December 31, 2021 | | $ | 61,273 | |
See Notes to the Audited Financial Statements
Poke Co Holdings LLC
Audited Statements of Cash Flows
| | | For the Year Ended | | | For the Year Ended | |
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | |
| Cash Flows from Operating Activities | | | | | | | | |
| Net loss | | $ | 264,784 | | | $ | 101,063 | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Gain on extinguishment of debt | | | 52,907 | | | | - | |
| Changes in operating assets and liabilities: | | | - | | | | - | |
| Accounts receivable | | | (5,250 | ) | | | (3,905 | ) |
| Accounts receivable, affiliates | | | (25,848 | ) | | | - | |
| Accounts payable and accrued expenses | | | (11,366 | ) | | | 7,278 | |
| Deferred revenue | | | 284,000 | | | | (27,001 | ) |
| Other current liabilities | | | 14,330 | | | | - | |
| Total Adjustments | | | 308,773 | | | | (23,628 | ) |
| Net Cash Provided in Operating Activities | | | 573,557 | | | | 77,435 | |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Proceeds from notes payable | | | (52,500 | ) | | | 85,000 | |
| Repayments of other notes payables | | | (85,000 | ) | | | - | |
| Members distributions | | | (133,484 | ) | | | (107,990 | ) |
| Members contributions | | | - | | | | - | |
| Net Cash Used by Financing Activities | | | (270,984 | ) | | | (22,990 | ) |
| | | | | | | | | |
| Net Increase in Cash | | | 302,573 | | | | 54,445 | |
| Cash - Beginning of Period | | | 64,108 | | | | 9,663 | |
| Cash - End of Period | | $ | 366,681 | | | $ | 64,108 | |
See Notes to the Audited Financial Statements
Poke Co Holdings LLC
Notes to audited Financial Statements
Poke Co Holdings LLC (the “Company”), was incorporated in Connecticut in April 2018. The Company is a franchisor that sells franchises to franchisees. The franchises sold by the Company are for the Pokemoto® branded restaurants which are fast casual style restaurants that specialize in Hawaiian inspired poke bowls, wraps and salads.
The Company has eight franchise restaurants as of December 31, 2021.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Combined Financial Statements
The accompanying financial statements have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles (“GAAP”) promulgated in the United States of America as of December 31, 2021 and 2020, and for the years then ended.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with the GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of December 31, 2021 or 2020.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The Company’s net revenue primarily consists of revenues from franchisees under franchise agreements. Accordingly, the Company recognizes revenue as follows:
The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for initial 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 recognized initial franchise fees of $14,083 and $27,001 for the years ended December 31, 2021 and 2020, respectively, which is included in franchise fees in the accompanying unaudited combined statement of income.
Poke Co Holdings LLC
Notes to audited Financial Statements
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Revenue Recognition (continued)
Royalties are based on a percentage of franchisee net sales revenue which range between 2% up to 6%. The Company recognizes the royalties as the underlying sales occur. The Company recorded revenue from royalties of $171,638 and $66,227 for the years ended December 31, 2021 and 2020, respectively.
The Company also charges 1% of net sales for brand marketing fee to franchisees.
Rebates consists of incentives received from wholesale vendors. The Company recognizes rebates when collection is assured and when performance has occurred.
Deferred Revenue
Deferred revenue consists of 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 on a straight line basis as performance obligations are satisfied.
Income Taxes
The Company is a limited liability company files a tax return with the federal or any state jurisdictions. The Company is subject to limited liability company state taxes which is approximately 7% of its taxable income. The Company recorded a state income tax provision in the amount of $9,749 and $20,676 for the years ended December 31, 2021 and 2020, respectively.
The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under that guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by 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 50% likelihood of being realized upon ultimate settlement. The Company had no unrecognized tax benefits identified or recorded as liabilities as of December 31, 2021.
Poke Co Holdings LLC
Notes to audited Financial Statements
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Fair Value of Financial Instruments
The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s financial instruments consisted of cash, franchise fee receivables – royalties, franchise fee receivables – initial fee, accounts payable and accrued expenses, loans payable, emergency injury disaster loan (EIDL) loans payable, payroll protection program (PPP), and deferred franchise fee revenue. The estimated fair value of these financial instruments approximate their carrying amount due to the short maturity of these instruments.
COVID-19 Impact on Concentration of Risk
The novel coronavirus (“COVID-19”) pandemic has significantly impacted health and economic conditions throughout the United States and globally, as public concern about becoming ill with the virus has led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-quarantine. The Company is continually monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. We have experienced significant disruptions to our business due to the COVID-19 pandemic and related suggested and mandated social distancing and shelter-in-place orders.
Reclassifications
Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or member’s equity.
Subsequent Events
The Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed in Note 6 – Subsequent Events.
Poke Co Holdings LLC
Notes to audited Financial Statements
At December 31, 2021 and 2020, deferred revenue consists of the following:
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| Deferred revenues | | $ | 335,791 | | | $ | 51,791 | |
| Less: Deferred revenues, current | | | (26,375 | ) | | | (13,500 | ) |
| | | $ | 309,416 | | | $ | 38,291 | |
Deferred revenue of $14,083 at December 31, 2020 was recognized in 2021 as franchise fee on the statement of operations. Deferred revenues of $26,375 at December 31, 2021 is expected to be recognized during 2022.
On April 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $85,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning April 22, 2021 (twelve months from the date of the SBA Loan) in the amount of $415. In connection therewith, the Company executed (i) a loan for the benefit of the SBA (the “SBA Loan”), which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”). As of December 31, 2021 the Company has repaid the loan.
On January 29, 2021, the Company entered into a loan (“PPP 2 Loan”) in the amount of $52,500. The PPP 2 Loan is administered by the SBA. The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing ten months after the effective date of the PPP 2 Loan, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the five-year anniversary of the effective date of the PPP 2 Loan (the “Maturity Date”). The PPP 2 Loan contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP 2 Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP 2 Loan, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the terms of the CARES Act, PPP 2 loan recipients can apply for and be granted forgiveness for all, or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.
During the year ended December 31, 2021 the SBA forgave the PPP 2 Loan entered into on January 29, 2021. The aggregate amount forgiven was $52,907, consisting of $52,500 in principal and $407 in interest expense. The forgiven amount was accounted for as a gain on debt extinguishment of $52,907 and was recorded in our statement of income
Poke Co Holdings LLC
Notes to audited Financial Statements
| 5. | COMMITMENTS AND CONTINGENCIES |
Franchising Agreements
During the year ended December 31, 2021, the Company entered into a various franchise agreement for a total of seventeen potentially new Pokemoto locations with various franchisees. The franchisees paid the Company an aggregate of $282,500 and this has been recorded in deferred revenue as of December 31, 2021.
Sale of Company
Poke Co Holdings LLC was part of the acquisition by Muscle Maker Inc. on May 14, 2021. On May 14, 2021, Muscle Maker Inc. 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.
Contingencies
From time to time, the Company may be involved in certain legal actions and claims arising in the normal course of business. Management is of the opinion that such matters will be resolved without material effect on the Company’s financial condition or results of operations.
Franchising Agreements
Subsequent to the year ended December 31, 2021, the Company entered into a various franchise agreement for a total of six potentially new Pokemoto locations with various franchisees. The franchisees paid the Company an aggregate of $95,000.
