Sadot 10Q 2022 Q3 Quarterly report

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 September 30, 2022

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

Commission file number 001-39223

Muscle Maker, Inc.

(Exact name of registrant as specified in its charter)

Nevada		47-2555533
(State or other jurisdiction		(I.R.S. Employer
of incorporation)		Identification No.)

1751 River Run, Suite 200,

Fort Worth, Texas 76107

(Address of principal executive offices)

2600 South Shore Blvd., Suite 300,

League City, Texas 77573

(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 class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0,0001 par value		GRIL		The NASDAQ Capital Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The number of shares if the Registrant’s common stock, $0.0001 par value per share, outstanding as of November 10, 2022, was 28,849,127.

MUSCLE MAKER, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

ITEM NO.	NAME OF ITEM	Page

PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021	3
	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021	4
	UNAUDITED CONDENSED CONSOLIDATED STATMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022	5
	UNAUDITED CONDENSED CONSOLIDATED STATMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021	6
	UNAUDITED CONDENSED COLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021	7
	NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	9
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	52
ITEM 4.	CONTROLS AND PROCEDURES	52
PART II- OTHER INFORMATION		53
ITEM 1.	LEGAL PROCEEDING	53
ITEM 1A.	RISK FACTORS	53
ITEM 2.	UNGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	54
ITEM 4.	MINE SAFETY DISCLOSURES	54
ITEM 5.	OTHER INFORMATION	54
ITEM 6	EXHIBITS	55
	SIGNATURES	56

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2022			2021

Assets
Current Assets:
Cash	$	11,673,247		$	15,766,703
Accounts receivable, net of allowance for doubtful accounts of $10,317 and $23,693 as of September 30, 2022 and December 31, 2021, respectively		287,547			155,167
Inventory		336,761			258,785
Current portion of loans receivable, net of allowance of $0 and $71,184 at September 30, 2022 and December 31, 2021, respectively		-			-
Prepaid expenses and other current assets		457,587			1,789,328
Total Current Assets		12,755,142			17,969,983
Right to use assets		2,417,026			-
Property and equipment, net		2,111,149			2,280,267
Goodwill		2,626,399			2,626,399
Intangible assets, net		5,318,278			6,387,464
Security deposits and other assets		155,548			167,770
Total Assets	$	25,383,542		$	29,431,883

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	1,301,068		$	2,208,523
Convertible note payable to Former Parent		82,458			82,458
Convertible note payable		20,000			100,000
Other notes payable		137,633			165,052
Operating lease liability, current		548,851			-
Deferred revenue, current		91,894			49,728
Deferred rent, current		-			36,800
Other current liabilities		182,127			286,088
Total Current Liabilities		2,364,031			2,928,649
Other notes payable, non-current		794,659			1,005,027
Operating lease liability, non-current		2,022,823			-
Deferred revenue, non-current		1,268,607			1,013,645
Deferred rent, non-current		-			91,295
Total Liabilities		6,450,120			5,038,616

Commitments and Contingencies					-

Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 28,773,335 and 26,110,268 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		2,877			2,611
Additional paid-in capital		95,880,958			95,760,493
Accumulated deficit		(76,950,413	)		(71,369,837	)
Total Stockholders’ Equity		18,933,422			24,393,267
Total Liabilities and Stockholders’ Equity		25,383,542		$	29,431,883

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	2022			2021			2022			2021
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues:
Company restaurant sales, net of discounts	$	2,630,254		$	2,976,256		$	8,075,180		$	6,720,030
Franchise royalties and fees		170,008			324,753			540,629			629,642
Franchise advertising fund contributions		23,297			670			57,592			19,500
Total Revenues		2,823,559			3,301,679			8,673,401			7,369,172

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		921,891			1,117,181			3,065,244			2,542,333
Labor		968,283			1,212,011			2,944,392			2,855,070
Rent		257,095			343,637			924,310			904,759
Other restaurant operating expenses		563,278			717,613			1,900,826			1,737,128
Total restaurant operating expenses		2,710,547			3,390,442			8,834,772			8,039,290
Depreciation and amortization		524,667			384,673			1,490,050			838,447
Franchise advertising fund expenses		23,297			670			57,592			19,500
Preopening expenses		116,729			11,393			116,729			22,379
Post-closing expenses		158,783			-			158,783			-
Selling, general and administrative expenses		1,251,246			1,133,978			3,702,579			6,094,869
Total Costs and Expenses		4,785,269			4,921,156			14,360,505			15,014,485
Loss from Operations		(1,961,710	)		(1,619,477	)		(5,687,104	)		(7,645,313	)

Other Income (Expenses) :
Other income (expense)		55,283			1,006,152			21,394			1,232,461
Interest expense, net		11,309			(16,859	)		(17,128	)		(53,629	)
Change in fair value of accrued compensation		-			-			-			127,500
Gain on debt extinguishment		-			200,000			141,279			1,075,974
Total Other Income (Expenses), Net		66,592			1,189,293			145,545			2,382,306

Loss Before Income Tax		(1,895,118	)		(430,184	)		(5,541,559	)		(5,263,007	)
Income tax provision		(2,436	)		(2,446	)		(16,218	)		(3,508	)
Net Loss	$	(1,897,554	)	$	(432,630	)	$	(5,557,777	)	$	(5,266,515	)

Net Loss Per Share:
Basic and Diluted		(0.07	)		(0.02	)		(0.20	)		(0.35	)

Weighted Average Number of Common Shares Outstanding:
Basic and Diluted		28,762,761			17,704,445			28,412,655			14,991,168

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Shares		Amount		Capital			Deficit			Total

					Additional
	Common Stock				Paid-in			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance - December 31, 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		4		1,946			-			1,950
Stock based compensation - options		-		-		3,750			-			3,750
Reconciliation for shares outstanding per transfer agent		30,910		-		-			-			-
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
Common stock issued as compensation to board of directors		74,019		7		28,488			-			28,495
Stock based compensation - options		-		-		3,150			-			3,150
Net loss		-		-		-			(1,897,554	)		(1,897,554	)

Balance - September 30, 2022		28,773,335		2,877		95,880,958			(76,950,413	)		18,933,422

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

							Additional
	Common Stock						Paid-in			Accumulated
	Shares			Amount			Capital			Deficit			Total
Balance - December 31, 2020		11,725,764		$	1,172		$	68,987,663		$	(63,193,707	)	$	5,795,128
Issuance of restricted stock		1,200			-			-			-			-
Common stock issued 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
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
Exercise of pre-funding warrants		2,865,227			287			28,365			-			28,652
Cancellation of share per agreement with shareholder		(11,879	)		(1	)		(99,999	)		-			(100,000	)
Common stock issued as compensation for services		160,000			16			229,185			-			229,201
Net loss		-			-			-			(1,122,201	)		(1,122,201	)

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

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

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2022			2021
	For the Nine Months Ended
	September 30,
	2022			2021

Cash Flows from Operating Activities
Net loss	$	(5,557,777	)	$	(5,266,515	)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization		1,490,050			838,447
Stock-based compensation		120,731			1,779,248
Gain on extinguishments of debt		(141,279	)		(1,075,974	)
Loss on disposal of assets		206,190			37,027
Loss on change in fair value of accrued compensation		-			(127,500	)
Bad debt expense		(60,638	)		18,676
Changes in operating assets and liabilities:
Accounts receivable, net		(142,926	)		(169,300	)
Inventory		(77,976	)		(45,020	)
Prepaid expenses and other current assets		1,331,741			(1,084,132	)
Security deposits and other assets		12,222			(6,000	)
Accounts payable and accrued expenses		(790,786	)		380,215
Deferred rent		(128,095	)		(13,156	)
Operating right of use asset and lease liability, net		131,849			-
Deferred revenue		297,128			(240,345	)
Other current liabilities		(103,961	)		33,233
Total Adjustments		2,144,250			325,419
Net Cash Used in Operating Activities		(3,413,527	)		(4,941,096	)

Cash Flows from Investing Activities
Purchases of property and equipment		(574,605	)		(183,861	)
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		71,184			800
Net Cash Used in Investing Activities		(503,421	)		(3,498,451	)

Cash Flows from Financing Activities
Proceeds from Private Placement offering, net of offering cost		-			9,181,349
Proceeds from PPP loan		-			28,652
Cash paid in connection with the cancellation of shares		-			(100,000	)
Repayments of convertible note		(80,000	)		-
Repayments of other notes payables		(96,508	)		(1,249,541	)
Net Cash (Used in) Provided by Financing Activities		(176,508	)		7,860,460

Net Decrease in Cash		(4,093,456	)		(579,087	)
Cash - Beginning of Period		15,766,703			4,195,932
Cash - End of Period	$	11,673,247		$	3,616,845

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended
	September 30,
	2022		2021

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	84,927	$	66,179

Supplemental Disclosures of non-cash investing and financing activities:
Cashless exercise of pre-funded warrants	$	241	$	-

See Notes to the Unaudited Condensed Consolidated Financial Statements

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS

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

MMI is 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®.

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.

On March 25, 2021, MMI acquired the assets of SuperFit Foods, a subscription based fresh-prepared meal prep business located in Jacksonville, Florida. With this acquisition, we are also the owner of the trade name SuperFit Foods that we use in connection with the operations of SuperFit Foods. SuperFit Foods is differentiated from other meal prep services by allowing customers in the Jacksonville Florida market to order online via the Company’s website or mobile app and pick up their fully prepared meals from 34 Company-owned coolers located in gyms and wellness centers.

On May 14, 2021, MMI acquired PKM Stamford, LLC, Poke Co., LLC, LB Holdings LLC, TNB Holdings, LLC, Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC, each a Connecticut limited liability company (collectively, Pokemoto”), a healthier modern culinary twist on the traditional Hawaiian poke classic. Pokemoto had, at acquisition, fourteen locations in four states – Connecticut, Rhode Island, Massachusetts, and Georgia and offers up chef-driven contemporary flavors with fresh delectable and healthy ingredients such as Atlantic salmon, sushi-grade tuna, fresh mango, roasted cashews and black caviar tobiko that appeals to foodies, health enthusiasts, and sushi-lovers everywhere. The colorful dishes and modern chic dining rooms provide an uplifting dining experience for guests of all ages. Customers can dine in-store or order online via third party delivery apps for contactless delivery. Pokemoto Orange Park FL LLC and Pokemoto Kansas LLC (included in “Pokemoto”) were formed in 2022 for the purposes of developing new corporate Pokemoto stores.

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

As of September 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

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 ghost 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 September 30, 2022, the Company’s restaurant system included 21 open Company-owned restaurants, including the SuperFit Foods kitchen, and 22 open franchise restaurants.

Liquidity

Our primary source of liquidity is cash on hand. As of September 30, 2022, the Company had a cash balance, a working capital surplus and an accumulated deficit of $11,673,247, $10,391,111, and $76,950,413, respectively. During the three and nine months ended September 30, 2022, the Company incurred a pre-tax net loss of $1,895,118 and $5,541,559, respectively, and net cash used in operations of $3,413,527 and $4,941,096 for the nine months ended September 30, 2022, and 2021, respectively. The Company believes that its existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve months.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2022, and for the three and nine months ended September 30, 2022, and 2021. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the operating results for the full year. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021. The balance sheet as of December 31, 2021, has been derived from the Company’s audited financial statements.

Principles of Consolidation

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

Reclassifications

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

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Use of Estimates

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

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

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

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

Cash and Cash Equivalents

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

Inventory

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

Property and Equipment

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

SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT

	Furniture and equipment		3 - 7 years
	Leasehold improvements		1 - 11 years

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Intangible Assets

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

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

SCHEDULE OF ESTIMATED USEFUL LIVES OF OTHER INTANGIBLE ASSETS

	Franchisee agreements		13 years
	Franchise license		10 years
	Trademark – Muscle Maker, SuperFit, and Pokemoto		3 – 5 years
	Domain name, Customer list and Proprietary recipes		3 – 7 years
	Non-compete agreement		2 – 3 years

Impairment of Long-Lived Assets

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

Convertible Instruments

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

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

As of September 30, 2022, and December 31, 2021, the Company deemed the conversion feature in its convertible notes are not required to be bifurcated and recorded as a derivative liability.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Revenue Recognition

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

Restaurant Sales

Retail store revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales related taxes. The Company recorded retail store revenues of $2,630,254 and $8,075,180 during the three and nine months ended September 30, 2022, respectively, and $2,976,256 and $6,720,030 during the three and nine months ended September 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 $129,010 and $358,432 during the three and nine months ended September 30, 2022, respectively, and $132,176 and $318,074 during the three and nine months ended September 30, 2021, respectively, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.

The Company 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 $18,666 and $82,872 during the three and nine month ended September 30, 2022, respectively, and $234,670 and $256,808 during the three and nine month ended September 30, 2021, respectively which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Franchise Royalties and Fees, continued

The Company 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 $22,332 and $99,325 during the three and nine months ended September 30, 2022, respectively, and $(42,092) and $54,761 during the three and nine months ended September 30, 2021, respectively, which is included in franchise royalties and fees on the accompanying 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 $23,297 and $57,592 during the three and nine months ended September 30, 2022, respectively, and $670 and $19,500 during the three and nine months ended September 30, 2021, respectively, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations.

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 nine months ended September 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.

Advertising

Advertising costs are charged to expense as incurred. Advertising costs were approximately $56,043 and $16,935 during the three and nine months ended September 30, 2022, respectively, and $4,771 and $29,529 during the three and nine months ended September 30, 2021, respectively, which are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Net Loss per Share

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

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

SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

	2022		2021
	September 30,
	2022		2021
Warrants		17,873,906		6,615,302
Options		387,500		100,000
Convertible debt		25,318		32,350
Total potentially dilutive shares		18,286,724		6,747,652

Major Vendor

The Company engages various vendors to distribute food products to their Company-owned restaurants. Purchases from the Company’s largest supplier totaled 39% and 33% of the Company’s purchases for the three and nine months ended September 30, 2022, respectively. Purchases from the Company’s largest supplier totaled 54% and 62% of the Company’s purchases for the three and nine months ended September 30, 2021, respectively.

Fair Value of Financial Instruments

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

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

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Fair Value of Financial Instruments, continued

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

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

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

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

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

Leased Assets

The Company adopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit of $15,010 as of the adoption date. Lease right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments arising from the lease agreement. These assets and liabilities are recognized at the commencement of the lease based upon the present value of the future minimum lease payments over the lease term. The lease term reflects the no 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”) 740 Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

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

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

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

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Stock-Based Compensation

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

Recent Accounting Pronouncements

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

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

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

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

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

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

The Company adopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit of $15,010 as of the adoption date, and recognized an additional $7,789 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. See Note 11 – Leases for further details.

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

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

Subsequent Events

The Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed in Note 16 – Subsequent Events.

NOTE 3 – ACQUISITIONS

SuperFit Foods Acquisition

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

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

SCHEDULE OF ASSETS 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 having no further obligation to issue the $25,000 shares of common stock as mentioned above.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 3 – ACQUISITIONS, continued

SuperFit Foods Acquisition, continued

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

SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION

	2022			2021			2022			2021
	Pro Forma						Pro Forma
	(Unaudited)						(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues	$	2,823,559		$	3,301,679		$	8,673,401		$	7,876,672
Restaurant operating expenses		2,710,547			3,390,442			8,834,772			8,508,874
Total cost and expenses		4,785,269			4,921,156			14,360,505			15,487,578
Loss from Operations		(1,961,710	)		(1,619,477	)		(5,687,104	)		(7,610,906	)

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 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.

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.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 3 – ACQUISITIONS, continued

Pokemoto Acquisition, continued

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 2022:

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
Total assets acquired	$	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
Total liabilities acquired	$	2,635,559

Fair value of identifiable net assets acquired		4,181,601

Goodwill	$	1,798,399

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

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Pokemoto Acquisition, continued

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 Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues	$	2,823,559		$	3,301,679		$	8,673,401		$	8,666,004
Restaurant operating expenses		2,710,547			3,390,442			8,834,772			8,919,110
Total cost and expenses		4,785,269			4,921,156			14,360,505			16,170,438
Loss from Operations		(1,961,710	)		(1,619,477	)		(5,687,104	)		(7,504,434	)

NOTE 4 - LOANS RECEIVABLE

At September 30, 2022, and December 31, 2021, the Company’s loans receivable balance was $0.

Loans receivable includes loans to franchisees and a former franchisee totaling, in the aggregate, $0, net of reserves for uncollectible loans of $71,184 at December 31, 2021. Loans receivable was paid in full during September 2022 and the corresponding reserve for loan loss was reversed.

NOTE 5 –PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

	September 30,		December 31,
	2022		2021
Prepaid expenses	$	220,782	$	83,975
Preopening expenses		-		602
Other receivables		236,805		1,704,751
Prepaid and Other Current Assets	$	457,587	$	1,789,328

Prepaid and other current assets, at September 30, 2022, and December 31, 2021, included a receivable of $236,805 and $1,704,751, respectively, related to the employee retention tax credits receivable from the Internal Revenue Services (“IRS”) that was made available to companies effected by Covid-19.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 6 – PROPERTY AND EQUIPMENT, NET

As of September 30, 2022, and December 31, 2021, property and equipment consist of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT, NET

	September 30,			December 31,
	2022			2021

Furniture and equipment	$	1,326,161		$	1,397,098
Vehicles		55,000			55,000
Leasehold improvements		2,108,392			1,981,019
Property and equipment, gross		3,489,553			3,433,117
Less: accumulated depreciation and amortization		(1,378,404	)		(1,152,850	)
Property and equipment, net	$	2,111,149		$	2,280,267

Depreciation expense amounted to $164,355 and $420,864 for the three and nine months ended September 30, 2022, respectively. Depreciation expense amounted to $146,656 and $435,421 for the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2022, the Company wrote off property and equipment with an original cost value of $96,762 and $518,169, respectively, related to closed locations and future locations that were terminated due to the economic environment as a result of COVID-19 and recorded a loss on disposal of $37,593 and $206,190, respectively, after accumulated depreciation of $56,954 and $194,645, respectively, in the condensed consolidated statement of operations.

During the three and nine months ended September 30, 2021, the Company wrote off property and equipment with an original cost value of $0 and $99,313 related to a closed location and a future location that was terminated due to the economic environment as a result of COVID-19 and recorded a loss on disposal of $0 and $37,027 after accumulated depreciation of $0 and $62,286 in the unaudited condensed consolidated statement of operations.

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 September 30, 2022
Trademark Muscle Maker Grill	$	1,525,653	$	-	$	-	$	(380,368	)	$	1,145,285
Franchise Agreements		162,439		-		-		(20,030	)		142,409
Trademark SuperFit		38,075		-		-		(6,728	)		31,347
Domain Name SuperFit		105,764		-		-		(18,688	)		87,076
Customer List SuperFit		118,455		-		-		(20,931	)		97,524
Proprietary Recipes SuperFit		135,378		-		-		(23,921	)		111,457
Non-Compete Agreement SuperFit		193,339		-		-		(64,763	)		128,576
Trademark Pokemoto		152,862		-		-		(26,164	)		126,698
Franchisee License Pokemoto		2,599,473		-		-		(207,441	)		2,392,032
Proprietary Recipes Pokemoto		1,027,916		-		-		(120,645	)		907,271
Non-Compete Agreement Pokemoto		328,110		-		-		(179,507	)		148,603

	$	6,387,464	$	-	$	-	$	(1,069,186	)	$	5,318,278

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Intangible Assets, continued

Amortization expense related to intangible assets was $360,312 and $1,069,186 for the three and nine months ended September 30, 2022, respectively. Amortization expense related to intangible assets was $238,017 and $403,026 for the three and nine months ended September 30, 2021, respectively.

The estimated future amortization expense is as follows:

SCHEDULE OF FUTURE AMORTIZATION EXPENSE

For the nine months ended September 30,	2023		2024		2025		2026		2027		Thereafter		Total
Trademark Muscle Maker Grill	$	508,551	$	509,944	$	126,790	$	-	$	-	$	-	$	1,145,285
Franchise Agreements		26,780		26,853		26,780		26,780		26,780		8,436		142,409
Trademark SuperFit		8,995		9,020		8,995		4,337		-		-		31,347
Domain Name SuperFit		24,986		25,055		24,986		12,049		-		-		87,076
Customer List SuperFit		27,985		28,061		27,985		13,493		-		-		97,524
Proprietary Recipes SuperFit		31,983		32,070		31,983		15,421		-		-		111,457
Non-Compete Agreement SuperFit		86,588		41,988		-		-		-		-		128,576
Trademark Pokemoto		34,981		35,077		34,981		21,659		-		-		126,698
Franchisee License Pokemoto		277,348		278,108		277,348		277,348		277,348		1,004,532		2,392,032
Proprietary Recipes Pokemoto		161,303		161,743		161,303		161,303		161,303		100,316		907,271
Non-Compete Agreement Pokemoto		148,603		-		-		-		-		-		148,603

Total	$	1,338,103	$	1,147,919	$	721,151	$	532,390	$	465,431	$	1,113,284		5,318,278

The Company determined that impairment testing of the Company’s intangible assets was not deemed necessary as of September 30, 2022. Therefore, no impairment charge is required.

Goodwill

A summary of the goodwill assets is presented below:

SCHEDULE OF GOODWILL ASSETS

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

The Company determined that impairment testing of the Company’s goodwill was not deemed necessary as of September 30, 2022. Therefore, no impairment charge is required.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 8 – ACCOUNTS PAYABLES AND ACCRUED EXPENSES

Accounts payables and accrued expenses consist of the following:

SCHEDULE OF ACCOUNTS PAYABLES AND ACCRUED EXPENSES

	September 30,		December 31,
	2022		2021
Accounts payable	$	1,032,457	$	734,688
Accrued payroll		106,665		758,732
Accrued professional fees		-		185,872
Accrued board members fees		28,498		57,573
Accrued rent expense		-		176,727
Accrued compensation expense		-		36,600
Sales taxes payable (1)		55,737		125,550
Accrued interest		-		28,426
Other accrued expenses		77,711		104,355
Total Accounts Payable and Accrued Expenses	$	1,301,068	$	2,208,523

(1)

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

NOTE 9 – CONVERTIBLE NOTE PAYABLE TO FORMER PARENT

On April 6, 2018, the Company issued a $475,000 convertible promissory note (the “2018 ARH Note”) to the Former Parent for services rendered and expense paid on behalf of the Company. The 2018 ARH Note has no stated interest rate or maturity date and is convertible into shares of the Company’s common stock at a conversion price of $3.50 per share at a time to be determined by the lender.

On April 11, 2018, the Former Parent elected to partially convert the 2018 ARH Note for the principal of $392,542 into 112,154 shares of the Company’s common stock.

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

NOTE 10 –NOTES PAYABLE

Convertible Notes

As of September 30, 2022, and December 31, 2021, the Company has convertible note payable in the amount of $20,000 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.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 10 –NOTES PAYABLE, continued

Other Notes Payable, continued

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 nine months ended September 30, 2022, respectively.

During the nine months ended September 30, 2022, and 2021, the Company repaid a total amount of $97,501 and $1,249,541 respectively, of the other notes payable.

As of September 30, 2022, the Company had an aggregate amount of $932,292 in other notes payable. The notes had interest rates ranging between 3.75% - 8% per annum, due on various dates through May 2026.

The maturities of notes payable as of September 30, 2022, are as follows:

SCHEDULE OF MATURITIES OF OTHER NOTES PAYABLE

	Principal
Repayments due as of	Amount
09/30/2023	$	240,091
09/30/2024		146,936
09/30/2025		87,730
09/30/2026		559,993
09/30/2027		-
Long term debt	$	1,034,750

NOTE 11 –LEASES

The Company adopted Topic 842 as of January 1, 2022. The Company’s leases consist of restaurant locations. We determine if a contract contains a lease at inception. The lease generally has remaining terms of 1-10 years and most lease included the option to extend the lease for an additional 5-year period.

The total lease cost associated with right of use assets and operating lease liabilities for the three and nine months ended September 30, 2022, was $239,277 and $723,127 and has been recorded in the condensed consolidated statement of operations as rent expense within restaurant operating expenses.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 11 –LEASES, continued

As of September 30, 2022, assets and liabilities related to the Company’s leases were as follows:

SCHEDULE OF OPERATING LEASE ASSETS AND LIABILITIES

	September 30,
	2022
Assets
Right to use asset	$	2,417,026
Total lease assets	$	2,417,026

Liabilities
Current:
Operating leases	$	548,851
Noncurrent:
Operating leases		2,022,823
Total lease liabilities	$	2,571,674

As of September 30, 2022, the Company’s lease liabilities mature as follows:

SCHEDULE OF OPERATING LEASE LIABILITY MATURITY

	Operating Leases
Fiscal Year:
Remainder of 2022	$	223,406
2023		792,481
2024		728,583
2025		579,602
2026		368,586
Thereafter		778,328
Total lease payments	$	3,470,986
Less imputed interest		(899,312	)
Present value of lease liabilities	$	2,571,674

The Company’s lease term and discount rates were as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

	September 30,
	2022
Weighted-average remaining lease term (in year)
Operating leases		5.05
Weighted-average discount rate
Operating leases		12	%

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12 – DEFERRED REVENUE

At September 30, 2022, and December 31, 2021, deferred revenue consists of the following:

SCHEDULE OF DEFERRED REVENUE

	September 30,			December 31,
	2022			2021
Deferred revenues, net	$	1,360,501		$	1,063,373
Less: Deferred revenues, current		(91,894	)		(49,728	)
Deferred revenues, non-current	$	1,268,607		$	1,013,645

NOTE 13 – OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

SCHEDULE OF OTHER CURRENT LIABILITIES

	September 30,		December 31,
	2022		2021
Gift card liability	$	28,078	$	27,633
Co-op advertising fund liability		70,254		126,564
Advertising fund liability		52,885		117,561
Marketing development brand fund liability		30,910		14,330
Other current liabilities	$	182,127	$	286,088

See Note 2 – Significant Accounting Policies – Revenue Recognition for details related to the gift card liability and advertising fund liability.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Franchising

During the three and nine months ended September 30, 2022, the Company entered into various franchise agreements for a total of 6 and 25 potentially new Pokemoto locations with various franchisees. The franchisees paid the Company an aggregate of $87,500 and $380,000 for the three and nine months ended September 30, 2022, respectively, and this has been recorded in deferred revenue as of September 30, 2022.

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 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 September 30, 2022, the Company has accrued for the liability in convertible notes payable in the amount of $20,000.

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

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed 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 for a breach of a lease agreement in Chicago, Illinois, in connection with a Company-owned store that was closed in 2018. As of September 30, 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, 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, was appointed as the Chief Accounting Officer of the Company and subsequently the position of Chief Accounting Officer was eliminated. 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 Employment Agreement with Michael Roper effective February 14, 2022, which replaced his prior employment agreement. Pursuant to the Employment Agreement, Mr. Roper will continue to be employed as Chief Executive Officer of the Company on an at will basis. During the term of the Employment Agreement, Mr. Roper is entitled to a base salary at the annualized rate of $350,000, will be increased to $375,000 upon the one-year anniversary. Mr. Roper will be eligible for a discretionary performance bonus to be paid in cash or equity. Within 90 days of the effective date, the Company issued Mr. Roper stock options to receive 100,000 shares of common stock which vest over a term of five years. If Mr. Roper is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, Mr. Roper will be entitled to a severance package of 18 months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 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. Mohan will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $200,000 effective February 14, 2022. Mr. Mohan will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 75% of his salary. Within 90 days of the effective date, the Company issued Mr. Mohan stock options to receive 75,000 shares of common stock which vest over a term of five years. If Mr. Mohan is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, he will be entitled to a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 16 – Equity – Options for details related to the issuance of the stock options.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed 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. Miller will continue to be engaged by the Company on an at-will basis with a base salary at the annualized rate of $275,000 effective February 14, 2022. Mr. Miller will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 75% of his salary. Within 90 days of the effective date, the Company 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. Ms. Infante will be eligible for a discretionary performance bonus to be paid in cash or equity of up to 25% of her salary. Within 90 days of the effective date, the Company issued Ms. Infante stock options to receive 42,500 shares of common stock which vest over a term of five years. If Ms. Infante is terminated by the Company for any reason other than cause, including termination without cause in connection with a change in control, she will be entitled to a severance package of six months of salary and health and dental benefits paid in accordance with the Company’s payroll schedule and insurance program, but subject to the execution of a valid release in favor of the Company and its related parties. See Note 16 – Equity – Options for details related to the issuance of the stock options.

On February 9, 2022, the Company and Ferdinand Groenewald, the former 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 was entitled to 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 will 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 was 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 continued 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.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed 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 shares and all other Nasdaq initial listing standards, except the bid price requirement, and will need to provide written notice to Nasdaq of its intention to cure the deficiency during the second compliance period. If the Company is not eligible or it appears to Nasdaq that the Company will not be able to cure the deficiency during the second compliance period, Nasdaq will provide written notice to the Company that the Company’s common stock will be subject to delisting. In the event of such notification, the Company may appeal Nasdaq’s determination to delist its securities, but there can be no assurance that Nasdaq would grant the Company’s request for continued listing.

On August 2, 2022, the Company received a second letter from the Staff advising that the Company had been granted an additional 180 calendar days, or to January 30, 2023, to regain compliance with the Minimum Bid Price Requirement, in accordance with Nasdaq Listing Rule 5810(c)(3)(A).

The Company intends to actively monitor the minimum bid price of its common stock and may, as appropriate, consider available options to regain compliance with the Rule. There can be no assurance that the Company will be able to regain compliance with the Rule or will otherwise be in compliance with other Nasdaq listing criteria.

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 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 $55,736 and $125,550 as of September 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.

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 15 – REPORTABLE OPERATING SEGMENTS

See Note 1 – Business Organization and Nature of Operations for descriptions of our operating segments.

SUMMARY OF OPERATING SEGMENTS

	2022			2021			2022			2021
	For The Three Months Ended						For The Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues
Muscle Maker Grill Division	$	1,128,533		$	1,529,837		$	3,541,189		$	4,193,246
Pokemoto Division		1,285,735			1,054,311			3,758,407			1,558,603
Non-traditional (Hybrid) Division		68,266			159,074			297,010			514,331
SuperFit Foods Division		341,025			558,457			1,076,795			1,102,992
Revenues	$	2,823,559		$	3,301,679		$	8,673,401		$	7,369,172

Operating Income (Loss)
Muscle Maker Grill Division	$	(94,627	)	$	(53,776	)	$	(519,786	)	$	(571,013	)
Pokemoto Division		(112,657	)		17,506			(54,538	)		194,157
Non-Traditional (Hybrid) Division		(132,404	)		(329,323	)		(401,843	)		(899,561	)
SuperFit Division		1,755			72,812			86,255			38,976
Corporate and unallocated G&A expenses (a)		(1,251,246	)		(1,133,978	)		(3,702,579	)		(6,094,869	)
Unallocated operating other income (expense) (b)		(372,531	)		(192,718	)		(1,094,613	)		(313,003	)
Operating Loss	$	(1,961,710	)	$	(1,619,477	)	$	(5,687,104	)	$	(7,645,313	)
Gain in debt extinguishment		-			200,000			141,279			1,075,974
Interest expense, net		11,309			(16,859	)		(17,128	)		(53,629	)
Other non-operating income (expense)		55,283			1,006,152			21,394			1,232,461
Change in fair value of accrued compensation		-			-			-			127,500
Loss before income taxes	$	(1,895,118	)	$	(430,184	)	$	(5,541,559	)	$	(5,263,007	)

(a)	Includes charges related to corporate expense that the Company does not allocate to the respective divisions. For the nine months ended September 30, 2022, and 2021, largest portion of this expense relates to corporate payroll, benefits and other compensation expense of $2,383,801 $2,425,184, respectively, professional fees of $382,866 and $1,872,836, respectively and consulting fees of $73,665 and $1,105,827, respectively. For the three months ended September 30, 2022, and 2021, largest portion of this expense relates to payroll, benefits and other compensation expense of $807,283 and $598,966, respectively, professional fees of $134,886 and $295,599, respectively and consulting fees of $10,015 and $23,278, respectively.

(b)	This includes amortization of intangible assets and corporate depreciation of fixed assets. See Note 7.

NOTE 16 – EQUITY

Common Stock

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

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 16 – EQUITY, continued

Common Stock, continued

On January 6, 2022, the Company authorized the issuance of an aggregate of 39,573 shares of common stock to the members of the board of directors as compensation earned during the fourth quarter of 2021. The Company accrued for the liability as of December 31, 2021.

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

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

On March 31, 2022, the Company authorized the issuance of an aggregate of 53,961 shares of common stock to the members of the board of directors as compensation earned during the first quarter of 2022.

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 74,019 shares of common stock to the members of the board of directors as compensation earned during the second quarter of 2022.

Options

On May 2, 2022, the Company, pursuant to the employment agreements, issued options to purchase an aggregate of 312,500 shares of the Company’s common stock. The options had an exercise price of $0.41 per share and vest over ratably twenty quarters with the first vesting occurring on June 30, 2022. There were 25,000 shares forfeited upon the departure of an officer.

A summary of options activity during the nine months ended September 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		4.62
Exercised		-			-
Forfeited		(25,000	)		0.41		4.62
Outstanding, September 30, 2022		387,500		$	1.59		3.73

Exercisable, September 30, 2022		114,375		$	4.42		1.60

MUSCLE MAKER, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 16 – EQUITY, continued

Warrants

A summary of warrants activity during the nine months ended September 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, September 30, 2022		17,873,906		$	1.89		3.77

Exercisable, September 30, 2022		17,873,906		$	1.89		3.77

Stock-Based Compensation Expense

Stock-based compensation related to restricted stock issued to employees, directors and consultants, warrants and warrants to consultants amounted to $31,648 and $82,186 for the three and nine months ended September 30, 2022, respectively, of which all was recorded in selling, general and administrative. Stock-based compensation related to restricted stock issued to employees, directors and consultants and warrants issued to consultants amounted to $51,702 and $17,779,248 for the three and nine months ended September 30, 2021, respectively, of which $50,488 and $1,774,876, respectively, was recorded in general and administrative expenses and $1,215 and $4,372, respectively, was recorded in labor expense within restaurant operating expenses.

NOTE 17 – SUBSEQUENT EVENTS

Common Stock

On October 12, 2022, the Company authorized the issuance of an aggregate of 75,792 shares of common stock to the members of the board of directors as compensation earned during the third quarter of 2022.

Stock Options

On October 10, 2022, the Company issued options to purchase 25,000 shares of the Company’s common stock. The options had an exercise price of $0.41 per share and vest over ratably twenty quarters with the first vesting occurring on December 31, 2022.

Operating Lease

On October 4, 2022, the Company renewed a lease agreement with Yale University for a current Company owned location. The term of the lease is from November 1, 2022, through October 31, 2027, with monthly rent payments of $3,423 plus all other property expenses. In addition, the Company agreed to pay a security deposit of $3,424.

New Subsidiary

On October 9, 2022, the Company formed Sadot LLC, a Delaware limited liability company, in consideration of pursuing a new business line. As of the date hereof, the Company has not taken any further action with respect to this entity.

ITEM 2.

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

The following discussion and analysis of the results of operations and financial condition of Muscle Maker, Inc. (“Muscle Maker”), together with its subsidiaries (collectively, the “Company”) as of September 30, 2022 and December 31, 2021 and for the nine months ended September 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 Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to Muscle Maker. “Muscle Maker Grill”, “SuperFit Foods” and “Pokemoto” refers to the names under which our corporate and franchised restaurants do business depending on the concept. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “forecast,” “model,” “proposal,” “should,” “may,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. For a detailed discussion of risk factors affecting us, see “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

OVERVIEW

The Company operates under the names Muscle Maker Grill, Pokemoto and SuperFit Foods and is a franchisor and owner operator of Muscle Maker Grill and Pokemoto restaurants. As of September 30, 2022, the Company’s restaurant system included 21 Company-owned restaurants, including the SuperFit Foods kitchen, and 22 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 September 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

MMI is our parent company. We own and operate three unique “healthier for you” restaurant concepts within our portfolio of companies: Muscle Maker Grill restaurants, SuperFit Foods meal prep and Pokemoto Hawaiian Poke restaurants. Our Company was founded on the belief of taking every-day menu options and converting them into “healthier for you” menu choices. Consumers are demanding healthier choices, customization, flavor and convenience. We believe our portfolio of companies directly satisfy these consumer needs. We focus on lean proteins, fresh fruits and vegetables, proprietary sauces, whole grains and various other items like protein shakes, meal plans, specialty drinks and super foods. Each of our three concepts offers different menus that are tailored to specific consumer segments. We operate in the fast-casual and meal prep segments of the restaurant industry. We believe our “healthier for you” inspired concepts deliver a highly differentiated customer experience.

Muscle Maker Grill Restaurants (“Muscle Maker Grill”): our Muscle Maker Grill restaurants are fast casual style restaurants specializing in “healthier for you” high quality, made to order, lean protein-based meals. These meals feature all-natural chicken breast, grass fed beef, lean turkey, shrimp and plant-based items. We pair these lean proteins with super foods such as avocado, 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.

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 in our fully refrigerated cooler room 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.” Many of our Pokemoto restaurants serve boba teas as a compliment to meals or as a separate dessert option.

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

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

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

●

Quality. Commitment to provide high quality, healthy-inspired food for a perceived wonderful experience for our guests.

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

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

We are the owner of the trade name and service mark Muscle Maker Grill®, SuperFit Foods®, Pokemoto®, MMG Burger Bar®, Meal Plan AF® and other trademarks and intellectual property we use in connection with the operation of our restaurant locations. 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 September 30, 2022, the Company had a cash balance, a working capital surplus and an accumulated deficit of $11,673,247, $10,391,111, and $76,950,413, respectively. During the three and nine months ended September 30, 2022, the Company incurred a pre-tax net loss of $1,895,118 and $5,541,559, respectively and net cash used in operations of $3,413,527 and $4,941,096 for the nine months ended September 30, 2022, and 201, respectively. The Company believes that our existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve months.

Key Financial Definitions

Total Revenues

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

Food and Beverage Costs

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

Labor

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

Rent

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

Other Restaurant Operating Expenses

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

Depreciation and Amortization

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

Franchise Advertising Expenses

In accordance with Topic 606, the Company recognizes sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under general and administrative expenses.

Selling, General and Administrative Expenses

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

Other Income (Expense)

Other income (expenses) consists of amortization of debt discounts on the convertible notes, interest expense related to convertible notes payable, change in fair value of accrued compensation and gains on debt extinguishments in connection with the PPP loan forgiveness.

Income Taxes

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

Consolidated Results of Operations

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

The following table represents selected items in our condensed consolidated statements of operations for the three months ended September 30, 2022, and 2021, respectively:

	For the Three Months Ended
	September 30,
	2022			2021
Revenues:
Company restaurant sales, net of discounts	$	2,630,254		$	2,976,256
Franchise royalties and fees		170,008			324,753
Franchise advertising fund contributions		23,297			670
Total Revenues		2,823,559			3,301,679

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		921,891			1,117,181
Labor		968,283			1,212,011
Rent		257,095			343,637
Other restaurant operating expenses		563,278			717,613
Total restaurant operating expenses		2,710,547			3,390,442
Depreciation and amortization		524,667			384,673
Franchise advertising fund expenses		23,297			670
Preopening expenses		116,729			11,393
Post-closing expenses		158,783			-
Selling, general and administrative expenses		1,251,246			1,133,978
Total Costs and Expenses		4,785,269			4,921,156
Loss from Operations		(1,961,710	)		(1,619,477	)

Other Income (Expenses) :
Other income (expense)		55,283			1,006,152
Interest expense, net		11,309			(16,859	)
Change in fair value of accrued compensation		-			-
Gain on debt extinguishment		-			200,000
Total Other Income (Expenses), Net		66,592			1,189,293

Loss Before Income Tax		(1,895,118	)		(430,184	)
Income tax provision		(2,436	)		(2,446	)
Net Loss	$	(1,897,554	)	$	(432,630	)

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

Revenues

Our revenues totaled $2,823,559 for the three months ended September 30, 2022, compared to $3,301,679 for the three months ended September 30, 2021. The 14.5% decrease is primarily attributed to a decrease in restaurant sales and vendor rebates as a direct result of closing underperforming corporate locations.

We generated Company restaurant sales, net of discounts, of $2,630,254 for the three months ended September 30, 2022, compared to $2,976,256 the three months ended September 30, 2021. This represented a decrease of $346,002, or 11.6%, which is mainly attributable to closing underperforming corporate locations.

Franchise royalties and fees for the three months ended September 30, 2022, and 2021 totaled $170,008 compared to $324,753 respectively. This represents a decrease of $154,745, or 47.7%. In 2021, the franchise fees were higher, primarily due to the closing of several Muscle Maker Grill Franchise restaurants, which corresponds to accelerating the recognition of initial franchise fees.

Franchise advertising fund contributions for the three months ended September 30, 2022, and 2021 totaled $23,297 compared to $670, respectively. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. Thus, the increase has been a direct result of us increasing our expenses incurred related to our national advertising services to benefit our franchisees and the brands as a whole.

Operating Costs and Expenses

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

Restaurant food and beverage costs for the three months ended September 30, 2022, and 2021 totaled $921,891 or 35.0% as a percentage of Company restaurant net sales, and $1,117,181 or 37.5%, as a percentage of Company restaurant net sales, respectively. The $195,290 decrease resulted from closures of underperforming stores compared to the prior year resulting in lower total sales and the related cost associated. The Company has experienced a reduction in overall food costs as a percentage of net sales as we have implemented various price changes, portion control, operating procedures and menu mix items. While we expect to continue to experience cost and supply pressures in the food and beverage areas due to inflationary pressures and supply chain disruptions, we continue to implement operational, marketing and menu changes to attempt to offset these increases. The Company anticipates these challenges to continue into the near future.

Restaurant labor for the three months ended September 30, 2022, and 2021 totaled $968,283, or 36.8%, as a percentage of Company restaurant net sales, and $1,212,011, or 40.7%, as a percentage of Company restaurant net sales, respectively. The $243,728 in total dollar decrease resulted from closures of underperforming stores compared to the prior year resulting in lower sales and the related cost associated. The Company has experienced a reduction in overall labor costs as a percentage of net sales as we implement various cost cutting measures to offset rising labor costs. In addition, we have shortened hours of operations at several locations which in turn reduces overall costs.

Restaurant rent expense for the three months ended September 30, 2022, and September 30, 2021, totaled $257,095 or 9.8% as a percentage of restaurant sales, and $343,637, or 11.5%, as a percentage of restaurant sales, respectively. The decrease of $86,542 is directly attributed to the closure of underperforming stores compared to the prior year.

Other restaurant operating expenses for the three months ended September 30, 2022, and September 30, 2021, totaled $563,278, or 21.4% as a percentage of restaurant sales, and $717,613, or 24.1% as a percentage of restaurant sales, respectively. The $154,335, decrease resulted from closures of underperforming stores compared to the prior year resulting in lower sales and the related cost associated.

Depreciation and amortization expense for the three months ended September 30, 2022, and September 30, 2021, totaled $524,667 and $384,673, respectively. The $139,994 increase is mainly attributed to amortization expense attributed to the change in the Muscle Maker trademark from and indefinite lift to a finite life in 2022.

Preopening expenses for the three months ended September 30, 2022, and September 30, 2021, totaled $116,729 and $11,393, respectively. The $105,336 increase is attributed to cost that were incurred prior to opening three new Pokemoto corporate owned and operated locations in the third quarter of 2022. Preopening expenses will increase as the total number of corporate location openings increase.

Post-closing expenses for the three months ended September 30, 2022, and September 30, 2021, totaled $158,783 and $0, respectively. The $158,783 increase is attributed to cost incurred to close three underperforming corporate locations in 2022.

Selling, general and administrative expenses for the three months ended September 30, 2022, and 2021 totaled $1,251,246, or 44.3% of total revenue, and $1,133,978, or 34.3% of total revenue, respectively. The $117,267 increase was mainly attributed to an increase in labor and benefits of approximately $208,317 which resulted from not having PPP loans in the three months ended September 30, 2022 to offset labor cost. The remainder of the variance was attributed to various other expenses including recruiting, marketing, computer expenses and other miscellaneous items.

Loss from Operations

Our loss from operations for the three months ended September 30, 2022, and 2021 totaled $1,961,710, or 69.5% of total revenues and $1,619,477, or 49.1% of total revenue, respectively. The increase of $342,233 in loss from operations is primarily attributable to the decrease of total revenues of $478,120, an increase in depreciation and amortization as we open more locations, partially offset by a decrease in total cost and expenses of $135,887 as discussed above.

Other Income, net

Other income for the three months ended September 30, 2022, and 2021 totaled $66,592 and $1,189,293, respectively. The $1,122,701 decrease in other income was primarily attributable the 2021 other income recorded for the employee retention tax credits receivable from the Internal Revenue services that was made available to companies effected by Covid-19 and a gain on extinguishment of $200,000 in 2021, which relates to old account payables.

Net Loss

Our net loss for the three months ended September 30, 2022 was $1,897,554, which was an increase in our net loss of $1,464,924 as compared to a net loss of $432,630 for the three months ended September 30, 2021, resulting directly from a decrease in our other income of $1,222,701, which in 2021 was mostly related to employee retention tax credits, a decrease in our total revenue of $478,120, partially offset by a decrease of our total cost and expenses of $135,887.

Nine Months Ended September 30, 2022, Compared with Nine Months Ended September 30, 2021

	For the Nine Months Ended
	September 30,
	2022			2021
Revenues:
Company restaurant sales, net of discounts	$	8,075,180		$	6,720,030
Franchise royalties and fees		540,629			629,642
Franchise advertising fund contributions		57,592			19,500
Total Revenues		8,673,401			7,369,172

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		3,065,244			2,542,333
Labor		2,944,392			2,855,070
Rent		924,310			904,759
Other restaurant operating expenses		1,900,826			1,737,128
Total restaurant operating expenses		8,834,772			8,039,290
Depreciation and amortization		1,490,050			838,447
Franchise advertising fund expenses		57,592			19,500
Preopening expenses		116,729			22,379
Post-closing expenses		158,783			-
Selling, general and administrative expenses		3,702,579			6,094,869
Total Costs and Expenses		14,360,505			15,014,485
Loss from Operations		(5,687,104	)		(7,645,313	)

Other Income (Expenses) :
Other income (expense)		21,394			1,232,461
Interest expense, net		(17,128	)		(53,629	)
Change in fair value of accrued compensation		-			127,500
Gain on debt extinguishment		141,279			1,075,974
Total Other Income (Expenses), Net		145,545			2,382,306

Loss Before Income Tax		(5,541,559	)		(5,263,007	)
Income tax provision		(16,218	)		(3,508	)
Net Loss	$	(5,557,777	)	$	(5,266,515	)

Nine Months Ended September 30, 2022, Compared with Nine Months Ended September 30, 2021

Revenues

Our revenues totaled $8,673,401 for the nine months ended September 30, 2022, compared to $7,258,172 for the nine months ended September 30, 2021. The $1,304,229 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 $8,075,180 for the nine months ended September 30, 2022, compared to $6,720,030 the nine months ended September 30, 2021. This represented an increase of $1,355,150, or 20.2%, 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.

Franchise royalties and fees for the nine months ended September 30, 2022, and 2021 totaled $540,629 compared to $629,642 respectively. This represents a decrease of $89,013, or 14.1%. In 2021, the franchise fees were higher, primarily due to the closing of several Muscle Maker Grill Franchise restaurants, which corresponds to accelerating the recognition of initial franchise fees.

Franchise advertising fund contributions for the nine months ended September 30, 2022, and 2021 totaled $57,592 compared to $19,500, 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

Restaurant food and beverage costs for the nine months ended September 30, 2022, and 2021 totaled $3,065,244 or 38.0% as a percentage of Company restaurant net sales, and $2,542,333 or 37.8%, as a percentage of Company restaurant net sales, respectively. The $522,911 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 nine months ended September 30, 2022, and 2021 totaled $2,944,392 or 36.5%, as a percentage of Company restaurant net sales, and $2,855,070, or 42.5%, as a percentage of Company restaurant net sales, respectively. The $89,322 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 6.0% due to improvements in operations as we implement various cost cutting measures to offset rising labor costs. In addition, we have shortened hours of operations at several locations which in turn reduces overall costs.

Restaurant rent expense for the nine months ended September 30, 2022, and September 30, 2021, totaled $923,310 or 11.4% as a percentage of restaurant sales, and $904,759, or 13.5%, as a percentage of restaurant sales, respectively. The increase of $19,551 is due to a full nine months of rent for the stores acquired in 2021. The percent of total sales reduced (improved) by 2.1% as sales increased overall, and we are able to leverage fixed rent against these higher sales levels.

Other restaurant operating expenses for the nine months ended September 30, 2022, and September 30, 2021, totaled $1,900,826, or 23.5% as a percentage of restaurant sales, and $1,737,128, or 25.9% as a percentage of restaurant sales, respectively. The $163,698 dollar 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. In addition, the company has experienced higher cost across many services including trash removal, insurance and utilities. The other restaurant operating expenses as a percent of total sales reduced (improved) by 2.4%.

Depreciation and amortization expense for the nine months ended September 30, 2022, and September 30, 2021, totaled $1,490,050 and $838,447, respectively. The $651,603 increase mainly attributed to amortization expense attributed to the change in the Muscle Maker trademark from and indefinite life to a finite life in 2022 and a full nine months’ worth of amortization expense for acquisition in 2021. 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.

Preopening expenses for the nine months ended September 30, 2022, and September 30, 2021, totaled $116,729 and $22,379, respectively. The $94,350 increase is attributed to cost that were incurred prior to opening three new Pokemoto corporate owned and operated locations in the third quarter of 2022. Preopening expenses will increase as the total number of corporate location openings increase.

Post-closing expenses for the nine months ended September 30, 2022, and September 30, 2021, totaled $158,783 and $0, respectively. The $158,783 increase is attributed to cost incurred to close three underperforming corporate locations in 2022.

Selling, general and administrative expenses for the nine months ended September 30, 2022, and 2021 totaled $3,7002,579, or 42.7% of total revenue, and $6,094,869, or 82.7% of total revenue, respectively. The $2,392,290 decrease was primarily attributed to a reduction in consulting expenses of approximately $1,032,162 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, and a decrease in professional fees of approximately $1,489,970 which resulted from the private placement fees incurred in prior period not incurred in current period and the changing our auditing firm during 2021. The decrease was partially offset by the write offs of fixed assets of approximately $168,963 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 nine months ended September 30, 2022, and 2021 totaled $5,687,104, or 65.6% of total revenues and $7,645,313, or 103.7% of total revenue, respectively. The decrease of $1,958,209 in loss from operations is primarily attributable to the increase of total revenues of $1,304,229 and a decrease in total cost and expenses of $653,979 as discussed above.

Other Income (Expense)

Other income (expense) for the nine months ended September 30, 2022, and 2021 totaled $145,545 and $2,382,306, respectively. The $2,236,761 decrease in other income which was primarily attributable to a decrease in the gain on extinguishment of debt of $934,695 due to the forgiveness of our PPP loans in 2021 and a decrease in other income of $1,211,067 due to employee retention tax credit received in 2021.

Net Loss

Our net loss the nine months ended September 30, 2022, was $5,557,777 compared to $5,266,515 for the nine months ended September 30, 2021, resulting from an increase in our total revenue of $1,304,229, a decrease in our other income of $2,236,761, due to one-time benefits in 2021 that consist of ERC tax credits and PPP loan forgiveness, and a decrease of our total cost and expenses of $653,980.

The following table represents selected items in our condensed consolidated statements of operations for the three months ended September 30, 2022, respectively by our operating segments:

				Muscle Maker						Non- Traditional			SuperFit
	Consolidated			Grill Division			Pokemoto Division			(Hybrid) Division			Foods Division		Unallocated

Revenues:
Company restaurant sales, net of discounts	$	2,630,254		$	1,002,656		$	1,218,307		$	68,266		$	341,025	$	-
Franchise royalties and fees		170,008			102,580			67,428			-			-		-
Franchise advertising fund contributions		23,297			23,297			-			-			-		-
Total Revenues		2,823,559			1,128,533			1,285,735			68,266			341,025		-

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		921,891			333,322			441,397			18,069			129,103		-
Labor		968,283			450,424			389,042			30,713			98,104		-
Rent		257,095			137,282			105,038			(21,266	)		36,041		-
Other restaurant operating expenses		563,278			217,478			263,870			16,000			65,930		-
Total restaurant operating expenses		2,710,547			1,138,506			1,199,347			43,516			329,178		-
Depreciation and amortization		524,667			34,910			82,317			24,817			10,092		372,531	(b)
Franchise advertising fund expenses		23,297			23,297			-			-			-		-
Preopening expenses		116,729			-			116,729			-			-		-
Post-closing expenses		158,783			26,446			-			132,337			-		-
General and administrative expenses		1,251,246			-			-			-			-		1,251,246	(a)
Total Costs and Expenses		4,785,269			1,223,159			1,398,393			200,670			339,270		1,623,777
(Loss) Income from Operations		(1,961,710	)		(94,627	)		(112,657	)		(132,404	)		1,755		(1,623,777	)

Other Income:
Other income		55,283			-			-			-			-		55,283
Interest expense, net		11,309			-			-			-			-		11,309
Total Other Income, Net		66,592			-			-			-			-		66,592

Loss Before Income Tax		(1,895,118	)		(94,627	)		(112,657	)		(132,404	)		1,755		(1,557,185	)
Income tax provision		(2,436	)		-			-			-			-		(2,436	)
Net (Loss) Income Net (Loss) Income	$	(1,897,554	)	$	(94,627	)	$	(112,657	)	$	(132,404	)	$	1,755	$	(1,559,621	)

(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 $807,283, professional and consulting fees of $144,901, loss on disposal of assets of 37,593.

(b)

This includes amortization of intangible assets and depreciation of corporate fixed assets. See Note 7.

The following table represents selected items in our condensed consolidated statements of operations for the nine months ended September 30, 2022, respectively by our operating segments:

				Muscle Maker						Non- Traditional			SuperFit
	Consolidated			Grill Division			Pokemoto Division			(Hybrid) Division			Foods Division		Unallocated

Revenues:
Company restaurant sales, net of discounts	$	8,075,180		$	3,142,386		$	3,558,989		$	297,010		$	1,076,795	$	-
Franchise royalties and fees		540,629			341,211			199,418			-			-		-
Franchise advertising fund contributions		57,592			57,592			-			-			-		-
Total Revenues		8,673,401			3,541,189			3,758,407			297,010			1,076,795		-

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		3,065,244			1,257,905			1,321,522			114,631			371,186		-
Labor		2,944,392			1,393,302			1,068,513			198,127			284,450		-
Rent		924,310			464,923			297,018			66,569			95,800		-
Other restaurant operating expenses		1,900,826			713,343			869,494			106,626			211,363		-
Total restaurant operating expenses		8,834,772			3,829,473			3,556,547			485,953			962,799		-
Depreciation and amortization		1,490,050			147,464			139,669			80,563			27,741		1,094,613	(b)
Franchise advertising fund expenses		57,592			57,592			-	��		-			-		-
Preopening expenses		116,729			-			116,729			-			-		-
Post-closing expenses		158,783			26,446			-			132,337			-		-
General and administrative expenses		3,702,579			-			-			-			-		3,702,579	(a)
Total Costs and Expenses		14,360,505			4,060,975			3,812,945			698,853			990,540		4,797,192
(Loss) Income from Operations		(5,687,104	)		(519,786	)		(54,538	)		(401,843	)		86,255		(4,797,192	)

Other Income:
Other income		21,394			-			-			-			-		21,394
Interest expense, net		(17,128	)		-			-			-			-		(17,128	)
Gain on debt extinguishment		141,279			-			-			-			-		141,279
Total Other Income, Net		145,545			-			-			-			-		145,545

Loss Before Income Tax		(5,541,559	)		(519,786	)		(54,538	)		(401,843	)		86,255		(4,651,647	)
Income tax provision		(16,218	)		-			-			-			-		(16,218	)
Net (Loss) Income Net (Loss) Income	$	(5,557,777	)	$	(519,786	)	$	(54,538	)	$	(401,843	)	$	86,255	$	(4,667,865	)

(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 $2,383,801, professional and consulting fees of $456,531, and loss on disposal of assets of $206,190.

(b)

This includes amortization of intangible assets and depreciation of corporate fixed assets. See Note 7.

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

				Muscle Maker					Non- Traditional			SuperFit
	Consolidated			Grill Division			Pokemoto Division		(Hybrid) Division			Foods Division		Unallocated

Revenues:
Company restaurant sales, net of discounts	$	2,976,256		$	1,283,225		$	975,500	$	159,074		$	558,457	$	-
Franchise royalties and fees		324,753			245,942			78,811		-			-		-
Franchise advertising fund contributions		670			670			-		-			-		-
Total Revenues		3,301,679			1,529,837			1,054,311		159,074			558,457		-

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		1,117,181			422,310			411,900		133,456			149,515		-
Labor		1,212,011			576,213			332,005		130,726			173,067		-
Rent		343,637			175,417			91,011		56,028			21,181		-
Other restaurant operating expenses		717,613			323,744			185,168		119,985			88,716		-
Total restaurant operating expenses		3,390,442			1,497,684			1,020,084		440,195			432,479		-
Depreciation and amortization		384,673			85,259			16,721		36,809			53,166		192,718	(b)
Franchise advertising fund expenses		670			670			-		-			-		-
Preopening expenses		11,393			-			-		11,393			-		-
General and administrative expenses		1,133,978			-			-		-			-		1,133,978	(a)
Total Costs and Expenses		4,921,156			1,583,613			1,036,805		488,397			485,645		1,326,696
(Loss) Income from Operations		(1,619,477	)		(53,776	)		17,506		(329,323	)		72,812		(1,326,696	)

Other Income:
Other income		1,006,152			-			-		-			-		1,006,152	(c)
Interest expense, net		(16,859	)		-			-		-			-		(16,859	)
Gain on debt extinguishment		200,000			-			-		-			-		200,000
Change in fair value of accrued compensation		-			-			-		-			-		-
Total Other Income, Net		1,189,293			-			-		-			-		1,189,293

Loss Before Income Tax		(430,184	)		(53,776	)		17,506		(329,323	)		72,812		(137,403	)
Income tax provision		(2,446	)		-			-		-			-		(2,446	)
Net (Loss) Income Net (Loss) Income	$	(432,630	)	$	(53,776	)	$	17,506	$	(329,323	)	$	72,812	$	(139,849	)

	(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 $598,966, and professional and consulting fees of $318,877.

	(b)	This includes amortization of intangible assets and depreciation of corporate fixed assets. See Note 7.

	(c)	Included in other income is employee retention tax credits from the Internal Revenue Services.

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

				Muscle Maker					Non- Traditional			SuperFit
	Consolidated			Grill Division			Pokemoto Division		(Hybrid) Division			Foods Division		Unallocated

Revenues:
Company restaurant sales, net of discounts	$	6,720,030		$	3,644,901		$	1,457,806	$	514,331		$	1,102,992	$	-
Franchise royalties and fees		629,642			528,845			100,797		-			-		-
Franchise advertising fund contributions		19,500			19,500			-		-			-		-
Total Revenues		7,369,172			4,193,246			1,558,603		514,331			1,102,992		-

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs		2,542,333			1,387,306			521,564		269,045			364,418		-
Labor		2,855,070			1,675,117			412,997		431,846			335,110		-
Rent		904,759			533,117			98,426		231,438			41,778		-
Other restaurant operating expenses		1,737,128			872,542			307,599		342,794			214,193		-
Total restaurant operating expenses		8,039,290			4,468,082			1,340,586		1,275,123			955,499		-
Depreciation and amortization		838,447			265,691			23,860		127,376			108,517		313,003	(b)
Franchise advertising fund expenses		19,500			19,500			-		-			-		-
Preopening expenses		22,379			10,986			-		11,393			-		-
General and administrative expenses		6,094,869			-			-		-			-		6,094,869	(a)
Total Costs and Expenses		15,014,485			4,764,258			1,364,446		1,413,892			1,064,016		6,407,872
(Loss) Income from Operations		(7,645,313	)		(571,013	)		194,157		(899,561	)		38,976		(6,407,872	)

Other Income:
Other income		1,232,461			-			-		-			-		1,232,461	(c)
Interest expense, net		(53,629	)		-			-		-			-		(53,629	)
Gain on debt extinguishment		127,500			-			-		-			-		127,500
Change in fair value of accrued compensation		1,075,974			-			-		-			-		1,075,974
Total Other Income, Net		2,382,306			-			-		-			-		2,382,306

Loss Before Income Tax		(5,263,007	)		(571,013	)		194,157		(899,561	)		38,976		(4,025,566	)
Income tax provision		(3,508	)		-			-		-			-		(3,508	)
Net (Loss) Income Net (Loss) Income	$	(5,266,515	)	$	(571,013	)	$	194,157	$	(899,561	)	$	38,976	$	(4,029,074	)

	(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 $2,425,184, professional fees of $1,872,836, and consulting fees of $1,105,827.

	(b)	This includes amortization of intangible assets and depreciation of corporate fixed assets. See Note 7.

	(c)	Included in other income is employee retention tax credits from the Internal Revenue Services and restaurant revitalization grant.

Liquidity and Capital Resources

Liquidity

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

	September 30,		December 31,
	2022		2021
Cash	$	11,673,247	$	15,766,703
Working Capital Surplus	$	10,391,111	$	15,041,334
Convertible notes payable, including related parties and Former Parent, net	$	102,458	$	182,458
Other notes payable, including related parties	$	932,292	$	1,170,079

Availability of Additional Funds

Although we have a working capital surplus of $10,391,111, we presently have an accumulated deficit of $76,950,413, as of September 30, 2022, and we utilized $3,413,527 of cash in operating activities during the nine months ended September 30, 2022. We believe that our existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next twelve months.

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

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

Sources and Uses of Cash for the Nine Months Ended September 30, 2022, and September 30, 2021

For the nine months ended September 30, 2022, and 2021, we used cash of $3,413,527 and $4,941,096, respectively, in operations. Our cash used for the nine months ended September 30, 2022, was primarily attributable to our net loss of $5,557,777, adjusted for net non-cash income in the aggregate amount of 1,615,064, partially offset by $529,195 of net cash provided by changes in the levels of operating assets and liabilities. Our net cash used in operating activities for the nine months ended September 30, 2021, was primarily attributable to our net loss of $5,266,515, adjusted for net non-cash items in the aggregate amount of $1,469,924 and $1,144,505 of net cash provided by changes in the levels of operating assets and liabilities.

During the nine months ended September 30, 2022, cash used in investing activities was $503,421, of which $574,605 was used to purchase property and equipment, partially offset by $71,184 of collections in loans receivable. During the nine months ended September 30, 2021, net cash used in investing activities was $3,498,451, of which $183,861 was used to purchase property, $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.

Net cash used by financing activities for the nine months ended September 30, 2022, was $176,508, consisting of $96,508 of repayments of various other notes payable and the repayment of $80,000 on a convertible note. Net cash used by financing activities for the nine months ended September 30, 2021 was $7,860,460 of which $9,181,349 was contributed by proceeds from a private placement offering, net of offering costs, and proceeds from the exercising of the pre-funded warrants of $28,652, partially offset by repayments of various other notes payable of $1,249,541, which consisted mainly of SBA loans that was acquired through the Pokemoto acquisition and $100,000 cash paid to a former investor in connection with the cancellation of their shares.

Critical Accounting Policies

Use of Estimates

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

Intangible Assets

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

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

Franchisee agreements		13 years
Franchise license		10 years
Trademark – Muscle Maker, SuperFit, and Pokemoto		3 – 5 years
Domain name, Customer list and Proprietary recipes		3 – 7 years
Non-compete agreement		2 – 3 years

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

Revenue Recognition

Restaurant Sales

Franchise Royalties and Fees

Franchise Advertising Fund Contributions

Other Revenues

Deferred Revenue

Income Taxes

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

Tax benefits claimed or expected to be claimed on a tax return are recorded in our financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

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

Recently Issued Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements for the nine months ended September 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the nine months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

We are currently involved in 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 nine months ended September 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, 2022 and to make seven installment payments of $10,000 per month starting on or before June 1, 2022. As of September 30, 2022, the Company has accrued for the liability in convertible notes payable in the amount of $20,000 which is included in accounts payable and accrued expenses.

ITEM 1A. RISK FACTORS.

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

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

Issuance of Stock

On 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.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

On February 1, 2022, the Company received a letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) therein indicating that, based upon the closing bid price of the Company’s common stock (the “Common Stock”) for the prior 30 consecutive business days, the Company was not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company was granted 180 calendar days, or until August 1, 2022, to regain compliance.

The Company will continue to monitor the closing bid price of its Common Stock and seek to regain compliance with 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.

ITEM 6. EXHIBITS

Exhibit No.		Exhibit Description

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

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

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

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

101.INS		Inline XBRL Instance Document*
101.SCH		Inline XBRL Schema Document*
101.CAL		Inline XBRL Calculation Linkbase Document*
101.DEF		Inline XBRL Definition Linkbase Document*
101.LAB		Inline XBRL Label Linkbase Document*
101.PRE		Inline XBRL Presentation Linkbase Document*
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

† Includes management contracts and compensation plans and arrangements

*Filed herewith.

+Previously filed.

SIGNATURES

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

Date: November 10, 2022	MUSCLE MAKER, INC.

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

	By:	/s/ Jennifer Black
		Jennifer Black
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Sadot (SDOT) 10-Q2022 Q3 Quarterly report

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