Muscle Maker, Inc. [GRIL] Filings

10-Q 1 gril-20230331.htm 10-Q gril-20230331

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 March 31, 2023


☐			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)

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):

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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 May 10, 2023, was 32,197,066.

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Muscle Maker, Inc.

Quarterly Report on Form 10-Q

For the Three Months Ended March 31, 2023

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Page

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2023 and December 31, 2022

Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2023 and 2022

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2023 and 2022

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2023 and 2022

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Muscle Maker, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


	March 31, 2023	December 31, 2022
	$’000	$’000
Assets
Current assets:
Cash	6,386	9,898
Accounts receivable, net of allowance for doubtful accounts of $28.8 thousand and $23.4 thousand as of March 31, 2023 and December 31, 2022, respectively	4,961	135
Inventory	35,145	298
Prepaid expenses and other current assets	206	317
Total current assets	46,698	10,648
Right to use assets	2,189	2,433
Property and equipment, net	1,680	1,895
Goodwill	2,626	2,626
Intangible assets, net	4,301	4,611
Deposit on farmland	5,002	4,914
Security deposits and other assets	102	103
Total assets	62,598	27,230
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	35,863	1,953
Accrued stock-based compensation expense - related party	3,400	3,603
Notes payable, current	225	222
Operating lease liability, current	505	560
Deferred revenue, current	90	95
Other current liabilities	195	182
Total current liabilities	40,278	6,615
Notes payable, non-current	722	759
Operating lease liability, non-current	1,800	2,019
Deferred revenue, non-current	1,228	1,276
Total liabilities	44,028	10,669
Commitments and Contingencies
Stockholders’ equity:
Common stock, $0.0001 par value, 150 million shares authorized, 32.2 million and 29.3 million shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	3	3
Additional paid-in capital	98,988	95,913
Accumulated deficit	(80,421)	(79,355)
Total stockholders’ equity	18,570	16,561
Total liabilities and stockholders’ equity	62,598	27,230

See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited)

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Muscle Maker, Inc.

Condensed Consolidated Statement of Operations

(Unaudited)


	Three Months Ended March 31,
	2023	2022
	$’000	$’000
Revenues:
Commodity sales	210,366	—
Company restaurant sales, net of discounts	2,301	2,694
Franchise royalties and fees	284	208
Franchise advertising fund contributions	16	18
Total revenues	212,967	2,920
Operating Costs and Expenses:
Commodity operating expenses:
Commodity cost	205,055	—
Labor	620	—
Other commodity operating expenses	154	—
Total commodity operating expenses	205,829	—
Restaurant operating expenses:
Food and beverage costs	839	1,026
Labor	880	1,073
Rent	274	340
Other restaurant operating expenses	472	650
Total restaurant operating expenses	2,465	3,089
Depreciation and amortization expenses	633	476
Franchise advertising fund expenses	16	18
Pre-opening expenses	36	—
Post-closing expenses	94	—
Stock-based consulting expenses	3,359	—
Sales, general and administrative expenses	2,142	1,324
Total costs and expenses	214,574	4,907
Loss from operations	(1,607)	(1,987)
Other Income:
Other income / (expense)	—	(19)
Interest income / (expense), net	3	(18)
Change in fair value of accrued compensation	541	—
Gain on debt extinguishment	—	140
Total other income, net	544	103
Loss Before Income Tax	(1,063)	(1,884)
Income tax	3	2
Net loss	(1,066)	(1,886)
Net Loss Per Share:
Basic and Diluted	(0.04)	(0.07)
Weighted average Number of Common Shares Outstanding:
Basic and Diluted	29,443,394	27,801,604

See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited)

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Muscle Maker, Inc.

Condensed Consolidated Statement of Changes in Stockholders' Equity

(Unaudited)


	Common Stock		Additional Paid-in Capital	Accumulated Deficit	Total
	Shares	Amount
	('000	$’000	$’000	$’000	$’000
Balance at December 31, 2021	26,110	3	95,760	(71,370)	24,393
Cumulative effect of change in accounting principal	—	—	—	(15)	(15)
Cashless exercise of pre-funded warrants	2,410	—	—	—	—
Common stock compensation to board of directors	94	—	57	—	57
Common stock issued as compensation for services	30	—	16	—	16
Net loss	—	—	—	(1,886)	(1,886)
Balance at March 31, 2022	28,644	3	95,833	(73,271)	22,565
Balance at December 31, 2022	29,287	3	95,913	(79,355)	16,561
Common stock compensation to board of directors	31	—	28	—	28
Common stock issued as compensation for services	2,849	—	3,020	—	3,020
Stock-based compensation - options	—	—	27	—	27
Net loss	—	—	—	(1,066)	(1,066)
Balance at March 31, 2023	32,167	3	98,988	(80,421)	18,570

See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited)

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Muscle Maker, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
	2023	2022
	$’000	$’000
Cash Flows from Operating Activities
Net loss	(1,066)	(1,886)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	633	476
Stock-based compensation	55	72
Gain on extinguishments of debt	—	(140)
Stock-based consulting expenses	3,359	—
Change in fair value of compensation	541	—
Loss on disposal of assets	—	240
Bad debt expense	(5)	(9)
Changes in operating assets and liabilities:
Accounts receivable, net	(4,821)	(175)
Inventory	(34,848)	(1)
Prepaid expenses and other current assets	111	698
Security deposits and other assets	—	16
Accounts payable and accrued expenses	33,910	(404)
Accrued stock-based compensation expense - related party	(1,082)	—
Deferred rent	—	(128)
Operating right of use asset and liability, net	(30)	129
Deferred revenue	(53)	191
Other current liabilities	14	(8)
Total adjustments	(2,216)	957
Net cash used in operating activities	(3,282)	(929)
Cash Flows from Investing Activities
Deposit on farmland	(87)	—
Purchases of property and equipment	(109)	(35)
Net cash used in investing activities	(196)	(35)
Cash Flows from Financing Activities
Repayments of notes payables	(34)	(32)
Net cash used in financing activities	(34)	(32)
Net Decrease in Cash	(3,512)	(996)
Cash – beginning of period	9,898	15,767
Cash – end of period	6,386	14,771

See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited)

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Muscle Maker, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)


	Three Months Ended March 31,
	2023	2022
	$’000	$’000
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	3	24

See Accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited)

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

1. Business Organization and Nature of Operations

Muscle Maker, Inc. (“MMI”), a Nevada corporation was incorporated in Nevada on October 25, 2019. MMI was a wholly owned subsidiary of Muscle Maker, Inc (“MMI-Cal”), a California corporation incorporated on December 8, 2014, but the two merged on November 13, 2019, with MMI as the surviving entity. MMI wholly owns Muscle Maker Development, LLC (“MMD”), Muscle Maker Corp, LLC (“MMC”) and Muscle Maker USA, Inc (“Muscle USA”). MMD was formed on July 18, 2017, in the State of Nevada for the purpose of running our existing franchise operations and continuing to franchise the Muscle Maker Grill name and business system to qualified franchisees. MMC was formed on July 18, 2017, in the State of Nevada for the purpose of developing new corporate stores and operating new and existing corporate stores of MMI. Muscle USA was formed on March 14, 2019, in the State of Texas for the purpose of opening additional new corporate stores. Muscle Maker Development International LLC, a directly wholly owned subsidiary of MMI, which was formed in Nevada on November 13, 2020, to franchise the Muscle Maker Grill® name, trademarks and business system to qualified franchisees internationally. On March 25, 2021, MMI acquired the assets and trademarks of SuperFit Foods™, a subscription based fresh-prepared meal prep business located in Jacksonville, Florida. On May 14, 2021, MMI acquired the assets and trademarks of PKM Stamford, LLC, Poke Co., LLC, LB Holdings LLC, TNB Holdings, LLC, Poke Co Holdings LLC, GLL Enterprises, LLC, and TNB Holdings II, LLC, each a Connecticut limited liability company, an operator and franchisor of a fast casual restaurant chain concept, collectively known as “Pokémoto®.” On October 19, 2022, MMI formed Sadot LLC, a Delaware limited liability company and a wholly-owned subsidiary of MMI, ("Sadot"), for the purpose of shipping and trading agri-commodities on a global basis.

With the formation of Sadot in late 2022, MMI has evolved from a U.S.-centric restaurant business into a global, food-focused organization. As of March 31, 2023, MMI consisted of two distinct operating units:

1.SADOT LLC: MMI’s largest operating unit is a global agri-commodities company engaged in trading and shipping of food and feed (e.g., soybean meal, wheat, corn, etc.) via dry bulk cargo ships to/from markets such as Brazil, Canada, China, India, Japan, Malaysia, Philippines, Poland, Romania, Ukraine and Vietnam. Sadot competes with the ABCD commodity companies (ADM, Bunge, Cargill, Louis-Dreyfus) as well as many regional organizations. Sadot seeks to diversify over time into a sustainable and forward-looking global agri-foods company.

2.MMI RESTAURANT GROUP: This is MMI’s legacy business with two fast casual restaurant concepts, Pokémoto Hawaiian Poké® and Muscle Maker Grill®, plus a fresh-prep meal service, SuperFit Foods™, with 30+ points of distribution plus in-home and national delivery. As of March 31, 2023, the MMI Restaurant Group included 19 company-owned restaurants, including the SuperFit Foods™ kitchen, and 26 franchise restaurants. The MMI Restaurant Group seeks to develop Pokémoto® into a national restaurant brand through franchising.

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

Liquidity

Our primary source of liquidity is cash on hand. As of March 31, 2023, the Company had a cash balance, a working capital surplus and an accumulated deficit of $6.4 million, $6.4 million, and $80.4 million, respectively. During the three months ended March 31, 2023, the Company incurred a Pre-tax net loss of $1.1 million and Net cash used in operations of $3.3 million. The Company believes that our existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next 12 months.

2. Significant Accounting Policies

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

of the Unaudited Condensed Consolidated Financial Statements of the Company as of March 31, 2023, and for the three months ended March 31, 2023, and 2022. The results of operations for the three months ended March 31, 2023, and 2022 are not necessarily indicative of the operating results for the full year. It is suggested that these Unaudited Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2022. The Balance Sheet as of December 31, 2022, has been derived from the Company’s audited Financial Statements.

Principles of Consolidation

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

Reclassifications

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

Use of Estimates

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

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

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

•the estimated useful lives of intangible and depreciable assets;

•estimates and assumptions used to value warrants and options;

•the recognition of revenue; and

•the recognition, measurement and valuation of current and deferred income taxes.

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

Cash and Cash Equivalents

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

Inventory

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

Deposit on Farmland

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

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Property and Equipment

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


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

Intangible Assets

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

The useful lives of the Company’s intangible assets are:


Franchisee agreements			13 years
Franchise license			10 years
Trademarks			3 – 5 years
Domain name, Customer list and Proprietary recipes			3 – 7 years
Non-compete agreements			2 – 3 years

Impairment of Long-Lived Assets

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

Convertible Instruments

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

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

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

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

Related Parties

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

Revenue Recognition

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

Commodity Sales

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

Restaurant Sales

Retail store revenue at Company-operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discounts and other sales-related taxes. The Company recorded retail store revenues of $2.3 million and $2.7 million during the three months ended March 31, 2023 and 2022, respectively.

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

Franchise Royalties and Fees

Franchise revenues consists of royalties, initial franchise fees and rebates. Royalties are based on a percentage of franchisee net sales revenue. The Company recognizes the royalties as the underlying sales occur. The Company recorded revenue from royalties of $0.2 million and $0.1 million during the three months ended March 31, 2023 and 2022, respectively, which is included in Franchise royalties and fees on the accompanying Unaudited Condensed Consolidated Statements of Operations.

The Company provides the franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for the multi-unit development fees and initial franchise fees. The Company capitalizes these fees upon collection from the franchisee. These initial fees are then recognized as franchise fee revenue on a straight-

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the execution of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize the Company’s brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. If a franchise location closes or a franchise agreement is terminated for any reason, the unrecognized revenue will be recognized in full at that time. The Company recorded revenue from initial franchise fees of $0.1 million and $49.0 thousand during the three months ended March 31, 2023 and 2022, respectively, which is included in Franchise royalties and fees on the accompanying Unaudited Condensed Consolidated Statements of Operations.

The Company has supply agreements with certain food and beverage vendors. Pursuant to the terms of these agreements, rebates are provided to the Company based upon the dollar volume of purchases for all company-owned and franchised restaurants from these vendors. Rebates earned on purchases by franchise stores are recorded as revenue during the period in which the related food and beverage purchases are made. The Company recorded revenue from rebates of $26.0 thousand and $0.1 million during the three months ended March 31, 2023 and 2022, respectively, which is included in Franchise royalties and fees on the accompanying Unaudited Condensed Consolidated Statements of Operations. Rebates earned on purchases by Company-owned stores are recorded as a reduction of Food and beverage costs during the period in which the related food and beverage purchases are made.

Franchise Advertising Fund Contributions

Under the Company’s franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company’s national advertising services are provided on a system-wide basis and therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under Sales, general and administrative expenses. When an advertising contribution fund is over-spent at year-end, advertising expenses will be reported on the Unaudited Condensed Consolidated Statement of Operations in an amount that is greater than the revenue recorded for advertising contributions. Conversely, when an advertising contribution fund is under-spent at a period-end, the Company will accrue advertising costs up to advertising contributions recorded in revenue. The Company recorded contributions from franchisees of $16.0 thousand and $18.0 thousand, respectively, during the three months ended March 31, 2023 and 2022, which are included in Franchise advertising fund contributions on the accompanying Unaudited Condensed Consolidated Statements of Operations.

Other Revenues

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. Gift card liability is recorded in other current liabilities on the Unaudited Condensed Consolidated Balance Sheets.

Deferred Revenue

Deferred revenue primarily includes initial franchise fees received by the Company, which are being amortized over the life of the Company’s franchise agreements. Deferred revenue is recognized in income over the life of the franchise agreements. If a franchise location closes or a franchise agreement is terminated for any reason, the remaining deferred revenue will be recognized in full at that time.

Stock-Based Consulting Expense

Stock-based consulting expenses are for consulting fees due to Aggia related to ongoing Sadot operations and expansion of the global agri-commodities business. Based on the servicing agreement with Aggia LLC FZ, a Company formed under the laws of United Arab Emirates (“Aggia”), the consulting fees are calculated at approximately 80.0% of the Net Income generated by the Sadot business segment. For the three months ended March 31, 2023, $3.4 million is recorded as Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and a corresponding liability is recorded as Accrued stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Balance Sheets. This expense is expected to be paid in stock in 2023.

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Advertising

Advertising costs are charged to expense as incurred. Advertising costs were $0.1 million and $33.0 thousand for the three months ended March 31, 2023 and 2022, respectively, are included in Sales, general and administrative expenses and $40.0 thousand and $0.1 million, respectively, are included in Other restaurant operating expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations.

Net Loss per Share

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

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


	March 31,
	2023	2022
	('000	('000
Warrants	18,034	17,874
Options	1,013	100
Convertible debt	24	32
Total potentially dilutive shares	19,071	18,006

Major Vendor

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

Fair Value of Financial Instruments

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

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

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

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

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The carrying amounts of accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts of our short–term credit obligations approximate fair value because the effective yields on these

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

obligations, which include contractual interest rates, taken together with other features such as concurrent issuance of common stock and warrants, are comparable to rates of returns for instruments of similar credit risk.

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

Income Taxes

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

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

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

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

Stock-Based Compensation

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

Recent Accounting Pronouncements

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

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

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

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

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

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

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

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

In October 2021, the FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers”, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements and related disclosures.

Subsequent Events

The Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation and transactions, the Company did not identify any subsequent events that would have required adjustment or disclosure in the Financial Statements, except as disclosed in Note 19 – Subsequent events.

3. Loans Receivable

The Company had no loan receivable balance at March 31, 2023 and December 31, 2022. Loans receivable include loans to franchisees totaling, in the aggregate, net of reserves for uncollectible loans. There were no reserves for uncollectible loans at March 31, 2023 and $0.1 million at March 31, 2022. Loans receivable were paid in full during the third quarter of 2022 and the corresponding reserve for loan loss was reversed.

4. Prepaid Expenses and Other Current Assets

At March 31, 2023 and December 31, 2022, the Company’s prepaid expenses and other current assets consists of the following:


	As of
	March 31, 2023	December 31, 2022
	$’000	$’000
Prepaid expenses	189	89
Other receivables	17	228
Prepaid and Other Current Assets	206	317

Included in prepaid and other current assets is a receivable of $17.0 thousand and $0.2 million as of March 31, 2023 and December 31, 2022, respectively. The receivable reduced Labor expense for 2021 included in Restaurant operating expenses, related to the employee retention tax credits receivable from the Internal Revenue Services (“IRS”) that was made available to companies effected by COVID-19. The Company started to early access the credit in the fourth quarter of 2021 as allowed by the IRS.

5. Deposit On Farmland

At December 31, 2022, the Company's deposit on farmland balance was $4.9 million. At March 31, 2023, the Company gave an additional $0.1 million deposit, totaling $5.0 million deposit on farmland balance. Deposit on farmland consists of

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

funds paid as a deposit with the intent to acquire farmland in Africa by our Sadot subsidiary. The Company has entered into a letter of intent with a deposit to purchase undeveloped farmland. The Company is still in final negotiations with the intent to finalize the agreement by the end of the second quarter of 2023.

6. Property and Equipment, Net

As of March 31, 2023 and December 31, 2022, Property and equipment consist of the following:


	As of
	March 31, 2023	December 31, 2022
	$’000	$’000
Furniture and equipment	1,312	1,266
Vehicles	55	55
Leasehold improvements	2,102	2,062
Construction in process	27	5
Property and equipment, gross	3,496	3,388
Less: accumulated depreciation	(1,816)	(1,493)
Property and equipment, net	1,680	1,895

Depreciation expense amounted to $0.3 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023 there were no write off's related to Property and equipment. For the three months ended March 31, 2022, the Company wrote off Property and equipment with an original cost value of $0.4 million, related to closed locations and future locations that were terminated due to the economic environment as a result of COVID-19 and increased Labor and Food cost and recorded a loss on disposal of $0.2 million, after accumulated depreciation of $0.1 million, in the Unaudited Condensed Consolidated Statement of Operations.

7. Goodwill and Other Intangible Assets, Net

The Company’s intangible assets include trademarks, franchisee agreements, franchise license, domain names, customer list, proprietary recipes and non-compete agreements. Intangible assets are amortized over useful lives ranging from 2 to 13 years.

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

A summary of the intangible assets is presented below:


	Intangible assets, net at December 31, 2021	Impairment of intangible assets	Amortization expense	Intangible assets, net at March 31, 2022	Intangible assets, net at December 31, 2022	Impairment of intangible assets	Amortization expense	Intangible assets, net at March 31, 2023
	$’000	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Trademark Muscle Maker Grill	1,526	—	(125)	1,401	670	—	(83)	587
Franchise Agreements Muscle Maker Grill	162	—	(6)	156	136	—	(7)	129
Trademark SuperFit	38	—	(2)	36	29	—	(2)	27
Domain Name SuperFit	106	—	(6)	100	81	—	(6)	75
Customer List SuperFit	118	—	(7)	111	90	—	(7)	83
Proprietary Recipes SuperFit	135	—	(8)	127	103	—	(8)	95
Non-Compete Agreement SuperFit	193	—	(21)	172	107	—	(21)	86
Trademark Pokemoto	153	—	(9)	144	118	—	(9)	109
Franchisee License Pokemoto	2,599	—	(68)	2,531	2,322	—	(68)	2,254
Proprietary Recipes Pokemoto	1,028	—	(40)	988	867	—	(40)	827
Non-Compete Agreement Pokemoto	328	—	(59)	269	88	—	(59)	29
	6,386	—	(351)	6,035	4,611	—	(310)	4,301

Amortization expense related to intangible assets was $0.3 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively.

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

The estimated future amortization expense is as follows:


	Three Months Ended March 31,
	2024	2025	2026	2027	2028	Thereafter	Total
	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Trademark Muscle Maker Grill	252	335	—	—	—	—	587
Franchise Agreements Muscle Maker Grill	20	27	27	27	27	1	129
Trademark SuperFit	7	9	9	2	—	—	27
Domain Name SuperFit	19	25	25	6	—	—	75
Customer List SuperFit	21	28	28	6	—	—	83
Proprietary Recipes SuperFit	24	32	32	7	—	—	95
Non-Compete Agreement SuperFit	65	21	—	—	—	—	86
Trademark Pokemoto	26	35	35	13	—	—	109
Franchisee License Pokemoto	209	278	277	277	277	936	2,254
Proprietary Recipes Pokemoto	122	162	161	161	161	60	827
Non-Compete Agreement Pokemoto	29	—	—	—	—	—	29
	794	952	594	499	465	997	4,301

The Company determined that no impairment testing of the Company’s intangible assets was required as of March 31, 2023. Therefore, no impairment charge was recorded.

A summary of the goodwill assets is presented below:


	Muscle Maker Grill	Pokemoto	SuperFit Food	Total
	$’000	$’000	$’000	$’000
Goodwill, net at December 31 2021	570	1,798	258	2,626
Impairment of goodwill	—	—	—	—
Goodwill, net at March 31, 2022	570	1,798	258	2,626
Goodwill, net at December 31 2022	570	1,798	258	2,626
Impairment of goodwill	—	—	—	—
Goodwill, net at March 31, 2023	570	1,798	258	2,626

The Company determined that no impairment testing of the Company’s goodwill was required as of March 31, 2023. Therefore, no impairment charge was recorded.

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

8. Accounts Payables and Accrued Expenses

Accounts payables and accrued expenses consist of the following:


	As of
	March 31, 2023	December 31, 2022
	$’000	$’000
Accounts payable	699	1,085
Accrued payroll and bonuses	102	551
Accrued expenses	102	87
Accrued professional fees	73	185
Accounts payable commodities	34,830	—
Sales taxes payable (1)	57	45
	35,863	1,953

(1)See Note 15 – Commitments and contingencies for details related to delinquent sales taxes.

9. Accrued Stock-Based Consulting Expenses Due to Related Party

At March 31, 2023, Accrued stock-based consulting expenses due to related party was $3.4 million. At December 31, 2022, Accrued stock-based consulting expenses was $3.6 million. Accrued stock-based consulting expenses are related to consulting fees due to our newly established related party, Aggia, for Sadot operations. See Note 18 – Related party transactions for details. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 80.0% of the Net income generated by the Sadot business segment. For the three months ended March 31, 2023, $3.4 million are also recorded as Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations. The Stock-based consulting expense that is due to related party is expected to be paid in stock in 2023.

10. Notes Payable

Convertible Notes Payable

On April 6, 2018, the Company issued a $0.5 million convertible promissory note (the “2018 ARH Note”) to the Former Parent for services rendered and expense paid on behalf of the Company. The 2018 ARH Note has no stated interest rate or maturity date and is convertible into shares of the Company’s common stock at a conversion price of $3.50 per share at a time to be determined by the lender.

On April 11, 2018, the Former Parent elected to partially convert the 2018 ARH Note for the principal of $0.4 million into 0.1 million shares of the Company’s common stock.

The Company had an aggregate gross amount of $0.1 million and $0.1 million of convertible notes payable as of March 31, 2023 and December 31, 2022 included in notes payable on the Unaudited Condensed Consolidated Balance Sheets.

Other Notes Payable

During the three months ended March 31, 2023 and 2022, the Company repaid a total amount of $0.1 million and $1.3 million, respectively, of the other notes payable.

As of March 31, 2023, the Company had an aggregate amount of $0.9 million in other notes payable. The notes had interest rates ranging between 3.75% - 8.00% per annum, due on various dates through May 2027.

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

The maturities of notes payable as of March 31, 2023, are as follows:


			Principal Amount
			$’000
2023			225
2024			121
2025			70
2026			531
Thereafter			—
			947

11. Leases

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

The total lease cost associated with right of use assets and operating lease liabilities for the three months ended March 31, 2023, was $0.1 million and has been recorded in the Unaudited Condensed Consolidated Statement of Operations as Rent expense within Restaurant operating expenses.

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


	As of
	March 31, 2023	December 31, 2022
	$’000	$’000
Assets
Right to use asset	2,189	2,433
Liabilities
Operating leases – current	505	560
Operating leases – non-current	1,800	2,019
Total lease liabilities	2,305	2,579

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

The table below presents the future minimum lease payments under the noncancellable operating leases as of March 31, 2023:


			Operating Leases
			$’000
Fiscal Year:
2023			565
2024			706
2025			556
2026			386
2027			300
2028			222
Thereafter			368
Total lease payments			3,103
Less imputed interest			(798)
Present value of lease liabilities			2,305

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


	As of March 31, 2023
Weighted-average remaining lease term (in years)
Operating leases	5.01
Weighted-average discount rate
Operating leases	12.0	%

12. Deferred Revenue

The Company's deferred revenue consists of the following:


	As of
	March 31, 2023	December 31, 2022
	$’000	$’000
Deferred revenues, net	1,318	1,371
Less: deferred revenue, current	(90)	(95)
Deferred revenues, non-current	1,228	1,276

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Muscle Maker, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

13. Other Current Liabilities

Other current liabilities consist of the following:


	As of
	March 31, 2023	December 31, 2022
	$’000	$’000
Gift card liability	26	25
Co-op advertising fund liability	87	79
Marketing development brand liability	41

Muscle Maker, Inc. [GRIL] Filings
10-Q	[2023-05-10]
10-K	[2023-03-21]
10-Q	[2022-11-10]
10-Q	[2022-08-11]
10-Q	[2022-05-12]
10-K	[2022-03-17]
10-Q	[2021-11-15]
10-Q	[2021-08-16]
10-Q	[2021-05-21]
10-K	[2021-04-15]
10-Q	[2020-11-16]
10-Q	[2020-08-19]
S-1	[2020-08-12]
10-Q	[2020-06-29]
10-K	[2020-05-29]
S-1	[2019-11-26]
10-Q	[2019-11-20]
10-Q	[2019-09-06]
10-Q	[2019-08-29]
10-K	[2019-08-21]
10-Q	[2019-07-26]
10-Q	[2019-07-12]
10-Q	[2019-06-04]
10-Q	[2019-02-27]
10-K	[2019-02-27]