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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Muscle Maker, Inc.    GRIL

MUSCLE MAKER, INC.

(GRIL)
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MUSCLE MAKER : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

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06/30/2020 | 08:51am EDT

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 March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations to "us," "we," "our," and similar terms refer to Muscle Maker. "Muscle Maker Grill" refers to the name under which our corporate and franchised restaurants do business. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words "may," "will," "expect," "believe," "anticipate," "project," "plan," "forecast," "model," "proposal," "should," "may," "intend," "estimate," and "continue," and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. For a detailed discussion of risk factors affecting us, see "Part I - Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019.



OVERVIEW


We operate under the name Muscle Maker Grill as a franchisor and owner-operator of Muscle Maker Grill restaurants. As of March 31, 2020, our restaurant system included eleven Company-owned restaurants and twenty-four franchised restaurants.

Muscle Maker Grill 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, burgers, wraps and flat breads. In addition, we feature freshly prepared entrée salads and an appealing selection of sides, protein shakes and fruit smoothies. We operate in the approximately $47 billion fast casual restaurant segment, which we believe has created significant recent disruption in the restaurant industry and is rapidly gaining market share from adjacent restaurant segments, resulting in significant growth opportunities for healthier restaurant concepts such as Muscle Maker Grill.

We believe our healthier 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.

As of March 31, 2020, we had an accumulated deficit of $58,586,865 and expect to continue to incur operating and net losses for the foreseeable future. In its report on our consolidated financial statements for the fiscal year ended December 31, 2019, our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern. See "Liquidity and Capital Resources - Availability of Additional Funds and Going Concern" and Note 1 - Business Organization and Nature of Operations, Going Concern and Management's Plans to Notes to Consolidated Financial Statements for additional information describing the circumstances that led to the inclusion of this explanatory paragraph.



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Key Financial Definitions



Total Revenues


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



Food and Beverage Costs


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



Labor


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




Rent



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

Other restaurant operating expenses

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



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Other Expenses Incurred for Closed Locations

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

Depreciation and Amortization

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

General and Administrative Expenses

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



Other Expense, net


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



Income Taxes


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



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Consolidated Results of Operations

Three Months Ended March 31, 2020 Compared with Three Months Ended March 31, 2019




The following table represents selected items in our condensed consolidated
statements of operations for the three months ended March 31, 2020 and 2019,
respectively:



                                                 For the Three Months Ended
                                                          March 31,
                                                    2020              2019

Revenues:

Company restaurant sales, net of discounts $ 1,237,427$ 800,763 Franchise royalties and fees

                          176,031          344,712
Franchise advertising fund contributions               21,596           38,899
Total Revenues                                      1,435,054        1,184,374

Operating Costs and Expenses:
Restaurant operating expenses:
Food and beverage costs                               465,694          289,345
Labor                                                 586,620          279,013
Rent                                                  144,677           98,190
Other restaurant operating expenses                   332,360          115,685
Total restaurant operating expenses                 1,529,351          782,233
Depreciation and amortization                         111,257           68,692
Other expenses incurred for closed locations                -            3,710
Franchise advertising fund expenses                    21,596           38,899
General and administrative expenses                 5,129,403        1,104,036
Total Costs and Expenses                            6,791,607        1,997,570
Loss from Operations                               (5,356,553 )       (813,196 )

Other Expense:
Other expense, net                                     (3,188 )       (111,750 )
Interest expense, net                                 (93,604 )       (182,465 )
Amortization of debt discounts                        (38,918 )       (376,068 )
Total Other Expense, Net                             (135,710 )       (670,283 )

Loss Before Income Tax                             (5,492,263 )     (1,483,479 )
Income tax provision                                        -                -
Net Loss                                       $   (5,492,263 )$ (1,483,479 )




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Revenues


Company total revenues totaled $1,435,054 for the three months ended March 31, 2020 compared to $1,184,374 for the three months ended March 31, 2019. The 21.17% increase was primarily attributable to more stores generating restaurant sales, net of discounts in the current period compared to the prior period, partially offset by a decrease in franchise royalties and fees due to fewer franchisee stores.

We generated restaurant sales, net of discounts, of $1,237,427 for the three months ended March 31, 2020 compared to $800,763, for the three months ended March 31, 2019. This represented an increase of $436,664, or 54.5%, which is primarily attributable to a higher corporate owned store count during the current period as compared to the prior period due to the purchase of two former franchisee locations since the prior period, partially offset by a decrease of approximately $193,000 in restaurants sales due to the temporary closure of three corporate owned stored as a result of Covid-19.

Franchise royalties and fees for the three months ended March 31, 2020 and 2019 totaled $176,031 compared to $344,712, respectively. The $168,681 decrease is primarily attributable to a decrease in initial franchise fees of $38,741 as we opened fewer franchise locations due to pausing the franchise program until Q2 2020, a decrease in royalty income of $85,641 due to fewer franchisee locations, lower sales volumes and temporary closures of franchised locations due to Covid-19 and a decrease in vendor rebates of $44,299. In addition, the company purchased two franchisee locations since the prior period resulting in lower franchise fees but higher corporate sales results.

Franchise advertising fund contributions for the three months ended March 31, 2020 and 2019 totaled $21,596 compared to $38,899, respectively.

Operating Costs and Expenses

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

Restaurant food and beverage costs for the three months ended March 31, 2020 and 2019 totaled $465,694, or 37.63%, as a percentage of restaurant sales, and $289,345, or 36.1%, as a percentage of restaurant sales, respectively. The $176,349 increase results primarily due a higher store count during the period as compared to the prior period as the Company opened and acquired more stores since the prior period, partially offset by a decrease of approximately $45,000 due to the temporary closure of three corporate owned stored due to Covid-19.

Restaurant labor for the three months ended March 31, 2020 and 2019 totaled $586,620, or 47.41%, as a percentage of restaurant sales, and $279,013, or 34.8%, as a percentage of restaurant sales, respectively. The $307,607 increase results primarily due a higher store count during the period as compared to the prior period as the Company opened and acquired more stores as compared to the prior period, partially offset by a decrease of approximately $12,500 due to the temporary closure of three corporate owned stored due to Covid-19. In addition, the increase in labor as a percentage of sales is a direct result of inefficiencies that is typically attributed to opening or acquiring new locations as it takes time to establish operational efficiencies.

Restaurant rent expense for the three months ended March 31, 2020 and 2019 totaled $144,677, or 11.7%, as a percentage of restaurant sales, and $98,190, or 12.26%, as a percentage of restaurant sales, respectively.

Other restaurant operating expenses for the three months ended March 31, 2020 and 2019 totaled $332,360, or 26.9% as a percentage of restaurant sales, and $115,685, or 14.5% as a percentage of restaurant sales, respectively. The $216,675 increase is primarily due to higher third party merchant fees, utility fees and insurance expenses attributed to a higher store count during the period as compared to the prior period as the Company opened and acquired more stores as compared to the prior period.

Depreciation and amortization expense for the three months ended March 31, 2020 and 2019 totaled $111,257 and $68,692, respectively. The $42,565 increase is primarily attributable to depreciation expense related to additional property and equipment acquired for new store build outs and the remodeling of an existing company owned restaurant compared to the prior period.



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General and administrative expenses for the three months ended March 31, 2020 and 2019 totaled $5,129,403, or 364.60% of total revenues, and $1,104,036, or 93.22% of total revenues, respectively. The $4,025,367 increase is primarily attributable to an increase in one-time bonuses of approximately $1,354,000 which is directly attributed to the stock issued to the executive team upon the completion of the offering resulting in stock-based compensation expense of $1,083,915, an increase one-time consulting expense of approximately $2,473,000 which is mainly attributed to stock issued to consultants which resulted in stock-based compensation expense of $2,115,961, and an increase in one-time professional fees of approximately $196,000 due to fees incurred in connection with the Company's offering.



Loss from Operations


Our loss from operations for the three months ended March 31, 2020 and 2019 totaled $5,356,553 or 373.26% of total revenues and $813,196 or 68.7% of total revenues, respectively. The increase of $4,543,357 in loss from operations is primarily attributable to an increase in total costs and expenses of approximately $4,794,037, partially offset by the increase in total revenues of approximately $250,680. The increase in total cost and expenses of approximately $4,794,037 is primarily due to one-time expenses of approximately $3,205,000 incurred in connection with our offering of which approximately $3,136,000 of the expenses consisted of non-cash expenses in the form of stock-based compensation.




Other Expense, net



Other expense, net for the three months ended March 31, 2020 and 2019 totaled $135,710 and $670,283, respectively. The $534,573 decrease in expense was primarily attributable to a decrease in amortization of debt discounts of $337,150, a $88,861 decrease in interest expense, net as the majority of the convertible notes where converted as of Q4 2020 therefore no further interest expense is being incurred and a $108,562 decrease in other expense, net.



Net Loss


Our net loss for the three months ended March 31, 2020 increased by $4,008,784 to $5,492,263 as compared to $1,483,479 for the three months ended March 31, 2019, resulting from an increase in our loss from operations partially offset by an decrease in other expense, net as discussed above.



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Liquidity and Capital Resources



Liquidity


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



                                                     March 31,         December 31,
                                                        2020               2019
Cash                                               $    3,707,364$       478,854
Working Capital Surplus (Deficiency)               $      874,473$    (3,707,541 )
Convertible notes payable, and Former Parent,
net of debt discount of $0 and $38,918,
respectively                                       $      182,458$       693,540

Other notes payable, including related party $ 273,558$ 682,807

Availability of Additional Funds and Going Concern

Although we have a working capital surplus of $874,473, we presently have an accumulated deficit of $58,386,865, as of March 31, 2020, and we utilized $2,542,520 of cash in operating activities during the three months ended March 31, 2020, therefor we require additional equity and/or debt financing to continue our operations. These conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date of this filing.

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

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

On May 9, 2020, the Company entered into 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. The term of the PPP Loan is two years with a maturity date of May 9, 2022 and contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the term of the PPP Loan until November 9, 2020. Principal and interest are payable monthly and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, "Qualifying Expenses"), and on the maintenance of employee and compensation levels during the eight-week period following the funding of the PPP Loan. The Company has been using the proceeds of the PPP Loan, for Qualifying Expenses. However, no assurance is provided that the Company will be able to obtain forgiveness of the PPP Loan in whole or in part.

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

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

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



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

Sources and Uses of Cash for the three months ended March 31, 2020 and March 31, 2019

During the three months ended March 31, 2020 and 2019, we used cash of $2,542,520 and $639,657, respectively, in operations. Our net cash used in operating activities for the three months ended March 31, 2020 was primarily attributable to our net loss of $5,492,263, adjusted for net non-cash items in the aggregate amount of $3,516,693 and $766,950 of net cash provided by changes in the levels of operating assets and liabilities. Our net cash used in operating activities for the three months ended March 31, 2019 was primarily attributable to our net loss of $1,483,479, adjusted for net non-cash items in the aggregate amount of $752,228 and $91,594 of net cash provided by changes in the levels of operating assets and liabilities.

During the three months ended March 31, 2020, net cash used in investing activities was $49,091, of which $57,893 was used to purchase property and equipment, partially offset by $8,802 of loans repayments by franchisees. During the three months ended March 31, 2019, net cash used in investing activities was $110,176, of which $121,132 was used to purchase property and equipment, partially offset by $10,956 of loans repayments by franchisees and a related party.

Net cash provided by financing activities for the three months ended March 31, 2020 was $5,820,121 of which $6,780,000 proceeds from the offering , net of underwriter's discount and offering costs, $150,000 proceeds from other notes payable, partially offset by repayments of various convertible notes of $550,000 and $559,879 of repayments of other notes payables, including a related party. Net cash provided by financing activities for the three months ended March 31, 2019 was $1,235,000 of which $100,000 proceeds from convertible notes from other related parties and $1,135,000 proceeds from convertible notes to various parties.



  30






Critical Accounting Policies



Use of Estimates


The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, 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 fair value of assets acquired, and liabilities assumed in a business

combination;

? the assessment of recoverability of long-lived assets, including property and

equipment, goodwill and intangible assets; ? the estimated useful lives of intangible and depreciable assets; ? estimates and assumptions used to value warrants issued in connection with

  notes payable;
? the recognition of revenue; and
? the recognition, measurement and valuation of current and deferred income
  taxes.



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



Intangible Assets


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

Other intangible assets include franchise agreements which are amortized on a straight-line basis over their estimated useful lives of 13 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.



  31







Revenue Recognition



During the first quarter 2019, the Company adopted Topic 606 "Revenue from Contracts with Customers" for revenue recognition related to contracts with customers and applied the guidance modified retrospectively. Under the new guidance, revenue is recognized in accordance with a five-step revenue model, as follows: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when (or as) the entity satisfies a performance obligation. In applying this five-step model, we have made significant judgments in identifying the promised goods or services in our contracts with franchisees that are distinct, and which represent separate performance obligations. The change between Topic 605 and Topic 606, primarily impacted the way the Company recognized franchise fees. Under Topic 605 franchise fees were recognized upon opening of a restaurant or granting of a new franchise term at a point in time while under Topic 606 franchise fees are recognized on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. The impact of the adoption of Topic 606 resulted in an adjustment of $875,902 in accumulated deficit and deferred revenues.



Restaurant Sales


Retail store revenue at Company operated restaurants is recognized when payment is tendered at the point of sale, net of sales tax, discount and other sales related taxes. The Company recorded retail store revenues of $1,237,427 and $800,763 during the three months ended March 31, 2020 and 2019, 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 recognize revenues from gift cards as restaurant revenues once the Company performs 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 Revenue 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 $120,909 and $206,550 during the three months ended March 31, 2020 and 2019, 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 revenues from franchise fees of $14,440 and $53,181, respectively, during the three months ended March 31, 2020 and 2019, which is included in franchise royalties and fees on the accompanying condensed consolidated statements of operations.

The Company has supply agreements with certain food and beverage vendors. Pursuant to the terms of these agreements, rebates are provided to the Company based upon the dollar volume of purchases for all company-owned and franchised restaurants from these vendors. Rebates earned on purchases by franchise stores are recorded as revenue during the period in which the related food and beverage purchases are made. The Company recorded revenue from rebates of $40,682 and $84,981 during the three months ended March 31, 2020 and 2019, respectively, which is included in franchise royalties and fees on the accompanying 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.



  32







Other Revenues


Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company's specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption. For the three months ended March 31, 2020, the Company determine that no gift card breakage is necessary based on current redemption rates.



Deferred Revenue


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

Franchise Advertising Fund Contributions

Under the Company's franchise agreements, the Company and its franchisees are required to contribute a certain percentage of revenues to a national advertising fund. The Company's national advertising services are provided on a system-wide basis and, therefore, not considered distinct performance obligations for individual franchisees. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under general and administrative expenses. When an advertising contribution fund is over-spent at year end, advertising expenses will be reported on the consolidated statement of operations in an amount that is greater than the revenue recorded for advertising contributions. Conversely, when an advertising contribution fund is under-spent at a period end, the Company will accrue advertising costs up to advertising contributions recorded in revenue. The Company recorded contributions from franchisees of $21,596 and $38,899, respectively, during the three months ended March 31, 2020 and 2019, which are included in franchise advertising fund contributions on the accompanying condensed consolidated statements of operations.



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.



  33






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

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

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

Recently Issued Accounting Pronouncements

See Note 3 to our condensed consolidated financial statements for the three months ended March 31, 2020.

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.

© Edgar Online, source Glimpses

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06/08MUSCLE MAKER : Grill hires VP of Real Estate
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06/08Muscle maker grill expands team with vice president of real estate and non-tr..
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06/01MUSCLE MAKER : Grill opening 4 on-campus locations
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06/01Muscle maker grill to open four locations at northern virginia community coll..
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05/29MUSCLE MAKER : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND R..
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Financials (USD)
Sales 2019 4,96 M - -
Net income 2019 -28,4 M - -
Net Debt 2019 0,90 M - -
P/E ratio 2019 -
Yield 2019 -
Capitalization 19,2 M 19,2 M -
EV / Sales 2018 -
EV / Sales 2019 -
Nbr of Employees -
Free-Float 48,1%
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Managers
NameTitle
Michael J. Roper Chief Executive Officer & Secretary
Kevin Mohan Chairman & Chief Investment Officer
Kenneth Miller Chief Operating Officer
Ferdinand Groenewald Chief Financial Officer
Peter Petrosian Independent Non-Executive Director
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