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EQUITY
 12 Months Ended
Dec. 31, 2022
Equity [Abstract]  
EQUITY

NOTE 17 – EQUITY

 

Authorized Capital

 

On October 7, 2021, the shareholders approved to amend the Company’s articles of incorporation to increase the number of authorized shares of common stock from 25,000,000 to 50,000,000 shares of $0.0001 par value share common stock. As of December 31, 2021, the Company was authorized to issue 50,000,000 shares of $0.0001 par value per share common stock. The holders of the Company’s common stock are entitled to one vote per share.

 

 

MUSCLE MAKER, INC. & SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Stock Option and Stock Issuance Plan

 

2020 Plan

 

The Company’s board of directors and shareholders approved and adopted on October 27, 2020 the 2020 Equity Incentive Plan (“2020 Plan”), effective on October 27, 2020 under which stock options and restricted stock may be granted to officers, directors, employees and consultants in the form of non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock Units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Under the 2020 Plan, the Company reserved 1,750,000 shares of common stock for issuance. As of December 31, 2022, 889,756 shares have been issued under the 2020 Plan.

 

2021 Plan

 

The Company’s board of directors and shareholders approved and adopted on October 7, 2021 the 2021 Equity Incentive Plan (“2021 Plan”), effective on September 16, 2020 under which stock options and restricted stock may be granted to officers, directors, employees and consultants in the form of non-qualified stock options, incentive stock-options, stock appreciation rights, restricted stock awards, restricted stock units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Under the 2021 Plan, the Company reserved 1,500,000 shares of common stock for issuance. As of December 31, 2022, 625,120 shares have been issued and 312,500 options to purchase shares have been awarded under the 2021 Plan.

 

Common Stock Issuances

 

On February 3, 2021, the Company issued an aggregate of 20,000 shares of common stock of the Company to a digital marketing consultant with an aggregate fair value of $42,600.

 

On April 30, 2021, the Company issued an aggregate of 10,000 shares of common stock of the Company to a digital marketing consultant, pursuant to their service agreement, with an aggregate fair value of $14,700.

 

On May 6, 2021, the Company issued an aggregate of 150,000 shares of common stock of the Company to a digital marketing consultant with an aggregate fair value of $214,500. The Company originally accrued for the liability as accrued compensation expense on the books, as the share were fully earned pursuant to their service agreement. On the date of issues of the shares the Company recorded a gain on the change in fair value of the accrued compensation of $127,500 in the Consolidated Statement of Operations.

 

On May 27, 2021, the Company cancelled 11,879 shares of common stock previously issued to an investor pursuant to a settlement. The cancellation of the 11,879 shares was part of the settlement agreement. See Note 15 – Commitments and Contingencies – Litigation, Claims and Assessments for further details related to the settlement.

 

On August 24, 2021, the Company issued an aggregate of 15,000 shares of common stock of the Company to a digital marketing consultant, pursuant to their service agreement, with an aggregate fair value of $20,999.

 

On August 26, 2021, the Company issued an aggregate of 1,100 shares of common stock of the Company to an investor in the Company, with an aggregate fair value of $1,540.

 

On October 11, 2021, the Company issued an aggregate of 40,000 shares of common stock of the Company to a consultant for general consulting services, pursuant to their service agreement, with an aggregate fair value of $40,800.

 

On October 22, 2021, the Company issued an aggregate of 15,000 shares of common stock of the Company to a digital marketing consultant, pursuant to their service agreement, with an aggregate fair value of $15,150.

 

On December 3, 2021, the Company issued 82,500 shares of common stock of the Company to a consultant for business strategy consulting with a fair value of $84,975.

 

On December 7, 2021, the Company issued an aggregate of 160,000 shares of common stock of the Company to a consultant for strategic advisory and digital marketing services with an aggregate fair value of $177,600.

 

 

MUSCLE MAKER, INC. & SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

On December 27, 2021, the Company issued 10,000 shares of common stock of the Company to a consultant with a fair value of $7,400.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On July 14, 2022, the Company authorized the issuance of an aggregate of 74,019 shares of common stock to the members of the board of directors as compensation earned during the second quarter of 2022.

 

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

 

On November 29, 2022, the Company authorized the issuance of an aggregate of 438,085 shares of common stock in connection with the exercise of pre-funded warrants.

 

See Note 15 – Commitments and Contingencies – Consulting Agreements and Board Compensation for details related to additional stock issuances during the years ended December 31, 2022 and 2021.

 

Private Placements

 

On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor agreed to purchase from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4,115,227 shares of common stock (the “Common Warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of common stock (the “pre-funded warrant”). Each share and accompanying common warrant is being sold together at a combined offering price of $2.43 per share and Common Warrant, and each pre-funded warrant and accompanying common warrant is being sold together at a combined offering price of $2.42 per pre-funded warrant and accompanying common warrant. The pre-funded warrant is immediately exercisable, at a nominal exercise price of $0.01 per share, and may be exercised at any time until the pre-funded warrant is fully exercised. The common warrant will have an exercise price of $2.43 per share, are immediately exercisable and will expire 5.5 years from the date of issuance. The Private Placement closed on April 9, 2021.

 

 

MUSCLE MAKER, INC. & SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company was required to register the resale of the shares and the shares issuable upon exercise of the common warrant and the pre-funded warrant. The Company prepared and filed a registration statement with the Securities and Exchange Commission within 30 days of the date of the Securities Purchase Agreement and to used commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement.

 

Pursuant to a placement agency agreement, dated April 6, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8% of the gross proceeds raised in the Private Placement and a common stock purchase warrant to purchase shares of common stock in an amount equal to 4% of the Shares and shares of common stock issuable upon exercise of the warrants sold in the Private Placement, the warrant has an exercise price of $2.916 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement.

 

On November 17, 2021, the Company entered into a Securities Purchase Agreement with accredited investors (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investors (the “Purchasers”) agreed to purchase from the Company for an aggregate purchase price of approximately $15,000,000 (i) 6,772,000 shares (the “Shares”) of common stock, par value $0.0001 per share, of the Company (the “common stock”) (ii) a common stock purchase warrant to purchase up to 10,830,305 shares of common stock (the “common warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 4,058,305 shares of common stock (the “pre-funded warrant”). Each share and accompanying common warrant were being sold together at a combined offering price of $1.385 per share and common warrant, and each pre-funded warrant and accompanying Common Warrant is being sold together at a combined offering price of $1.3849 per pre-funded warrant and accompanying common warrant. The pre-funded warrant is immediately exercisable, at a nominal exercise price of $0.0001 per share, and may be exercised at any time until the pre-funded warrant is fully exercised. The common warrant will have an exercise price of $1.385 per share, are immediately exercisable and will expire 5 years from the date of issuance. The Private Placement closed on November 22, 2021.

 

The Securities Purchase Agreement contains customary representations, warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties thereto. Pursuant to the Securities Purchase Agreement, the Company is required to register the resale of the shares and the shares issuable upon exercise of the common warrant and the pre-funded warrant. The Company was required to prepare and file a registration statement with the Securities and Exchange Commission within 30 days of the date of the Securities Purchase Agreement and used commercially reasonable efforts to have the registration statement declared effective within 90 days of the closing of the Private Placement.

 

Pursuant to a placement agency agreement, dated November 17, 2021, between the Company and A.G.P./Alliance Global Partners (the “Placement Agent”) entered into in connection with the Private Offering, the Placement Agent acted as the sole placement agent for the Private Placement and the Company has paid customary placement fees to the Placement Agent, including a cash fee equal to 8% of the gross proceeds raised in the Private Placement and a common stock purchase warrant to purchase shares of Common Stock in an amount equal to 4% of the Shares and shares of common stock issuable upon exercise of the warrants sold in the Private Placement, which warrant has an exercise price of $1.662 per share and is exercisable commencing six months from the date of the pricing of the Private Placement for a period of five years after such date. Pursuant to the Placement Agency Agreement, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement. The warrants for the November 17, 2021, private placement for the Placement Agents were issued in the fourth quarter of 2022.

 

 

MUSCLE MAKER, INC. & SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Restricted Common Stock

 

On January 1, 2021, 1,200 shares of restricted common stock vested that was originally issued to employees and consultants in May 2017.

 

On February 11, 2021, the Company issued an aggregate of 221,783 shares of restricted common stock of the Company to various executives and an employee. The restricted common stock is fully vested upon the date of grant.

 

On April 4, 2022, the Company authorized the issuance of 20,000 shares of common stock to a member of the executive team per the employment agreement.

 

At December 31, 2022, there was no restricted common stock outstanding. A summary of the activity related to the restricted common stock for the years ended December 31, 2022 and 2021, respectively, is presented below:

 

      

Weighted-average

grant date

 
   Total   fair value 
Outstanding at January 1, 2021   1,200   $65.33 
Granted   221,783    2.87 
Forfeited   —    — 
Vested   (222,983)   3.21 
Outstanding at December 31, 2021   —    — 
Granted   20,000    0.54 
Forfeited   —    — 
Vested   (20,000)   0.54 
Outstanding at December 31, 2022   —   $— 

 

Warrant and Option Valuation

 

The Company has computed the fair value of warrants granted and options accrued for as accrued compensation expense using the Black-Scholes option pricing model. The expected term used for warrants and options issued to non-employees is the contractual life. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected term of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

 

Options

 

On May 2, 2022, the Company, pursuant to the employment agreements, issued options to purchase an aggregate of 312,500 shares of the Company’s common stock. The options had an exercise price of $0.41 per share and vest ratably over 20 quarters with the first vesting occurring on June 30, 2022.

 

On October 10, 2022, the Company issued options to purchase 25,000 shares of the Company’s common stock. The options had an exercise price of $0.41 per share and vest ratably over 20 quarters with the first vesting occurring on December 31, 2022.

 

 

MUSCLE MAKER, INC. & SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

There were 25,000 shares forfeited upon the departure of an officer.

 

A summary of option activity during the years ended December 31, 2022 and 2021 is presented below:

 

   Number of   Weighted-average   Weighted-average remaining 
   options   exercise price   life (in years) 
Outstanding, January 1, 2021   300,000   $3.33    1.10 
Issued   —    —      
Exercised   —    —      
Forfeited   (200,000)   2.50      
Outstanding, December 31, 2021   100,000   $5.00    1.92 
Issued   337,500    0.41    4.40 
Exercised   —    —      
Forfeited   (25,000)   0.41      
Outstanding, December 31, 2022   412,500   $1.52    3.56 
                
Exercisable, December 31, 2022   144,375   $3.59    1.98 

 

The Company has estimated the fair value of the options using the Black-Scholes model using the following assumptions:

 

   For the Year Ended 
   December 31,2022 
Risk free interest rate   1.53-4.33 %
Expected term (years)   5 
Expected volatility   59.10-156.87 %
Expected dividends   — 

 

Warrants

 

On May 24, 2021, the Company issued 1,465,227 shares of common stock in connection with the exercising of the pre-funded warrant for $14,652.

 

On May 28, 2021, the Company issued 1,400,000 shares of common stock in connection with the exercising of the pre-funded warrant for $14,000.

 

On December 23, 2021, the Company issued 1,210,110 shares of common stock in connection with the exercising of the pre-funded warrant for $121.

 

On January 3, 2022, the Company issued 1,200,000 shares of common stock in connection with the cashless exercise of the pre-funded warrants. Pursuant to the terms of the pre-funded warrants a total of 1,200,215 warrants were exercised.

 

 

MUSCLE MAKER, INC. & SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

On February 24, 2022, the Company issued 1,209,604 shares of common stock in connection with the cashless exercise of the pre-funded warrants. Pursuant to the terms of the pre-funded warrants a total of 1,210,110 warrants were exercised.

 

On November 29, 2022, the Company issued 438,085 shares of common stock in connection with the exercising of pre-funded warrants for $44.

 

A summary of warrants activity during the years ended December 31, 2022 and 2021 is presented below:

 

       Weighted-average   Weighted-average 
   Number of   exercise   remaining life 
   Warrants   price   (in years) 
Outstanding, January 1, 2021   2,582,857   $4.08    3.3 
Issued   21,869,064    0.46      
Exercised   (4,075,337)   0.01      
Forfeited   (92,568)   19.99      
Outstanding, December 31, 2021   20,284,016   $1.66    4.0 
Issued   597,819    2.01      
Exercised   (2,848,195)   0.01      
Forfeited   —    —      
Outstanding, December 31, 2022   18,033,640   $1.93    3.5 
                
Exercisable, December 31, 2022   18,033,640   $1.93    3.5 

 

The grant date fair value of warrants granted during the years ended December 31, 2022 and 2021 was established during the Private Placement.

 

Stock-Based Compensation Expense

 

Stock-based compensation related to restricted stock issued to employees, directors and consultants, warrants and warrants to consultants amounted to $140,377 and $2,207,046 for the years ended December 31, 2022 and 2021, respectively, of which $140,377 and $2,200,274, respectively, was recorded in Sales, general and administrative expenses and $— and $6,772, respectively, was recorded in Labor expense within Restaurant operating expenses.