PART II AND III 2 part2-3.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1-A

 

REGULATION A OFFERING CIRCULAR

UNDER THE SECURITIES ACT OF 1933

 

MUSCLE MAKER, INC

(Exact name of issuer as specified in its charter)

 

California

(State of other jurisdiction of incorporation or organization)

 

2200 Space Park Drive, Suite 310

Houston, Texas 77058

Phone: (732) 669-1200

(Address, including zip code, and telephone number,

including area code of issuer’s principal executive office)

 

Robert E. Morgan

Chief Executive Officer

Muscle Maker, Inc

2200 Space Park Drive, Suite 310

Houston, Texas 77058

Phone: (732) 669-1200

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copy to:

Laura Anthony, Esq.

Legal & Compliance, LLC

330 Clematis Street, Suite 217

West Palm Beach, FL 33401

Phone: 561-514-0936

Fax: 561-514-0832

 

5810   47-2555533

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

 

 
 

 

Preliminary Offering Circular

March 30, 2017

Subject to Completion

 

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Offering Circular was filed may be obtained.

 

 

 

MUSCLE MAKER, INC

 

10,000,000 Shares of Common Stock

Minimum Purchase: 125 shares of Common Stock ($250.00)

 

MUSCLE MAKER, INC, a California corporation (the “Company”), is offering up to 10,000,000 shares (“Shares”) of its common stock, no par value per share (“Common Stock”), at a fixed price of $2.00 per share of Common Stock, with an aggregate amount of $20,000,000, in a “Tier 2 Offering” under Regulation A (the “Offering”). There is no minimum number of Shares that needs to be sold in order for funds to be released to the Company and for this Offering to close. The minimum investment amount per investor is $250 (125 shares of Common Stock); however, we can waive the minimum purchase requirement on a case to case basis in our sole discretion. The subscriptions, once received, are irrevocable. This Offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold, through our placement agent Wellington Shields & Co., LLC (the “Placement Agent” or the “Underwriter”), a registered broker-dealer and a member of the Financial Industry Regulatory Authority (“FINRA”). The Placement Agent is not purchasing or selling any securities pursuant to this Offering. The Placement Agent and other broker dealers will receive compensation for sales of the securities offered hereby at a fixed commission rate of 6% of the gross proceeds of the Offering. See “Plan of Distribution” in this Offering Circular. None of the Shares offered are being sold by present security holders of the Company.

 

 
 

 

We expect to commence the sale of the Shares as of the date on which the Offering Statement of which this Offering Circular is a part is declared qualified by the United States Securities and Exchange Commission (“SEC”). The Offering is expected to expire on the first of: (i) all of the Shares offered are sold; or (ii) the close of business six (6) months after the date that this Offering is deemed qualified by the SEC, unless sooner terminated or extended up to no more than an additional six (6) months by the Company.

 

The Company has engaged Direct Transfer, LLC (“Direct Transfer”), a wholly owned subsidiary of Issuer Direct Corp., to provide certain technology and administrative services in connection with the Offering, including the online platform of Direct Transfer by which, after the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, investors of Muscle Maker will receive, review, execute and deliver subscription agreements electronically. After the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, payment of the purchase price by ACH debit transfer, wire transfer or by major credit card shall be made through the online platform of Direct Transfer to Regions Bank (the “Escrow Agent”) and received and held by Escrow Agent in a non-interest bearing escrow account (“Escrow Account”) in compliance with SEC Rule 15c2-4, with funds released to the Company only after we closed on the subscription as described in this Offering Circular. Payments made by major credit card shall be limited to $300 per Subscriber. The Company may close on investments on a “rolling” basis (so not all investors will receive their Shares on the same date). Funds will be promptly refunded without interest, for sales that are not consummated. Upon closing under the terms as set out in this Offering Circular, funds will be immediately transferred to the Company (where the funds will be available for use in the operations of the Company’s business in a manner consistent with the “Use of Proceeds” in this Offering Circular) and the Shares for such closing will be issued to investors.

  

No public market currently exists for our shares of Common Stock. We intend to apply to list our common stock on the NYSE MKT (“NYSE MKT”) or the NASDAQ Capital Market (“NASDAQ”) under the symbol “MMG” after we register our common stock under the Securities Exchange Act of 1934, as amended (“Exchange Act”), following the termination of this offering. There is no assurance that our common stock will be registered under the Exchange Act or, if registered under the Exchange Act, that the application will be approved by the NYSE MKT or the NASDAQ. If not approved by the NYSE MKT or NASDAQ, we intend to apply for quotation of our common stock on the OTCQX Marketplace under the symbol “MMG” after the termination of this offering.

 

We are an “emerging growth company,” as such term is defined in Section 2(a)(19) of the Securities Act of 1933, as amended, and we will be subject to reduced public reporting requirements. See “Emerging Growth Company Status.”

 

   Price to Public   Underwriting Discounts and Commissions(1) (2)   Proceeds, Before Expenses, to Company(3) 
Per Share  $2.00   $0.12   $1.88 
Total (4)  $20,000,000   $1,200,000   $18,800,000 

 

 
 

 

(1) This table depicts broker-dealer commissions of 6% of the gross offering proceeds. Please refer to the section entitled Plan of Distribution” beginning on page 53 of this Offering Circular for additional information regarding total underwriter compensation. In addition, we have agreed to reimburse the Placement Agent for its reasonable out-of-pocket expenses subject to our prior written consent. We paid the Placement Agent a non-refundable retainer fee of $25,000.

 

(2) In addition to the broker-dealer discounts and commissions included in the above table, our Placement Agent will have the right to acquire warrants to purchase shares of our common stock equal to 3% of the aggregate shares sold in this offering (“Placement Agent Warrants”). The Placement Agent Warrants have an exercise price of $2.20 per share.

 

(3) Does not include estimated offering expenses including, without limitation, legal, accounting, auditing, escrow agent, transfer agent, other professional, printing, advertising, travel, marketing, blue-sky compliance and other expenses of this Offering. We estimate the total expenses of this Offering, excluding the Placement Agent’s commissions and expenses, will be approximately $900,000.

 

(4) Assumes that the maximum aggregate offering amount of $20,000,000 is received by us.

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

An investment in the Shares is subject to certain risks and should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Prospective investors should carefully consider and review the RISK FACTORS beginning on page 20.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, OR THE COMMISSION, DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

 

This Offering Circular follows the disclosure format of Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.

 

WELLINGTON SHIELDS & CO., LLC

 

The date of this Offering Circular is __________, 2017.

 

 
 

 

TABLE OF CONTENTS 

 

     
Market and Industry Data and Forecasts   1
Basis of Presentation   1
Trademarks and Copyrights   3
Cautionary Statement Regarding Forward-Looking Statements   4
Offering Circular Summary   4
The Offering   15
Summary Historical Consolidated Financial Data   19
Risk Factors   21
Use of Proceeds   48
Capitalization   49
Determination of Offering Price   50
Dilution   50
Plan of Distribution   54
Dividend Policy   68
Description of Business   68
Management’s Discussion and Analysis of Financial Condition and Results of Operations   92
Management   113
Executive Compensation   123
Security Ownership of Certain Beneficial Owners and Management   126
Certain Relationships and Related Party Transactions   127
Description of Capital Stock   130
Shares Eligible for Future Sale   133
Certain United States Federal Income Tax Consequences to Non-U.S. Holders   134
Additional Requirements and Restrictions   137
ERISA Considerations   138
Legal Matters   140
Experts   140
Appointment of Auditor   140
Where You Can Find More Information   140
Index to Consolidated Financial Statements  

 

We have not, and the Underwriter has not, authorized anyone to provide any information other than that contained or incorporated by reference in this Offering Circular prepared by us or to which we have referred you. Neither we nor the Underwriter take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This Offering Circular is an offer to sell only the Common Stock offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Offering Circular is current only as of its date, regardless of the time of delivery of this Offering Circular or any sale of Common Stock.

 

For investors outside the United States: We have not done anything that would permit this Offering or possession or distribution of this Offering Circular in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this Offering and the distribution of this Offering Circular.

 

 
 

 

MARKET AND INDUSTRY DATA AND FORECASTS

 

Certain market and industry data included in this Offering Circular is derived from information provided by third-party market research firms, or third-party financial or analytics firms, that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications and third-party forecasts in conjunction with our assumptions about our markets. We have not independently verified such third-party information. The market data used in this Offering Circular involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in this Offering Circular. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

Certain data are also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on market data currently available to us. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this Offering Circular. Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.

 

BASIS OF PRESENTATION

 

In this Offering Circular, unless the context otherwise requires:

 

 

“we,” “us,” “our,” the “company” or “Muscle Maker,” refers collectively to Muscle Maker, Inc, a California corporation, incorporated in December 2014, the issuer of the common stock in this offering, and its subsidiaries;

     
 

“Common Stock” refers to common stock, no par value per share, of Muscle Maker, Inc

     
 

“CTI” refers to Custom Technology, Inc., a California corporation, formed in July 2015, which is Muscle Maker Brands’ direct, wholly-owned subsidiary;

     
 

“MMF Members” refers to Robert E. Morgan, Membership, LLC and P. John, LLC, who own collectively the remaining 26% of Muscle Maker Brands;

     
 

“Muscle Maker Brands” refers to Muscle Maker Brands, LLC, a California limited liability company, formed in December 2014, which is Muscle Maker’s direct, 74% owned subsidiary;

     
 

“Muscle Maker Franchising” refers to Muscle Maker Franchising, LLC, a New Jersey limited liability company;

 

 1 
  

 

 

“Muscle Maker Grill” refers to the name under which our corporate and franchised restaurants do business;

     

 

“NASDAQ” refers to Nasdaq Capital Markets of The NASDAQ Stock Market;
     

 

“NYSE MKT” refers to the NYSE MKT;
     

 

 

“Offered Shares” or “Shares” refers to the 10,000,000 shares of common stock, no par value per share, of Muscle Maker, Inc which are being offered in this offering under Regulation A;

     

 

“OTCQX” refers to the OTCQX Marketplace by the OTC Markets Group;
     
 

“our restaurant system” or “our system” refers to both company-operated and franchised restaurants, and the number of restaurants presented in our restaurant system, unless otherwise indicated, is as of December 31, 2015;

     
  “our restaurants,” or results or statistics attributable to one or more restaurants without expressly identifying them as company-operated, franchised or both, refers to our company-operated restaurants only;
     
  when referring to “system-wide” financial metrics, we are referring to such financial metrics at the restaurant-level for company-operated restaurants plus those reported to us by our franchisees;
     
  “average check” refers to company restaurant revenues from company-operated restaurants divided by company-operated restaurant transactions;
     
  “dayparts” refers to five dayparts consisting of lunch as 10:00 a.m. to 2:00 p.m., snack as 2:00 p.m. to 5:00 p.m., dinner as 5:00 p.m. to 8:00 p.m., and after dinner as 8:00 p.m. to close; and
     
  “aided brand awareness” refers to when a survey respondent indicates recognition of a specific brand from a list of possible names presented by those conducting the survey instead of indicating recognition of a specific brand without being offered a list of potential responses.

 

We use a twelve-month fiscal year ending on December 31st of each calendar year. Fiscal 2014 and fiscal 2015 ended on December 31, 2014 and December 31, 2015, respectively.

 

In a twelve-month fiscal year, each quarter includes three-months of operations; the first, second, third and fourth quarters end on March 31st, June 30th, September 30th, and December 31st, respectively.

 

Comparable restaurant sales growth reflects the change in year-over-year sales for the comparable restaurant base (as applicable, system-wide, franchised or company-operated restaurants). A new restaurant enters our comparable restaurant base on the first full day of the month after being open for 15 months using a mid-month convention.

 

 2 
  

 

System-wide comparable restaurant sales include restaurant sales at all comparable company-operated restaurants and at all comparable franchised restaurants, as reported by franchisees. While we do not record franchised restaurant sales as revenues, our royalty revenues are calculated based on a percentage of franchised restaurant sales.

 

We measure system-wide, franchised and company-operated average unit volumes, or AUVs, on a fiscal year basis. Annual AUVs are calculated using the following methodology: first, we determine the restaurants that have been open for a full 15-month period; and second, we calculate the revenues for these restaurants and divide by the number of restaurants in that base to arrive at our AUV calculation.

 

The restaurant industry is divided into two segments: full service and limited service. Full service is comprised of the casual dining, mid-scale and fine dining sub-segments. Limited service, or LSR, is comprised of the quick-service restaurant, or QSR, and fast-casual sub-segments. “QSRs” are defined by Technomic as traditional “fast-food” restaurants with average check sizes of $3.00-$8.00. “Fast-casual” is defined by Technomic as a limited or self-service format with average check sizes of $8.00-$12.00 that offers food prepared to order within a generally more upscale and developed establishment. Our restaurants combine elements of both QSRs and fast-casual restaurants. Our restaurants’ convenient locations and format and average check are attributes that we share with QSRs (rather than with the fast-casual segment generally), while the quality of our food, the freshness of our ingredients and our traditional cooking methods are attributes that we generally share with fast-casual restaurants.

 

Certain monetary amounts, percentages and other figures included in this Offering Circular have been subject to rounding adjustments. Percentage amounts included in this Offering Circular have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Offering Circular may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements. Certain other amounts that appear in this Offering Circular may not sum due to rounding.

 

Unless otherwise indicated, all references to “dollars” and “$” in this Offering Circular are to, and amounts are presented in, U.S. dollars.

 

Unless otherwise indicated or the context otherwise requires, financial and operating data in this offering circular reflect the consolidated business and operations of Muscle Maker and its subsidiaries.

 

TRADEMARKS AND COPYRIGHTS

 

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. This Offering Circular may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Offering Circular is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this Offering Circular are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.

 

 3 
  

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Offering Circular contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “outlook,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth or anticipated in our forward-looking statements. Factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, funds derived from operations, cash available for dividends, cash flows, liquidity and prospects include, but are not limited to, the factors referenced in this Offering Circular, including those set forth below.

 

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Offering Circular. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Offering Circular. The matters summarized below and elsewhere in this Offering Circular could cause our actual results and performance to differ materially from those set forth or anticipated in forward-looking statements. Accordingly, we cannot guarantee future results or performance. Furthermore, except as required by law, we are under no duty to, and we do not intend to, update any of our forward-looking statements after the date of this Offering Circular, whether as a result of new information, future events or otherwise.

 

OFFERING CIRCULAR SUMMARY

 

This summary of the Offering Circular highlights material information concerning our business and this offering. This summary does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire Offering Circular, including the information presented under the section entitled “Risk Factors” and the financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

In this Offering Circular, unless the context indicates otherwise, “Muscle Maker,” the “Company,” “we,” “our,” “ours” or “us” refer to Muscle Maker, Inc, a California corporation, and its subsidiaries.

 

 4 
  

 

Our Company

 

The Muscle Maker Grill is a high-growth, 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 $34.5 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 restaurant concepts such as Muscle Maker Grill.

 

We believe our 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 following core values form the foundation of our brand:

 

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

 

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

 

As of June 30, 2016, Muscle Maker and its subsidiaries and franchisees operate 48 Muscle Maker Grill restaurants located in 10 states, 5 of which are owned and operated by Muscle Maker, and 43 are franchise restaurants.

 

Our restaurants generated company-operated restaurant revenue of $1,032,558 and $875,566 for the year ended December 31, 2015, and the six-months ended June 30, 2016, respectively. Total company revenues were $3,124,823 and $1,917,540, and net losses of $1,021,641 and $1,203,627 for the year ended December 31, 2015, and the six-months ended June 30, 2016, respectively.

 

We are the owner of the trade name and service mark Muscle Maker Grill® and other trademarks and intellectual property we use in connection with the operation of Muscle Maker Grill® restaurants. We license the right to use the Muscle Maker Grill® trademarks and intellectual property to our wholly-owned subsidiary, Muscle Maker Brands, and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® restaurants.

 

 5 
  

 

Seasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the fourth quarter due to reduced December traffic and higher traffic in the first, second, and third quarters.

 

Our healthy-inspired menu, value proposition, and culture have helped us to deliver strong and consistent financial and operating performance, as illustrated by the following:

 

 

our company-owned annual average unit volumes, or AUVs, grew from $600,000 in fiscal year 2014 to $625,000 in fiscal year 2015; and

     
  from fiscal year 2014 to fiscal year 2015, we increased our total revenue by 4.83% from $2,980,877 to $3,124,823.

 

Our Industry

 

We operate within the LSR segment of the U.S. restaurant industry, which includes QSR and fast-casual restaurants. According to Technomic, 2015 sales for the total LSR category increased 5.2% from 2014 to $255 billion. We offer fast-casual quality food combined with quick-service speed, convenience and value across multiple dayparts. According to Technomic, sales for the total QSR segment grew 4.1% from 2014 to $212 billion in 2015, and are projected to grow to $254 billion by 2019, representing a compounded annual growth rate, or CAGR, of 4.6%. Total sales in the fast-casual segment grew 11.3% from 2014 to $43 billion in 2015, and are projected to grow to $64 billion by 2019, representing a CAGR of 10.2%. We believe our differentiated, high-quality menu delivers great value all day, every day, positions us to compete successfully against both QSR and fast-casual concepts, providing us with a large addressable market.

 

We expect that the trend towards healthier eating will attract and increase consumer demand for fresh and hand-prepared dishes, leading to a positive impact on our sales.

 

Our Strengths

 

Compelling Speed Using Cook to Order Preparation: Our guests can expect to enjoy their meals in eight minutes or less. While this service time may be slightly higher than the QSR segment, it fits well within the range of the fast casual segment. Our meals are prepared from a cook to order method using only the freshest, all natural ingredients.

 

Daypart Mix and Revenue Streams: Standard operating hours for a Muscle Maker Grill are from 10:30 AM to 8:30 PM, Monday through Friday, 11:00 AM to 6 PM, Saturday, and closed on Sunday. While our daypart mix is typical to the QSR fast casual segment which is 5% pre-lunch, 45% lunch, 35% dinner and 15% late evening. We have multiple revenue streams that allow for greater efficiencies and operations and ultimately higher profitability. A typical QSR fast casual brand has two to three revenue streams: dine-in, take-out and delivery. Muscle Maker Grill executes on eight different revenue streams; including: dine-in, take-out, delivery, catering, meal plans, retail and grab and go kiosks and food trucks.

 

 6 
  

 

Attractive Price Point and Perceived Value: Muscle Maker Grill offers meals with ‘power sides’ beginning at $8.99, using only the highest quality ingredients such as grass-fed beef, all natural chicken, whole wheat pastas, brown rice and a power blend of kale, romaine and spinach. Our cook to order method, speed of service, hospitality and the experience of our exhibition style kitchen creates a great value perception for our customers. Meal Plan meals begin at $8 a meal making them not only convenient but affordable too. Muscle Maker Grill also offers a boxed lunch program for schools and other organizations starting at $10 a box. These lunches include a wrap, salad or entrée, and a side and a drink. We not only reward our guests with a great value and guest experience, we reward them for their loyalty as well. Frequent Muscle Maker Grill guests can take advantage of its loyalty program, Muscle Maker Grill Rewards, where points are awarded for every dollar spent towards free or discounted menu items. Cards are not required to participate as members can provide their phone number or use the mobile app, Muscle Maker Grill Rewards, to receive notifications announcing new menu items, special events and more. The program is enjoyed by thousands or guests!

 

Muscle Maker Grill Business Facts:

 

  Largest protein based QSR fast casual in the united states.
     
  Established in 1995 in Colonia, NJ.
     
 

Muscle Maker Grill currently operates 51 restaurants, 39 franchised and 12 company as of March 30, 2017 with system-wide sales exceeding 24 million in 2016.

     
  Ranked in the future 50 list of the fastest growing small chains in America and achieved a spot on Fastcasual.com’s top 100 Movers and Shakers in 2016 and expecting a top five ranking in 2017.
     
 

National footprint in 12 states as of March 30, 2017 and soon to be 18 states in 2017.

     
  Multiple International expansion opportunities including: Kuwait, Dubai and India.
     
  Currently a preferred vendor for the US military with restaurants in development in GA, KY, MA, NY, NC, SC, VA, TX and WA.

 

Restaurant Level Profitability and Unit Economics: We believe our brand position in a segment with limited competition, strong value perception and multiple revenue streams provides a great opportunity for continued corporate and franchise growth. Our low cost of entry and real estate strategy allows for greater operating efficiencies and higher profitability. See below for corporate store economics. We primarily operate in urban and suburban markets using in line locations and targeting second generation restaurants. Typical capital investment is $180,000 for buildout and equipment. Expected annual venues to achieve a 10% operating profit should be approximately $800,000 providing a payback period of 27 months. Other company venue sources include a franchise fee of $35,000 per unit on a sliding scale for multi-unit development. Franchisees currently pay 5% off gross sales in royalties and 3% of gross sales for marketing and advertising.

 

 

 7 
  

 

Leveraging Non-Traditional Revenue Streams:

 

Delivery: A significant differentiator is that Muscle Maker Grill offers delivery at every location nation-wide. Delivery is an option through our mobile app, online ordering platform making it easy and convenient for our guests. Delivery percentages range from 10% up to 56% of sales. We strongly believe this segment will continue to grow as our core demographic has demonstrated the need for online ordering and delivery versus dine-in and take-out.

 

Catering: Our diverse menus items are also offered through our catering program making it easy and affordable to feed a group. We can feed a group ranging from 10 or 5,000. Muscle Maker Grill has secured large catering contracts with multi-national corporations, universities as well as professional and college athletic programs. Our boxed lunch program, which includes a wrap, salad, or entrée, a side and a drink for a set price is widely popular within schools and other organizations.

 

Meal Plans: To make healthy eating even easier, Muscle Maker Grill’s signature nutritionally-focused menu items are available through its new Meal Plan program, allowing pre-orders of meals that taste great via phone, online or in-store, available for pick up or delivered right to their door. Available as five, 10, 15 or 20 meals, guests can choose from 28 Muscle Maker Grill menu items, including the Hollywood Salad, Turkey Meatball Wrap, Arizona and many more.

 

Retail: All Muscle Maker Grill locations participate in our retail merchandising and supplement program. This is a unique revenue stream specific to the Muscle Maker Grill brand and is atypical in the QSR fast casual segment. Guests can purchase our propriety protein in bulk, supplements, boosters, protein and meal replacement bars and cookies. This program gives our guests the opportunity to manage their healthy lifestyle beyond the four walls of our restaurants.

 

Grab and Go Kiosks: Muscle Maker Grill offers grab and go kiosks both in the restaurants and non-traditional locations. The kiosks are comprised of 10 to 12 core meal plan menu items. We have positioned the kiosks so that guests can grab a meal on the run. These meals are convenient to guests that chose not to dine in or want additional meals for themselves or family members.

 

Food Trucks: Food trucks have become a more main stream point of destination for restaurant goers and we strongly believe the growth trend in the segment will continue. Muscle Maker Grill wants to make our healthy options available to all consumers and will continue to develop and grow this revenue stream. Muscle Maker Grill currently has one food truck in operation in Dallas, TX and three to five in the pipeline for US military bases such as Hans comb Airforce Base, Quantico Marine Base and West Point Military Academy.

 

Strategy

 

We plan to pursue the following strategies to continue to grow our revenues and profits.

 

Expand Our System-Wide Restaurant Base.  We believe we are in the early stages of our growth story with 48 current locations in 10 states, as of June 30, 2016, and estimate, based on internal analysis and a study prepared by ESRI, a long-term total restaurant potential in the United States of approximately 3,000 to 5,000 locations. For the year ended December 31, 2014, we opened 12 new franchised restaurants and no new company-operated restaurants. For the year ended December 31, 2015, we opened one new company-operated and seven new franchised restaurants. For the year ended December 31, 2016, we opened six new company-operated and four new franchised restaurants. In 2017, we intend to open 15 to 20 new company-operated and 15 new franchised restaurants, including military bases, across Arizona, California, Florida, Georgia, Illinois, Louisiana, Kansas, Massachusetts, Nebraska, New Jersey, New York, Nevada, North Carolina, Pennsylvania, Texas, Washington and Internationally. Over the long term, we plan to grow the number Muscle Maker Grill restaurants by 30% to 50% annually. There is no guarantee that we will be able to increase the number of our restaurants. We may be unsuccessful in expanding within our existing or into new markets for a variety of reasons described herein under “Risk Factors” above, including competition for customers, sites, franchisees, employees, licenses and financing.

 

 8 
  

 

Drive Comparable Restaurant Sales. We plan to continue delivering comparable restaurant sales growth through the following strategies:

 

  Menu Strategy and Evolution. We will continue to adapt our menu to create entrees that complement our health-inspired offerings and that reinforce our differentiated fast casual positioning. We believe we have opportunities for menu innovation as we look to provide customers more choices through customization and limited time alternative proteins. Our marketing and operations teams collaborate to ensure that the items developed in our test kitchen can be executed to our high standards in our restaurants with the speed and value that our customers have come to expect. To provide added variety, from time to time we introduce limited time offerings such as our fish tacos and shish-k-bobs. Some of these items have been permanently added to the menu.
     
  Attract New Customers Through Expanded Brand Awareness: We expect to attract new customers as Muscle Maker Grill becomes more widely known due to new restaurant openings and marketing efforts focused on broadening the reach and appeal of our brand. We expect consumers will become more familiar with Muscle Maker Grill as we continue to penetrate our markets, which we believe will benefit our existing restaurant base. Our marketing strategy centers on our “Great Food with Your Health in Mind” campaign, which highlights the desirability of healthy-inspired food and made-from-scratch quality of our food. We also utilize social media community engagement and public relations to increase the reach of our brand. Additionally, our system will benefit from increased contributions to our marketing and various advertising funds as we continue to grow our restaurant base.
     
  Increase Existing Customer Frequency: We are striving to increase customer frequency by providing a service experience and environment that “compliments” the quality of our food and models our culture. We expect to accomplish this by enhancing customer engagement, while also improving throughput, order execution and quality. Additionally, we have recently implemented a customer experience measurement system, which provides us with real-time feedback and customers’ insights to enhance our service experience. We believe that always striving for excellent customer service will create an experience and environment that will support increased existing customer visits.
     
  Continue to Grow Dayparts: We expect to drive growth across these dayparts through optimized labor and management allocation, enhanced menu offerings, innovative merchandising and marketing campaigns, which have successfully driven growth in our dayparts. We plan to continue introducing and marketing limited time offers to increase occasions across our dayparts as well as to educate customers on our lunch and dinner offerings.

 

 9 
  

 

Continue to Enhance Profitability. We focus on expanding our profitability while also investing in personnel and infrastructure to support our future growth. We will seek to further enhance margins over the long-term by maintaining fiscal discipline and leveraging fixed costs. We constantly focus on restaurant-level operations, including cost controls, while ensuring that we do not sacrifice the quality and service for which we are known. Additionally, as our restaurant base grows, we believe we will be able to leverage support costs as general and administrative expenses grow at a slower rate than our revenues.

 

Corporate History

 

Muscle Maker, Inc. (“Muscle Maker”), was incorporated by American Restaurant Holdings (“American Restaurant Holdings”) in California on December 8, 2014, and is a majority owner of Muscle Maker Brands, LLC (“Muscle Maker Brands”). Muscle Maker Brands’ subsidiaries include company owned restaurants as well as Custom Technology, Inc, (“CTI”) a technology and point of sale (“POS”) systems dealer and technology consultant (Muscle Maker together with Muscle Maker Brands and its subsidiaries are referred to herein collectively as the “Company”). Muscle Maker Brands was formed on December 22, 2014 in the state of California for the purpose of acquiring and operating company owned restaurants, as well as franchising its name and business system to qualified franchisees. Muscle Maker Franchising, LLC (“Muscle Maker Franchising”) was founded in 1995 in order to develop a brand of healthy-option fast food restaurants.

 

Formation

 

On December 22, 2014, Muscle Maker issued 100,000 shares of its common stock to the Chief Executive Officer of American Restaurant Holdings as founder shares for cash proceeds of $10.

 

Acquisition of 74% of Muscle Maker Brands

 

On January 23, 2015, Muscle Maker, Muscle Maker Brands and Muscle Maker Franchising entered into a Unit Purchase Agreement whereby Muscle Maker Brands purchased substantially all of the assets and liabilities of Muscle Maker Franchising, Muscle Maker acquired 7,400 membership units of Muscle Maker Brands (representing 74% of the membership units of Muscle Maker Brands), and certain members of Muscle Maker Franchising (“MMF Members”) acquired 2,600 membership units of Muscle Maker Brands (representing 26% of the membership units of Muscle Maker Brands). (the “MMG Acquisition”). The aggregate purchase consideration for Muscle Maker’s membership interest in Muscle Maker Brands was $4,244,000 and consisted of $3,570,000 in cash, $604,000 of promissory notes (consisting of a $400,000 promissory note (“MM Note”) from Muscle Maker and a $204,000 promissory note (“MMB Note”) from Muscle Maker Brands) and 500,000 shares of common stock of Muscle Maker valued at $0.14 per share or $70,000 issued. On January 23, 2015, American Restaurant Holdings provided cash of $3,645,000 and an obligation to repay an aggregate of $604,000 of principal due under MM Note and MMB Note issued to Muscle Maker Franchising in order to facilitate the Muscle Maker Brands acquisition. Pursuant to the terms of the Unit Purchase Agreement, the MMF Members shall convert their non-controlling interest in Muscle Maker Brands into an aggregate of 14,475,676 shares of Muscle Maker common stock prior to the Company going public.

 

 10 
  

 

On January 24, 2015, Muscle Maker granted 200,000 shares of its common stock valued at $0.14 per share to its Director of Brand Development, in connection with an employment agreement with the Director of Brand Development.

 

On January 24, 2015, the Company issued 428,571 shares of its common stock to the Director of Brand Development in exchange for cash proceeds of $0.14 per share, or $60,000.

 

On July 23, 2015 and August 28, 2015, the Company issued 750,000 and 500,000 shares of its common stock, and 5-year warrants for the purchase of 375,000 and 250,000 shares of common stock respectively, for aggregate cash proceeds of $750,000. The warrants are exercisable at $0.75 per share.

 

Springfield Acquisition

 

On May 4, 2015, Muscle Maker Brands acquired a business in Springfield, New Jersey, as a corporate store (the “Springfield Acquisition”). The purchase price of the store was $30,060, of which $8,670 related to equipment purchased and the remaining $21,390 was accounted for as goodwill.

 

CTI Acquisition

 

On August 1, 2015, the Company acquired 70% of the shares of Custom Technology, Inc. (“CTI”), a technology and point of sale (“POS”) systems dealer and technology consultant, in exchange for $70,000 in cash (the “CTI Acquisition”). CTI was formed on July 29, 2015 and entered into an asset purchase agreement on August 1, 2015 pursuant to which CTI purchased POS computer systems, cash registers, camera systems and related inventory and supplies from its predecessor entity.

 

Repayment of Promissory Notes regarding MMG Acquisition

 

The MMB Note was completely repaid on March 9, 2015. On July 21, 2015, January 23, 2016 and July 23, 2016, installments of $100,000, $150,000 and $150,000 were repaid on the balance of the MM Note. As of July 23, 2016, there is no balance outstanding related to MM Note.

 

Spin-Off of Muscle Maker by American Restaurant Holdings

 

On March 23, 2017, American Restaurant Holdings authorized and facilitated the distribution of 51,672,217 shares of Common Stock of Muscle Maker held by American Restaurants, LLC, the wholly owned subsidiary of American Restaurant Holdings, to the shareholders of American Restaurant Holdings (the “Spin-Off”). As a result of the Spin-Off on March 23, 2017, American Restaurant Holdings is no longer a majority owner of Muscle Maker.

 

 11 
  

 

Recent Advances, Exchange of Advances for Convertible Notes, and Conversion of Convertible Notes to Shares of Common Stock

 

On December 31, 2015, Muscle Maker issued a promissory note in the amount of $1,082,620 (the “2015 ARH Note”) to American Restaurant Holdings. The 2015 ARH Note had no stated interest rate and was convertible into 2,165,240 shares of the Company’s stock at $0.50 per share.

 

During the period from July 1, 2016 through December 31, 2016, American Restaurant Holdings provided $1,364,842 of advances to Muscle Maker. These advances, combined with the $1,257,000 payable to American Restaurant Holdings as June 30, 2016 were exchanged for a convertible note in the amount of $2,621,842 (the “2016 ARH Note”). The 2016 ARH Note had no stated interest rate or maturity date and was convertible into shares of Common Stock of Muscle Maker at a conversion price of $0.40 per share at a time to be determined by the American Restaurant Holdings.

 

During the period from December 31, 2016 through February 15, 2017, American Restaurant Holdings provided $980,949 of advances to the Company. The payable due to American Restaurant Holdings as a result of these advances was exchanged for a convertible promissory note in the amount of $980,949 (the “2017 ARH Note”). The 2017 ARH Note has no stated interest rate or maturity date and is convertible into shares of Common Stock of Muscle Maker at a conversion price of $0.40 per share at a time to be determined by the lender.

 

On March 14, 2017, American Restaurant Holdings elected to convert: (a) the 2015 ARH Note in the principal amount of $1,082,620 into 2,165,240 shares of Common Stock of Muscle Maker at a conversion price of $0.50 per share; (b) the 2016 ARH Note in the principal amount of $2,621,842 into 6,554,604 shares of Common Stock of Muscle Maker at a conversion price of $0.40 per share; and (c) the 2017 ARH Note in the principal amount of $980,949 into 2,452,373 shares of Common Stock of Muscle Maker at a conversion price of $0.40 per share.

 

 12 
  

 

Issuances of Warrants

 

The Company issued the following warrants to purchase an aggregate of 3,827,442 shares of Common Stock of Muscle Maker: (a) a 5-year warrant to Dean Miles to purchase 625,000 shares of Common Stock of Muscle Maker at an exercise price of $0.75 per share, in connection with two private placements to Mr. Miles in 2015; (b) a 3-year warrant to American Restaurant Holdings to purchase of 2,294,112 shares of Common Stock of Muscle Maker at an exercise price of $1.00 per share, in connection with the exchange of advances for the 2016 ARH Note in 2016; (c) a 3-year warrant to American Restaurant Holdings to purchase of 858,330 shares of Common Stock of Muscle Maker at an exercise price of $1.00 per share, in connection with the exchange of advances for the 2017 ARH Note in 2017; and (d) a 3-year warrant to Prashant Shah to purchase of 50,000 shares of Common Stock of Muscle Maker at an exercise price of $1.00 per share.

 

Anticipated Exchange of Shares of Common Stock for Units of Muscle Maker Brands

 

Pursuant to the terms of the Unit Purchase Agreement, Muscle Maker anticipates engaging in a share exchange with the MMF Members prior to the Offering, pursuant to which Muscle Maker will issue an aggregate of 14,475,676 shares of its common stock to the MMF Members in exchange for the 2,600 membership units of Muscle Maker Brands owned by the MMF Members which were initially recorded at $1,466,541, representing 26% ownership interest in Muscle Maker Brands, in a tax-free exchange (“Anticipated Exchange”). As a result of this Anticipated Exchange, Muscle Maker Brands will become a wholly owned subsidiary of Muscle Maker. Pursuant to the terms of the Operating Agreement of Muscle Maker Brands, Muscle Maker operates and controls all of the business and affairs of Muscle Maker Brands and, through Muscle Maker Brands and its subsidiaries, conducts our business. Muscle Maker consolidates the financial results of Muscle Maker Brands in its consolidated financial statements.

 

Anticipated Grant of Shares of Common Stock to Employees and Consultants

 

Muscle Maker anticipates granting 1,115,000 shares of its common stock to its employees and consultants prior to this Offering.

 

Risk Factors

 

Before you invest in our common stock, you should carefully consider all of the information in this Offering Circular, including matters set forth under the heading “Risk Factors.” Risks relating to our business include the following, among others:

 

  our vulnerability to changes in consumer preferences and economic conditions;
     
  our ability to open new restaurants in new and existing markets and expand our franchise system;
     
  our ability to generate comparable restaurant sales growth;
     
  our restaurants and our franchisees’ restaurants may close due to financial or other difficulties;
     
  new menu items, advertising campaigns and restaurant designs and remodels may not generate increased sales or profits;
     
  anticipated future restaurant openings may be delayed or cancelled;
     
  increases in the cost of food supplies and other products;
     
  our ability to compete successfully with other quick-service and fast-casual restaurants; and
     
  our reliance on our franchisees, who may be adversely impacted by economic conditions and who may incur financial hardships, be unable to obtain credit, need to close their restaurants or declare bankruptcy.

 

Emerging Growth Company Status

 

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of all of these exemptions.

 

 13 
  

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, and delay compliance with new or revised accounting standards until those standards are applicable to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

We could be an emerging growth company until the last day of the first fiscal year following the fifth anniversary of our first common equity offering, although circumstances could cause us to lose that status earlier if our annual revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in any three-year period or if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act.

 

Company Information

 

Our principal office is located at 2200 Space Park Drive, Suite 310, Houston, Texas 77058 and our phone number is (732) 669-1200. Our corporate website address is www.musclemakergrill.com. Information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into, this Offering Circular.

 

Muscle Maker Grill, the logos of Muscle Maker Grill, and other trade names, trademarks or service marks of Muscle Maker appearing in this Offering Circular are the property of Muscle Maker. Trade names, trademarks and service marks of other organizations appearing in this Offering Circular are the property of their respective holders.

 

The diagram below depicts our organizational structure after this Offering:

 

 

This diagram assumes that (1) an aggregate of 14,475,676 shares of Common Stock have been issued by Muscle Maker to the MMF Members in exchange for their membership units of Muscle Maker Brands prior to this Offering and (2) an aggregate of 1,115,000 shares of Common Stock have been granted by Muscle Maker to employees and consultants of Muscle Maker prior to this Offering.

 

 14 
  

 

THE OFFERING

 

Securities Being Offered by the
Company
10,000,000 shares of common stock, no par value per share (the “Common Stock”), on a “best efforts” basis for up to $20,000,000 of gross proceeds. Purchasers of the Shares will become our common stockholders.
   
Offering Price per Common
Stock by the Company
$2.00 per share of Common Stock.
   
Underwriter Wellington Shields & Co., LLC shall serve as our Placement Agent along with participating broker-dealers.
   
Subscribing Online We have engaged Direct Transfer, LLC (“Direct Transfer”), a wholly owned subsidiary of Issuer Direct Corp., to provide certain technology and administrative services in connection with the Offering, including the online platform of Direct Transfer by which, after the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, investors of Muscle Maker will receive, review, execute and deliver subscription agreements electronically.

 

 15 
  

Escrow Agent Regions Bank shall serve as our Escrow Agent.
   
Escrow Account

After the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, payment of the purchase price by ACH debit transfer, wire transfer or by major credit card shall be made through the online platform of Direct Transfer to Regions Bank (the “Escrow Agent”) and received and held by Escrow Agent in a non-interest bearing escrow account (“Escrow Account”) in compliance with SEC Rule 15c2-4, with funds released to the Company only after we closed on the subscription as described in this Offering Circular. Funds will be promptly refunded without interest, for sales that are not consummated. Payments made by major credit card shall be limited to $300 per subscriber. Upon each closing, the proceeds collected for such closing will be disbursed to the Company and the Shares for such closing will be issued to investors.

   
Minimum Investment Amount

The minimum investment amount per investor is $250 (125 shares of Common Stock); however, we can waive the minimum purchase requirement on a case to case basis in our sole discretion. The subscriptions, once received, are irrevocable.

 

 16 
  

 

Investment Amount Restrictions Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(c) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
   
Capital Stock Our common stock is common equity and contains no preferences as to other classes of our capital stock. Each share of our common stock entitles the holder to one vote on all matters submitted to the vote of the stockholders, including the election of directors.
   
Number of Shares Outstanding
Before the Offering
of Common Stock

A total of 69,741,464 shares of Common Stock issued and outstanding as of the date hereof. This number includes the following issuances to American Restaurant Holdings after June 30, 2016: (a) 2,165,240 shares of Common Stock of Muscle Maker issued in connection with the conversion of the 2015 ARH Note in the principal amount of $1,082,620; (b) 6,554,604 shares of Common Stock of Muscle Maker issued in connection with the conversion of the 2016 ARH Note in the principal amount of $2,621,842; and (c) 2,452,373 shares of Common Stock of Muscle Maker in connection with the conversion of the 2017 ARH Note in the principal amount of $980,949. In addition, the number of outstanding Common Stock includes 14,475,676 shares of Common Stock, which we assume will be issued by Muscle Maker to the MMF Members prior to the Offering in exchange for their membership units of Muscle Maker Brands which were initially recorded at $1,466,541. Furthermore, the number of outstanding Common Stock includes 1,115,000 shares of Common Stock, which we assume will be granted by Muscle Maker to employees and consultants of Muscle Maker prior to the Offering.

 

Number of Shares Outstanding
After the Offering of
Common Stock if All the
Stock Being Offered are Sold

A total of 79,741,464 shares of Common Stock will be issued and outstanding after this Offering is completed if all the Offered Shares are sold. This number includes the following issuances to American Restaurant Holdings after June 30, 2016: (a) 2,165,240 shares of Common Stock of Muscle Maker issued in connection with the conversion of the 2015 ARH Note in the principal amount of $1,082,620; (b) 6,554,604 shares of Common Stock of Muscle Maker issued in connection with the conversion of the 2016 ARH Note in the principal amount of $2,621,842; and (c) 2,452,373 shares of Common Stock of Muscle Maker in connection with the conversion of the 2017 ARH Note in the principal amount of $980,949. In addition, the number of outstanding Common Stock includes 14,475,676 shares of Common Stock, which we assume will be issued by Muscle Maker to the MMF Members prior to the Offering in exchange for their membership units of Muscle Maker Brands which were initially recorded at $1,466,541. Furthermore, the number of outstanding Common Stock includes 1,115,000 shares of Common Stock, which we assume will be granted by Muscle Maker to employees and consultants of Muscle Maker prior to the Offering.

 

 17 
  

 

Voting Rights The Common Stock offered hereby are entitled to one vote per share.

 

Placement Agent’s Warrant Upon each closing of this offering, we have agreed to issue to the Placement Agent warrants to purchase a number of shares of our common stock equal to three percent (3%) of the total shares of our common stock sold in such closing (“Placement Agent’s Warrants”). The Placement Agent’s Warrants are exercisable commencing 180 days after the qualification date of the offering statement related to this offering, and will be exercisable until the fifth anniversary of the qualification date. The Placement Agent’s Warrants are not redeemable by us. The Placement Agent Warrants have an exercise price of $2.20 per share (equal to 110% of the implied price per share of the Offering).
   
Risk Factors Investing in our Common Stock involves risks. See the section entitled “Risk Factors” in this Offering Circular and other information included in this Offering Circular for a discussion of factors you should carefully consider before deciding to invest in our Common Stock.

 

Use of Proceeds We expect to receive net proceeds from this offering of approximately $18,800,000 after deducting estimated underwriting discounts and commissions in the amount of $1,200,000 (6% of the gross proceeds of the Offering). We intend to use the net proceeds for the following purposes in the following order: (a) first towards credit card fees of up to approximately $400,000 (2% of the gross proceeds from the Offering); (b) second towards the fees and expenses associated with qualification of Offering under Regulation A of up to $900,000, including legal, auditing, accounting, escrow agent, transfer agent, financial printer and other professional fees; (c) third towards the implementation of our business plan, including but not limited to, (i) opening new corporate stores, (ii) funding possible acquisition opportunities, and (iii) funding a national marketing campaign; and (d) the balance of capital raised toward working capital and general corporate purposes. See “Use of Proceeds.”

 

 18 
  

 

Termination of the Offering The Offering is expected to expire on the first of: (i) all of the Shares offered are sold; or (ii) the close of business six (6) months after the date that this Offering is deemed qualified by the SEC, unless sooner terminated or extended up to no more than an additional six (6) months by the Company.
   
Proposed Listing No public market currently exists for our shares of Common Stock. We intend to apply to list our common stock on the NYSE MKT (“NYSE MKT”) or the NASDAQ Capital Market (“NASDAQ”) under the symbol “MMG” after we register our common stock under the Securities Exchange Act of 1934, as amended (“Exchange Act”), following the termination of this offering. There is no assurance that our common stock will be registered under the Exchange Act or, if registered under the Exchange Act, that the application will be approved by the NYSE MKT or the NASDAQ. If not approved by the NYSE MKT or NASDAQ, we intend to apply for quotation of our common stock on the OTCQX Marketplace under the symbol “MMG” after the termination of this offering.
   
Transfer Agent and Registrar Interwest Transfer Company, Inc. will be our transfer agent and registrar in connection with the Offering.
   
Dividends Our ability to pay dividends depends on both our achievement of positive cash flow and our board of directors’ discretion in declaring dividends. The order and priority of our dividends is further described in “Description of Capital Stock – Dividends.”

 

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

 

The following table presents our summary historical consolidated financial data for the periods indicated. The summary historical consolidated financial data for the years ended December 31, 2015 and December 31, 2014 and the balance sheet data as of December 31, 2015 and December 31, 2014 are derived from the audited financial statements. The summary historical financial data for the six months ended June 30, 2016 and June 30, 2015 and the balance sheet data as of June 30, 2016 and June 30, 2015 are derived from our unaudited financial statements.

 

Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods, and results of interim periods are not necessarily indicative of results for the entire year. You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this Offering Circular. 

 

 19 
  

 

   Combined Successor & Predecessor   Predecessor   Successor   Combined Successor & Predecessor 
Statement of Operations Data  For the Year Ended
December 31,
   For the Six Months Ended
June 30,
 
   2015   2014   2016   2015 
           (unaudited) 
Revenues$ 3,124,823   $2,980,877   $1,917,540   $1,503,743 
Operating Costs and Expenses  4,028,118    2,852,965    2,991,806    1,609,650 
(Loss) Income from Operations  (903,295)   127,912    (1,074,266)   (105,907)
Total Other (Expense) Income  899    4,995    (65,720)   224 
Net Loss before Taxes  (902,396)   132,907    (1,139,986)   (105,683)
Income tax provision  (119,245)   -    (63,641)   (54,991)
Net (Loss) Income  (1,021,641)   132,907    (1,203,627)   (160,674)
Net loss attributable to the  non-controlling interests  (226,718)   -    (302,702)   (11,132)
Net (Loss) Income Attributable to  Controlling Interest$ (794,923)  $132,907   $(900,925)  $(149,542)
                    
Net Loss Attributable to Controlling Interest Per Share:  (0.02)   N/A   $(0.02)  $(0.00)

 

 

               Combined 
               Successor & 
   Successor   Predecessor   Successor   Predecessor 
   December 31,   December 31,   June 30,   June 30, 
Balance Sheet Data (at period end)  2015   2014   2016   2015 
              (unaudited)    (unaudited) 
Cash and cash equivalents  $409,563   $40,319   $648,671   $141,406 
Working capital  $(61,507)  $(910,941)  $(355,734)  $(453,147)
Total assets  $8,138,370   $6,947   $8,838,613   $7,301,306 
Total liabilities  $2,227,070   $1,193,380   $4,130,940   $1,525,563 
Stockholders’ equity (deficit)  $5,911,300   $(846,433)  $4,707,673   $5,775,743 

 

1) Working capital represents total current assets less total current liabilities.

 

 20 
  

 

RISK FACTORS

 

An investment in our Offered Shares is highly speculative and is suitable only for persons or entities that are able to evaluate the risks of the investment. An investment in our Offered Shares should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Prospective investors should consider the following risks before making a decision to purchase our Offered Shares. To the best of our knowledge, we have included all material risks

 

Risks Related to Our Business and Industry

 

We are vulnerable to changes in consumer preferences and economic conditions that could harm our business, financial condition, results of operations and cash flow.

 

Food service businesses depend on consumer discretionary spending and are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. Factors such as traffic patterns, weather, fuel prices, local demographics and the type, number and locations of competing restaurants may adversely affect the performances of individual locations. In addition, economic downturns, inflation or increased food or energy costs could harm the restaurant industry in general and our locations in particular. Adverse changes in any of these factors could reduce consumer traffic or impose practical limits on pricing that could harm our business, financial condition, results of operations and cash flow. There can be no assurance that consumers will continue to regard healthy-inspired fast food favorably or that we will be able to develop new menu items that appeal to consumer preferences. Our business, financial condition and results of operations depend in part on our ability to anticipate, identify and respond to changing consumer preferences and economic conditions. In addition, the restaurant industry is currently under heightened legal and legislative scrutiny related to menu labeling and resulting from the perception that the practices of restaurant companies have contributed to nutritional, caloric intake, obesity or other health concerns of their guests. If we are unable to adapt to changes in consumer preferences and trends, we may lose customers and our revenues may decline.

 

Our growth strategy depends in part on opening new restaurants in existing and new markets and expanding our franchise system. We may be unsuccessful in opening new company-operated or franchised restaurants or establishing new markets, which could adversely affect our growth.

 

One of the key means to achieving our growth strategy will be through opening new restaurants and operating those restaurants on a profitable basis. We opened one new company-operated restaurant in fiscal 2015 in Springfield, NJ, six new company-operated restaurants in fiscal 2016 in Columbia, NY, Ft. Bliss, TX, Gramercy, NY, Irvine, CA, Santa Monica, CA and Tribeca, NY and plan to open 15 to 20 new company-operated restaurants in fiscal 2017. Our franchisees opened seven and four new franchise operated restaurants in fiscal 2015 and fiscal 2016, respectively, and plan to open 15 in fiscal 2017. Our ability to open new restaurants is dependent upon a number of factors, many of which are beyond our control, including our and our franchisees’ ability to:

 

  identify available and suitable restaurant sites;
     
  compete for restaurant sites;
     
  reach acceptable agreements regarding the lease or purchase of locations;

 

 21 
  

 

  obtain or have available the financing required to acquire and operate a restaurant, including construction and opening costs, which includes access to build-to-suit leases and equipment financing leases at favorable interest and capitalization rates;
     
  respond to unforeseen engineering or environmental problems with leased premises;
     
  avoid the impact of inclement weather, natural disasters and other calamities;
     
  hire, train and retain the skilled management and other employees necessary to meet staffing needs;
     
  obtain, in a timely manner and for an acceptable cost, required licenses, permits and regulatory approvals and respond effectively to any changes in local, state or federal law and regulations that adversely affect our and our franchisees’ costs or ability to open new restaurants; and
     
  control construction and equipment cost increases for new restaurants.

 

There is no guarantee that a sufficient number of suitable restaurant sites will be available in desirable areas or on terms that are acceptable to us in order to achieve our growth plan. If we are unable to open new restaurants or sign new franchisees, or if existing franchisees do not open new restaurants, or if restaurant openings are significantly delayed, our revenues or earnings growth could be adversely affected and our business negatively affected.

 

As part of our longer term growth strategy, we may enter into geographic markets in which we have little or no prior operating or franchising experience through company-operated restaurant growth and through franchise development agreements. The challenges of entering new markets include: difficulties in hiring experienced personnel; unfamiliarity with local real estate markets and demographics; consumer unfamiliarity with our brand; and different competitive and economic conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than in our existing markets. Consumer recognition of our brand has been important in the success of company-operated and franchised restaurants in our existing markets. Restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy and operating costs than existing restaurants, thereby affecting our overall profitability. Any failure on our part to recognize or respond to these challenges may adversely affect the success of any new restaurants. Expanding our franchise system could require the implementation, expense and successful management of enhanced business support systems, management information systems and financial controls as well as additional staffing, franchise support and capital expenditures and working capital.

 

Due to brand recognition and logistical synergies, as part of our growth strategy, we also intend to open new restaurants in areas where we have existing restaurants. The operating results and comparable restaurant sales for our restaurants could be adversely affected due to close proximity with our other restaurants and market saturation.

 

 22 
  

 

New restaurants, once opened, may not be profitable or may close, and the increases in average restaurant revenues and comparable restaurant sales that we have experienced in the past may not be indicative of future results.

 

Some of our restaurants open with an initial start-up period of higher than normal sales volumes, which subsequently decrease to stabilized levels. In new markets, the length of time before average sales for new restaurants stabilize is less predictable and can be longer as a result of our limited knowledge of these markets and consumers’ limited awareness of our brand. In addition, our average restaurant revenues and comparable restaurant sales may not increase at the rates achieved over the past several years. Our ability to operate new restaurants profitably and increase average restaurant revenues and comparable restaurant sales will depend on many factors, some of which are beyond our control, including:

 

  consumer awareness and understanding of our brand;
     
  general economic conditions, which can affect restaurant traffic, local labor costs and prices we pay for the food products and other supplies we use;
     
  consumption patterns and food preferences that may differ from region to region;
     
  changes in consumer preferences and discretionary spending;
     
  difficulties obtaining or maintaining adequate relationships with distributors or suppliers in new markets;
     
  increases in prices for commodities, including proteins;
     
  inefficiency in our labor costs as the staff gains experience;
     
  competition, either from our competitors in the restaurant industry or our own restaurants;
     
  temporary and permanent site characteristics of new restaurants;
     
  changes in government regulation; and
     
  other unanticipated increases in costs, any of which could give rise to delays or cost overruns.

 

If our new restaurants do not perform as planned or close, our business and future prospects could be harmed. In addition, an inability to achieve our expected average restaurant revenues would have a material adverse effect on our business, financial condition and results of operations.

 

Opening new restaurants in existing markets may negatively impact sales at our and our franchisees’ existing restaurants.

 

The consumer target area of our and our franchisees’ restaurants varies by location, depending on a number of factors, including population density, other local retail and business attractions, area demographics and geography. As a result, the opening of a new restaurant in or near markets in which we or our franchisees’ already have restaurants could adversely impact sales at these existing restaurants. Existing restaurants could also make it more difficult to build our and our franchisees’ consumer base for a new restaurant in the same market. Our core business strategy does not entail opening new restaurants that we believe will materially affect sales at our or our franchisees’ existing restaurants. However, we cannot guarantee there will not be significant impact in some cases and we may selectively open new restaurants in and around areas of existing restaurants that are operating at or near capacity to effectively serve our customers. Sales cannibalization between our restaurants may become significant in the future as we continue to expand our operations and could affect our sales growth, which could, in turn, materially and adversely affect our business, financial condition and results of operations.

 

 23 
  

 

Our sales growth and ability to achieve profitability could be adversely affected if comparable restaurant sales are less than we expect.

 

The level of comparable restaurant sales, which reflect the change in year-over-year sales for restaurants in the fiscal month following 15 months of operation using a mid-month convention, will affect our sales growth and will continue to be a critical factor affecting our ability to generate profits because the profit margin on comparable restaurant sales is generally higher than the profit margin on new restaurant sales. Our ability to increase comparable restaurant sales depends in part on our ability to successfully implement our initiatives to build sales. It is possible such initiatives will not be successful, that we will not achieve our target comparable restaurant sales growth or that the change in comparable restaurant sales could be negative, which may cause a decrease in sales growth and ability to achieve profitability that would have a material adverse effect on our business, financial condition and results of operations.

 

Our marketing programs may not be successful, and our new menu items, advertising campaigns and restaurant designs and remodels may not generate increased sales or profits.

 

We incur costs and expend other resources in our marketing efforts on new menu items, advertising campaigns and restaurant designs and remodels to raise brand awareness and attract and retain customers. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues. Additionally, some of our competitors have greater financial resources, which enable them to spend significantly more on marketing and advertising and other initiatives than we are able to. Should our competitors increase spending on marketing and advertising and other initiatives or our marketing funds decrease for any reason, or should our advertising, promotions, new menu items and restaurant designs and remodels be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition.

 

Changes in food and supply costs or failure to receive frequent deliveries of food ingredients and other supplies could have an adverse effect on our business, financial condition and results of operations.

 

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs, and our ability to maintain our menu depends in part on our ability to acquire ingredients that meet specifications from reliable suppliers. Shortages or interruptions in the availability of certain supplies caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather or other conditions could adversely affect the availability, quality and cost of our ingredients, which could harm our operations. Any increase in the prices of the food products most critical to our menu, such as chicken, seafood, beef, fresh produce, soybean oil and other proteins, could have a material adverse effect on our results of operations. Although we try to manage the impact that these fluctuations have on our operating results, we remain susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, generalized infectious diseases, product recalls and government regulations. Therefore, material increases in the prices of the ingredients most critical to our menu could adversely affect our operating results or cause us to consider changes to our product delivery strategy and adjustments to our menu pricing.

 

 24 
  

 

If any of our distributors or suppliers perform inadequately, or our distribution or supply relationships are disrupted for any reason, there could be a material adverse effect on our business, financial condition, results of operations or cash flows. Although we often enter into contracts for the purchase of food products and supplies, we do not have long-term contracts for the purchase of all such food products and supplies. As a result, we may not be able to anticipate or react to changing food costs by adjusting our purchasing practices or menu prices, which could cause our operating results to deteriorate. If we cannot replace or engage distributors or suppliers who meet our specifications in a short period of time, that could increase our expenses and cause shortages of food and other items at our restaurants, which could cause a restaurant to remove items from its menu. If that were to happen, affected restaurants could experience significant reductions in sales during the shortage or thereafter, if customers change their dining habits as a result. In addition, although we provide modestly priced food, we may choose not to, or may be unable to, pass along commodity price increases to consumers, including price increases with respect to ground beef. These potential changes in food and supply costs could have a material adverse effect on our business, financial condition and results of operations.

 

We may not be able to compete successfully with other quick-service and fast-casual restaurants. Intense competition in the restaurant industry could make it more difficult to expand our business and could also have a negative impact on our operating results if customers favor our competitors or we are forced to change our pricing and other marketing strategies.

 

The food service industry, and particularly its quick-service and fast-casual segments, is intensely competitive. We expect competition in each of our markets to continue to be intense because consumer trends are favoring limited service restaurants that offer healthier menu items made with better quality products, and many limited service restaurants are responding to these trends. Competition in our industry is primarily based on price, convenience, quality of service, brand recognition, restaurant location and type and quality of food. If our company-operated and franchised restaurants cannot compete successfully with other quick-service and fast-casual restaurants in new and existing markets, we could lose customers and our revenues could decline. Our company-operated and franchised restaurants compete with national and regional quick-service and fast-casual restaurant chains for customers, restaurant locations and qualified management and other staff. Compared with us, some of our competitors have substantially greater financial and other resources, have been in business longer, have greater brand recognition or are better established in the markets where our restaurants are located or are planned to be located. Any of these competitive factors may materially adversely affect our business, financial condition or results of operations.

 

Failure to manage our growth effectively could harm our business and operating results.

 

Our growth plan includes opening a significant number of new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be inadequate to support our planned expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train and retain managers and team members. We may not respond quickly enough to the changing demands that our expansion will impose on our management, restaurant teams and existing infrastructure, which could harm our business, financial condition and results of operations.

 

 25 
  

 

The planned rapid increase in the number of our restaurants may make our future results unpredictable.

 

We plan to open 10 to 20 new company-operated restaurants and 10 to 32 new franchise operated restaurants in fiscal 2017. We intend to continue to increase the number of our restaurants in the next several years. This growth strategy and the substantial investment associated with the development of each new restaurant may cause our operating results to fluctuate unpredictably or have an adverse effect on our profits. In addition, we may find that our restaurant concept has limited appeal in new markets or we may experience a decline in the popularity of our restaurant concept in the markets in which we operate. Newly opened restaurants or our future markets and restaurants may not be successful or our system-wide average restaurant revenue may not increase at historical rates, which could have a material adverse effect on our business, financial condition and results of operations.

 

The financial performance of our franchisees can negatively impact our business.

 

As 90% of our restaurants are franchised as of June 30, 2016, our financial results are dependent in significant part upon the operational and financial success of our franchisees. We receive royalties, franchise fees, contributions to our marketing development fund and contributions to our national and local co-op advertising funds, and other fees from our franchisees. We have established operational standards and guidelines for our franchisees; however, we have limited control over how our franchisees’ businesses are run. While we are responsible for ensuring the success of our entire system of restaurants and for taking a longer-term view with respect to system improvements, our franchisees have individual business strategies and objectives, which might conflict with our interests. Our franchisees may not be able to secure adequate financing to open or continue operating their Muscle Maker Grill restaurants. If they incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing debt, our franchisees could experience financial distress or even bankruptcy. We anticipate that we and our franchisees will continue to be financially impacted by the recent health care reform legislation if such legislation is not repealed. If a significant number of franchisees become financially distressed, it could harm our operating results through reduced royalty revenues and the impact on our profitability could be greater than the percentage decrease in the royalty revenues. Closure of franchised restaurants would reduce our royalty revenues and could negatively impact margins, since we may not be able to reduce fixed costs which we continue to incur.

 

We have limited control with respect to the operations of our franchisees, which could have a negative impact on our business.

 

Franchisees are independent business operators and are not our employees, and we do not exercise control over the day-to-day operations of their restaurants. We provide training and support to franchisees, and set and monitor operational standards, but the quality of franchised restaurants may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements, or may not hire and train qualified managers and other restaurant personnel. If franchisees do not operate to our expectations, our image and reputation, and the image and reputation of other franchisees, may suffer materially and system-wide sales could decline significantly, which would reduce our royalty revenues, and the impact on profitability could be greater than the percentage decrease in royalties and fees.

 

 26 
  

 

The challenging economic environment may affect our franchisees, with adverse consequences to us.

 

We rely in part on our franchisees and the manner in which they operate their locations to develop and promote our business. As of December 31, 2015, our top 6 franchisees operated 10 of our franchised restaurants and accounted for approximately 40% of our royalty revenues in fiscal 2014 and fiscal 2015, respectively. Due to the continuing challenging economic environment, it is possible that some franchisees could file for bankruptcy or become delinquent in their payments to us, which could have a significant adverse impact on our business due to loss or delay in payments of royalties, contributions to our marketing development fund and advertising funds and other fees. Bankruptcies by our franchisees could prevent us from terminating their franchise agreements so that we can offer their territories to other franchisees, negatively impact our market share and operating results as we may have fewer well-performing restaurants, and adversely impact our ability to attract new franchisees.

 

Although we have developed criteria to evaluate and screen prospective developers and franchisees, we cannot be certain that the developers and franchisees we select will have the business acumen or financial resources necessary to open and operate successful franchises in their franchise areas, and state franchise laws may limit our ability to terminate or modify these franchise arrangements. Moreover, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements, or may not hire and train qualified managers and other restaurant personnel. The failure of developers and franchisees to open and operate franchises successfully could have a material adverse effect on us, our reputation, our brand and our ability to attract prospective franchisees and could materially adversely affect our business, financial condition, results of operations and cash flows.

 

Franchisees may not have access to the financial or management resources that they need to open the restaurants contemplated by their agreements with us, or be able to find suitable sites on which to develop them. Franchisees may not be able to negotiate acceptable lease or purchase terms for restaurant sites, obtain the necessary permits and government approvals or meet construction schedules. Any of these problems could slow our growth and reduce our franchise revenues. Additionally, our franchisees typically depend on financing from banks and other financial institutions, which may not always be available to them, in order to construct and open new restaurants. For these reasons, franchisees operating under development agreements may not be able to meet the new restaurant opening dates required under those agreements.

 

Our system-wide restaurant base is geographically concentrated in the Northeastern United States, and we could be negatively affected by conditions specific to that region.

 

Our company-operated and franchised restaurants in the Northeastern United States represent approximately 68% of our system-wide restaurants as of December 31, 2015. Our company-operated and franchised restaurants in New Jersey and New York represent approximately 62% of our system-wide restaurants as of December 31, 2015. Approximately 57% of our company-operated restaurants are located in New Jersey and New York. Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the Northeastern United States have had, and may continue to have, material adverse effects on our business. As a result of our concentration in this market, we have been, and in the future may be, disproportionately affected by these adverse conditions compared to other chain restaurants with a national footprint.

 

In addition, our competitors could open additional restaurants in New Jersey and New York, where we have significant concentration with over 30 of our system restaurants, which could result in reduced market share for us and may adversely impact our profitability.

 

 27 
  

 

Negative publicity could reduce sales at some or all of our restaurants.

 

We may, from time to time, be faced with negative publicity relating to food quality, the safety, sanitation and welfare of our restaurant facilities, customer complaints or litigation alleging illness or injury, health inspection scores, integrity of our or our suppliers’ food processing and other policies, practices and procedures, employee relationships and welfare or other matters at one or more of our restaurants. Negative publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held to be responsible. In addition, the negative impact of adverse publicity relating to one restaurant may extend far beyond the restaurant involved, especially due to the high geographic concentration of many of our restaurants, to affect some or all of our other restaurants, including our franchised restaurants. The risk of negative publicity is particularly great with respect to our franchised restaurants because we are limited in the manner in which we can regulate them, especially on a real-time basis and negative publicity from our franchised restaurants may also significantly impact company-operated restaurants. A similar risk exists with respect to food service businesses unrelated to us, if customers mistakenly associate such unrelated businesses with our operations. Employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create not only legal and financial liability but negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. These types of employee claims could also be asserted against us, on a co-employer theory, by employees of our franchisees. A significant increase in the number of these claims or an increase in the number of successful claims could materially adversely affect our business, financial condition, results of operations and cash flows.

 

Food safety and quality concerns may negatively impact our business and profitability, our internal operational controls and standards may not always be met and our employees may not always act professionally, responsibly and in our and our customers’ best interests. Any possible instances of food-borne illness could reduce our restaurant sales.

 

Incidents or reports of food-borne or water-borne illness or other food safety issues, food contamination or tampering, employee hygiene and cleanliness failures or improper employee conduct at our restaurants could lead to product liability or other claims. Such incidents or reports could negatively affect our brand and reputation as well as our business, revenues and profits. Similar incidents or reports occurring at limited service restaurants unrelated to us could likewise create negative publicity, which could negatively impact consumer behavior towards us.

 

We cannot guarantee to consumers that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, our reliance on third-party food processors makes it difficult to monitor food safety compliance and may increase the risk that food-borne illness would affect multiple locations rather than single restaurants. Some food-borne illness incidents could be caused by third-party food suppliers and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of food-borne illness in one of our company-operated or franchised restaurants could negatively affect sales at all of our restaurants if highly publicized, especially due to the high geographic concentration of many of our restaurants. This risk exists even if it were later determined that the illness was wrongly attributed to one of our restaurants. A number of other restaurant chains have experienced incidents related to food-borne illnesses that have had material adverse impacts on their operations, and we cannot assure you that we could avoid a similar impact upon the occurrence of a similar incident at one of our restaurants. Additionally, even if food-borne illnesses were not identified at our restaurants, our restaurant sales could be adversely affected if instances of food-borne illnesses at other restaurant chains were highly publicized. In addition, our restaurant sales could be adversely affected by publicity regarding other high-profile illnesses such as avian flu that customers may associate with our food products.

 

 28 
  

 

We rely on only one company to distribute substantially all of our food and supplies to company-operated and franchised restaurants, and on a limited number of companies, and, in some cases, a sole company, to supply certain products, supplies and ingredients to our distributor. Failure to receive timely deliveries of food or other supplies could result in a loss of revenues and materially and adversely impact our operations.

 

Our and our franchisees’ ability to maintain consistent quality menu items and prices significantly depends upon our ability to acquire quality food products from reliable sources in accordance with our specifications on a timely basis. Shortages or interruptions in the supply of food products caused by unanticipated demand, problems in production or distribution, contamination of food products, an outbreak of protein-based diseases, inclement weather or other conditions could materially adversely affect the availability, quality and cost of ingredients, which would adversely affect our business, financial condition, results of operations and cash flows. We have contracts with a limited number of suppliers, and, in some cases, a sole supplier, for certain products, supplies and ingredients. Certain menu items and ingredients are provided to us and our franchisees by single suppliers for various proteins and a single supplier for spices. If that distributor or any supplier fails to perform as anticipated or seeks to terminate agreements with us, or if there is any disruption in any of our supply or distribution relationships for any reason, our business, financial condition, results of operations and cash flows could be materially adversely affected. If we or our franchisees temporarily close a restaurant or remove popular items from a restaurant’s menu due to a supply shortage, that restaurant may experience a significant reduction in revenues during the time affected by the shortage and thereafter if our customers change their dining habits as a result.

 

The volatile credit and capital markets could have a material adverse effect on our financial condition.

 

Our ability to manage our debt is dependent on our level of positive cash flow from company-operated and franchised restaurants, net of costs. An economic downturn may negatively impact our cash flows. Credit and capital markets can be volatile, which could make it more difficult for us to refinance our existing debt or to obtain additional debt or equity financings in the future. Such constraints could increase our costs of borrowing and could restrict our access to other potential sources of future liquidity. Our failure to have sufficient liquidity to make interest and other payments required by our debt could result in a default of such debt and acceleration of our borrowings, which would have a material adverse effect on our business and financial condition. The lack of availability or access to build-to-suit leases and equipment financing leases could result in a decreased number of new restaurants and have a negative impact on our growth.

 

A prolonged economic downturn could materially affect us in the future.

 

The restaurant industry is dependent upon consumer discretionary spending. The recession from late 2007 to mid-2009 reduced consumer confidence to historic lows, impacting the public’s ability and desire to spend discretionary dollars as a result of job losses, home foreclosures, significantly reduced home values, investment losses, bankruptcies and reduced access to credit, resulting in lower levels of customer traffic and lower average check sizes in fast casual restaurants, similar to ours. If the economy experiences another significant decline, our business and results of operations could be materially adversely affected and may result in a deceleration of the number and timing of new restaurant openings by us and our franchisees. Deterioration in customer traffic or a reduction in average check size would negatively impact our revenues and profitability and could result in reductions in staff levels, additional impairment charges and potential restaurant closures.

 

 29 
  

 

The interests of our franchisees may conflict with ours or yours in the future and we could face liability from our franchisees or related to our relationship with our franchisees.

 

Franchisees, as independent business operators, may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under the franchise agreement and the terms and conditions of the franchisee/franchisor relationship. This may lead to disputes with our franchisees and we expect such disputes to occur from time to time in the future as we continue to offer franchises. Such disputes may result in legal action against us. To the extent we have such disputes, the attention, time and financial resources of our management and our franchisees will be diverted from our restaurants, which could have a material adverse effect on our business, financial condition, results of operations and cash flows even if we have a successful outcome in the dispute.

 

In addition, various state and federal laws govern our relationship with our franchisees and our potential sale of a franchise. A franchisee and/or a government agency may bring legal action against us based on the franchisee/franchisor relationships that could result in the award of damages to franchisees and/or the imposition of fines or other penalties against us.

 

Information technology system failures or breaches of our network security could interrupt our operations and adversely affect our business.

 

We and our franchisees rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants. Our and our franchisees’ operations depend upon our and our franchisees’ ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could have a material adverse effect on our business and subject us or our franchisees to litigation or to actions by regulatory authorities.

 

We are continuing to expand, upgrade and develop our information technology capabilities. If we are unable to successfully upgrade or expand our technological capabilities, we may not be able to take advantage of market opportunities, manage our costs and transactional data effectively, satisfy customer requirements, execute our business plan or respond to competitive pressures.

 

If we or our franchisees are unable to protect our customers’ credit and debit card data, we could be exposed to data loss, litigation, liability and reputational damage.

 

In connection with credit and debit card sales, we and our franchisees transmit confidential credit and debit card information by way of secure private retail networks. Although we and our franchisees use private networks, third parties may have the technology or know-how to breach the security of the customer information transmitted in connection with credit and debit card sales, and our and our franchisees’ security measures and those of our and our franchisees’ technology vendors may not effectively prohibit others from obtaining improper access to this information. If a person were able to circumvent these security measures, he or she could destroy or steal valuable information or disrupt our and our franchisees’ operations. Any security breach could expose us and our franchisees to risks of data loss, litigation and liability and could seriously disrupt our and our franchisees’ operations and any resulting negative publicity could significantly harm our reputation.

 

 30 
  

 

The failure to enforce and maintain our trademarks and protect our other intellectual property could materially adversely affect our business, including our ability to establish and maintain brand awareness.

 

We have registered Muscle Maker Grill® and certain other names used by our restaurants as trademarks or service marks with the United States Patent and Trademark Office. The Muscle Maker Grill® trademark is also registered in some form in one foreign country. Our current brand campaign, “Great Food with Your Health in Mind” has also been approved for registration with the United States Patent and Trademark Office. In addition, the Muscle Maker Grill logo, website name and address (www.musclemakergrill.com) and Facebook and Twitter accounts are our intellectual property. The success of our business strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and develop our branded products. If our efforts to protect our intellectual property are not adequate, or if any third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands and branded products to achieve and maintain market acceptance. There can be no assurance that all of the steps we have taken to protect our intellectual property in the United States and in foreign countries will be adequate. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States.

 

We or our suppliers maintain the seasonings and additives for our food offerings, as well as certain standards, specifications and operating procedures, as trade secrets or confidential information. We may not be able to prevent the unauthorized disclosure or use of our trade secrets or information, despite the existence of confidentiality agreements and other measures. While we try to ensure that the quality of our brand and branded products is maintained by all of our franchisees, we cannot be certain that these franchisees will not take actions that adversely affect the value of our intellectual property or reputation. If any of our trade secrets or information were to be disclosed to or independently developed by a competitor, our business, financial condition and results of operations could be materially adversely affected.

 

Third-party claims with respect to intellectual property assets, if decided against us, may result in competing uses or require adoption of new, non-infringing intellectual property, which may in turn adversely affect sales and revenues.

 

There can be no assurance that third parties will not assert infringement or misappropriation claims against us, or assert claims that our rights in our trademarks, service marks, trade dress and other intellectual property assets are invalid or unenforceable. Any such claims could have a material adverse effect on us or our franchisees if such claims were to be decided against us. If our rights in any intellectual property were invalidated or deemed unenforceable, it could permit competing uses of intellectual property which, in turn, could lead to a decline in restaurant revenues. If the intellectual property became subject to third-party infringement, misappropriation or other claims, and such claims were decided against us, we may be forced to pay damages, be required to develop or adopt non-infringing intellectual property or be obligated to acquire a license to the intellectual property that is the subject of the asserted claim. There could be significant expenses associated with the defense of any infringement, misappropriation, or other third-party claims.

 

 31 
  

 

We depend on our executive officers, the loss of whom could materially harm our business.

 

We rely upon the accumulated knowledge, skills and experience of our executive officers and significant employees. Our executive officers and significant employees have cumulative experience of more than 100 years in the food service industry. If they were to leave us or become incapacitated, we might suffer in our planning and execution of business strategy and operations, impacting our brand and financial results. We also do not maintain any key man life insurance policies for any of our employees.

 

Matters relating to employment and labor law may adversely affect our business.

 

Various federal and state labor laws govern our relationships with our employees and affect operating costs. These laws include employee classifications as exempt or non-exempt, minimum wage requirements, unemployment tax rates, workers’ compensation rates, citizenship requirements and other wage and benefit requirements for employees classified as non-exempt. Significant additional government regulations and new laws, including mandating increases in minimum wages, changes in exempt and non-exempt status, or mandated benefits such as health insurance could materially affect our business, financial condition, operating results or cash flow. Furthermore, if our or our franchisees’ employees unionize, it could materially affect our business, financial condition, operating results or cash flow.

 

We are also subject in the ordinary course of business to employee claims against us based, among other things, on discrimination, harassment, wrongful termination, or violation of wage and labor laws. Such claims could also be asserted against us by employees of our franchisees. Moreover, claims asserted against franchisees may at times be made against us as a franchisor. These claims may divert our financial and management resources that would otherwise be used to benefit our operations. The ongoing expense of any resulting lawsuits, and any substantial settlement payment or damage award against us, could adversely affect our business, brand image, employee recruitment, financial condition, operating results or cash flows.

 

In addition, various states in which we operate are considering or have already adopted new immigration laws or enforcement programs, and the U.S. Congress and Department of Homeland Security from time to time consider and may implement changes to federal immigration laws, regulations or enforcement programs as well. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees. Although we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. We currently participate in the “E-Verify” program, an Internet-based, free program run by the United States government to verify employment eligibility, in states in which participation is required. However, use of the “E-Verify” program does not guarantee that we will properly identify all applicants who are ineligible for employment. Unauthorized workers are subject to deportation and may subject us to fines or penalties, and if any of our workers are found to be unauthorized we could experience adverse publicity that negatively impacts our brand and may make it more difficult to hire and keep qualified employees. Termination of a significant number of employees who were unauthorized employees may disrupt our operations, cause temporary increases in our labor costs as we train new employees and result in additional adverse publicity. We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. These factors could have a material adverse effect on our business, financial condition and results of operations.

 

 32 
  

 

Restaurant companies have been the target of class action lawsuits and other proceedings alleging, among other things, violations of federal and state workplace and employment laws. Proceedings of this nature are costly, divert management attention and, if successful, could result in our payment of substantial damages or settlement costs.

 

Our business is subject to the risk of litigation by employees, consumers, suppliers, franchisees, stockholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify. In recent years, restaurant companies, including us, have been subject to lawsuits, including lawsuits, alleging violations of federal and state laws regarding workplace and employment conditions, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, overtime eligibility of managers and failure to pay for all hours worked. Though we do not believe any lawsuits in which we are currently involved will have a material adverse effect on our financial position, results of operations, liquidity or capital resources, we may in the future be subject to lawsuits that could have such an effect.

 

Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food-borne illness or accidents in our restaurants. We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including contract claims. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment conditions, discrimination and similar matters.

 

Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and result in increases in our insurance premiums. In addition, they may generate negative publicity, which could reduce customer traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business and results of operations.

 

If we or our franchisees face labor shortages or increased labor costs, our results of operations and our growth could be adversely affected.

 

Labor is a primary component in the cost of operating our company-operated and franchised restaurants. If we or our franchisees face labor shortages or increased labor costs because of increased competition for employees, higher employee-turnover rates, unionization of restaurant workers, or increases in the federally-mandated or state-mandated minimum wage, change in exempt and non-exempt status, or other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance), our and our franchisees’ operating expenses could increase and our growth could be adversely affected.

 

We have a substantial number of hourly employees who are paid wage rates at or based on the applicable federal or state minimum wage and increases in the minimum wage will increase our labor costs and the labor costs of our franchisees. The federal minimum wage has been $7.25 per hour since July 24, 2009. Federally-mandated, state-mandated or locally-mandated minimum wages may be raised in the future. We may be unable to increase our menu prices in order to pass future increased labor costs on to our customers, in which case our margins would be negatively affected. Also, reduced margins of franchisees could make it more difficult to sell franchises. If menu prices are increased by us and our franchisees to cover increased labor costs, the higher prices could adversely affect transactions which could lower sales and thereby reduce our margins and the royalties that we receive from franchisees.

 

 33 
  

 

In addition, our success depends in part upon our and our franchisees’ ability to attract, motivate and retain a sufficient number of well-qualified restaurant operators, management personnel and other employees. Qualified individuals needed to fill these positions can be in short supply in some geographic areas. In addition, limited service restaurants have traditionally experienced relatively high employee turnover rates. Although we have not yet experienced any significant problems in recruiting employees, our and our franchisees’ ability to recruit and retain such individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could increase our and our franchisees’ labor costs and have a material adverse effect on our business, financial condition, results of operations or cash flows. If we or our franchisees are unable to recruit and retain sufficiently qualified individuals, our business and our growth could be adversely affected. Competition for these employees could require us or our franchisees to pay higher wages, which could also result in higher labor costs.

 

We are locked into long-term and non-cancelable leases and may be unable to renew leases at the end of their terms.

 

Many of our restaurant leases are non-cancelable and typically have initial terms up to between 5 and 10 years and 1-3 renewal terms of 5 years each that we may exercise at our option. Even if we close a restaurant, we are required to perform our obligations under the applicable lease, which could include, among other things, a provision for a closed restaurant reserve when the restaurant is closed, which would impact our profitability, and payment of the base rent, property taxes, insurance and maintenance for the balance of the lease term. In addition, in connection with leases for restaurants that we will continue to operate, we may, at the end of the lease term and any renewal period for a restaurant, be unable to renew the lease without substantial additional cost, if at all. As a result, we may close or relocate the restaurant, which could subject us to construction and other costs and risks. Additionally, the revenues and profit, if any, generated at a relocated restaurant may not equal the revenues and profit generated at the existing restaurant

 

We and our franchisees are subject to extensive government regulations that could result in claims leading to increased costs and restrict our ability to operate or sell franchises.

 

We and our franchisees are subject to extensive government regulation at the federal, state and local government levels. These include, but are not limited to, regulations relating to the preparation and sale of food, zoning and building codes, franchising, land use and employee, health, sanitation and safety matters. We and our franchisees are required to obtain and maintain a wide variety of governmental licenses, permits and approvals. Difficulty or failure in obtaining them in the future could result in delaying or canceling the opening of new restaurants. Local authorities may suspend or deny renewal of our governmental licenses if they determine that our operations do not meet the standards for initial grant or renewal. This risk would be even higher if there were a major change in the licensing requirements affecting our types of restaurants.

 

 34 
  

 

We are subject to the U.S. Americans with Disabilities Act (the “ADA”) and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, including our restaurants. We may in the future have to modify restaurants by adding access ramps or redesigning certain architectural fixtures, for example, to provide service to or make reasonable accommodations for disabled persons. The expenses associated with these modifications could be material.

 

Our operations are also subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime, the U.S. Immigration Reform and Control Act of 1986, and a variety of similar federal, state and local laws that govern these and other employment law matters. We and our franchisees may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters, and we have been a party to such matters in the past. In addition, federal, state and local proposals related to paid sick leave or similar matters could, if implemented, have a material adverse effect on our business, financial condition and results of operations.

 

The Patient Protection and Affordable Care Act of 2010 (the “PPACA”) requires employers such as us to provide adequate and affordable health insurance for all qualifying employees or pay a monthly per-employee fee or penalty for non-compliance beginning in fiscal 2015. We began to offer such health insurance benefits on January 1, 2015 to all eligible employees, and may incur substantial additional expense due to organizing and maintaining the plan which we anticipate will be more expensive on a per person basis and for an increased number of employees who we anticipate at other times may elect to obtain coverage through a healthcare plan that we partially subsidize. If we fail to offer such benefits, or the benefits that we elect to offer do not meet the applicable requirements, we may incur penalties. Since the PPACA also requires individuals to obtain coverage or face individual penalties, employees who are currently eligible but elect not to participate in our healthcare plans may find it more advantageous to do so when such individual penalties increase in size. It is also possible that by making changes or failing to make changes in the healthcare plans offered by us, we will become less competitive in the market for our labor. Finally, implementing the requirements of the PPACA is likely to impose additional administrative costs. The costs and other effects of these new healthcare requirements cannot be determined with certainty, but they may significantly increase our healthcare coverage costs and could have a material adverse effect on our business, financial condition and results of operations.

 

There is also a potential for increased regulation of certain food establishments in the United States, where compliance with a Hazard Analysis and Critical Control Points (“HACCP”) approach would be required. HACCP refers to a management system in which food safety is addressed through the analysis and control of potential hazards from production, procurement and handling, to manufacturing, distribution and consumption of the finished product. Many states have required restaurants to develop and implement HACCP Systems, and the United States government continues to expand the sectors of the food industry that must adopt and implement HACCP programs. For example, the Food Safety Modernization Act (the “FSMA”), signed into law in January 2011, granted the U.S. Food and Drug Administration (the “FDA”) new authority regarding the safety of the entire food system, including through increased inspections and mandatory food recalls. Although restaurants are specifically exempted from or not directly implicated by some of these new requirements, we anticipate that the new requirements may impact our industry. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise impact our business.

 

 35 
  

 

We are also subject to regulation by the Federal Trade Commission and subject to state laws that govern the offer, sale, renewal and termination of franchises and our relationship with our franchisees. The failure to comply with these laws and regulations in any jurisdiction or to obtain required approvals could result in a ban or temporary suspension on franchise sales, fines or the requirement that we make a rescission offer to franchisees, any of which could affect our ability to open new restaurants in the future and thus could materially adversely affect our business and operating results. Any such failure could also subject us to liability to our franchisees.

 

Compliance with environmental laws may negatively affect our business.

 

We are subject to federal, state and local laws and regulations, including those concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These environmental laws provide for significant fines and penalties for non-compliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our restaurants. Environmental conditions relating to the presence of hazardous substances at prior, existing or future restaurant sites could materially adversely affect our business, financial condition and results of operations. Further, environmental laws and regulations, and the administration, interpretation and enforcement thereof, are subject to change and may become more stringent in the future, each of which could materially adversely affect our business, financial condition and results of operations.

 

Legislation and regulations requiring the display and provision of nutritional information for our menu offerings, and new information or attitudes regarding diet and health or adverse opinions about the health effects of consuming our menu offerings, could affect consumer preferences and negatively impact our results of operations.

 

Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new information regarding the health effects of consuming our menu offerings, including our buttermilk biscuits, legendary sweet tea and bone-in fried chicken. These changes have resulted in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of our menu offerings, or laws and regulations requiring us to disclose the nutritional content of our food offerings.

 

The PPACA establishes a uniform, federal requirement for certain restaurants to post certain nutritional information on their menus. Specifically, the PPACA amended the Federal Food, Drug and Cosmetic Act to, as of December 1, 2015, require chain restaurants with 20 or more locations operating under the same name and offering substantially the same menus to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake. The PPACA also requires covered restaurants to, as of December 1, 2015, provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this information. The PPACA further permits the United States Food and Drug Administration to require covered restaurants to make additional nutrient disclosures, such as disclosure of trans-fat content. An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could negatively influence the demand for our offerings.

 

 36 
  

 

Furthermore, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants.

 

Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming. Additionally, if consumer health regulations or consumer eating habits change significantly, we may be required to modify or discontinue certain menu items, and we may experience higher costs associated with the implementation of those changes. Additionally, some government authorities are increasing regulations regarding trans-fats and sodium, which may require us to limit or eliminate trans-fats and sodium in our menu offerings or switch to higher cost ingredients or may hinder our ability to operate in certain markets. Some jurisdictions have banned certain cooking ingredients, such as trans-fats, which a limited number of our menu products contain in small, but measurable amounts, or have discussed banning certain products, such as large sodas. Removal of these products and ingredients from our menus could affect product tastes, customer satisfaction levels, and sales volumes, whereas if we fail to comply with these laws or regulations, our business could experience a material adverse effect.

 

We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure requirements and to adapt our menu offerings to trends in eating habits. The imposition of additional menu-labeling laws could have an adverse effect on our results of operations and financial position, as well as on the restaurant industry in general.

 

We may become subject to liabilities arising from environmental laws that could likely increase our operating expenses and materially and adversely affect our business and results of operations.

 

We are subject to federal, state and local laws, regulations and ordinances that:

 

  govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as waste handling and disposal practices for solid and hazardous wastes; and
     
  impose liability for the costs of cleaning up, and damage resulting from, sites of past spills, disposals or other releases of hazardous materials.

 

In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and may be subject to associated liabilities, including liabilities for clean-up costs and personal injury or property damage, relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurants in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. If we are found liable for the costs of remediating contamination at any of our properties, our operating expenses would likely increase and our results of operations would be materially adversely affected. See “Description of Business—Environmental Matters.” Some of our leases provide for indemnification of our landlords for environmental contamination, clean-up or owner liability.

 

 37 
  

 

We are exposed to the risk of natural disasters, unusual weather conditions, pandemic outbreaks, political events, war and terrorism that could disrupt business and result in lower sales, increased operating costs and capital expenditures.

 

Our headquarters, company-operated and franchised restaurant locations, third-party sole distributor and its facilities, as well as certain of our vendors and customers, are located in areas which have been and could be subject to natural disasters such as floods, hurricanes, tornadoes, fires or earthquakes. Adverse weather conditions or other extreme changes in the weather, including resulting electrical and technological failures, especially such events which occur in New Jersey and New York, as a result of the concentration of our restaurants, may disrupt our and our franchisees’ business and may adversely affect our and our franchisees’ ability to obtain food and supplies and sell menu items. Our business may be harmed if our or our franchisees’ ability to obtain food and supplies and sell menu items is impacted by any such events, any of which could influence customer trends and purchases and may negatively impact our and our franchisees’ revenues, properties or operations. Such events could result in physical damage to one or more of our or our franchisees’ properties, the temporary closure of some or all of our company-operated restaurants, franchised restaurants and third-party distributor, the temporary lack of an adequate work force in a market, temporary or long-term disruption in the transport of goods, delay in the delivery of goods and supplies to our company-operated and franchised restaurants and third-party distributor, disruption of our technology support or information systems, or fuel shortages or dramatic increases in fuel prices, all of which would increase the cost of doing business. These events also could have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage. Any of these factors, or any combination thereof, could adversely affect our operations.

 

Upon the expansion of our operations internationally, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws.

 

We anticipate developing and operating corporate-owned and franchised locations located outside the United States. The U.S. Foreign Corrupt Practices Act, and other similar anti-bribery and anti-kickback laws and regulations, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure you that we will be successful in preventing our franchisees or other agents from taking actions in violation of these laws or regulations. Such violations, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

 

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock may decline.

 

As a public company, we would be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Further, we will be required to report any changes in internal controls on a quarterly basis. In addition, we would be required to furnish a report by management on the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We will design, implement, and test the internal controls over financial reporting required to comply with these obligations. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of its internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of the Common Stock could be negatively affected. We also could become subject to investigations by the stock exchange on which the securities are listed, the Commission, or other regulatory authorities, which could require additional financial and management resources.

 

 38 
  

 

As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls.

 

Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting while we are an emerging growth company. This means that the effectiveness of our financial operations may differ from our peer companies in that they may be required to obtain independent registered public accounting firm attestations as to the effectiveness of their internal controls over financial reporting and we are not. While our management will be required to attest to internal control over financial reporting and we will be required to detail changes to our internal controls on a quarterly basis, we cannot provide assurance that the independent registered public accounting firm’s review process in assessing the effectiveness of our internal controls over financial reporting, if obtained, would not find one or more material weaknesses or significant deficiencies. Further, once we cease to be an emerging growth company we will be subject to independent registered public accounting firm attestation regarding the effectiveness of our internal controls over financial reporting. Even if management finds such controls to be effective, our independent registered public accounting firm may decline to attest to the effectiveness of such internal controls and issue a qualified report.

 

We believe we will be considered a smaller reporting company and will be exempt from certain disclosure requirements, which could make our Common Stock less attractive to potential investors.

 

Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

 

  had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or

 

  in the case of an initial registration statement under the Securities Act, or the Exchange Act of 1934, as amended, which we refer to as the Exchange Act, for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or

 

  in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.

 

As a smaller reporting company, we will not be required and may not include a Compensation Discussion and Analysis section in our proxy statements; we will provide only two years of financial statements; and we need not provide the table of selected financial data. We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our Common Stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares.

 

 39 
  

 

If we become a public company (reporting under the Exchange Act), we will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

 

If we become a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, and rules of the SEC and those of the NASDAQ or the NYSE MKT, whichever is applicable, have imposed various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs.

 

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the first annual report on Form 10-K following the date on which we are no longer an emerging growth company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ or NYSE MKT, whichever market we are listed on, the SEC or other regulatory authorities, which would require additional financial and management resources.

 

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets.

 

 40 
  

 

If we do not become a public company, compliance with Regulation A and reporting to the SEC could be costly, and our management will be required to devote substantial time to the compliance requirements of Regulation A.

 

If we do not become a public company, compliance with Regulation A could be costly and requires legal and accounting expertise. Because the new rules implementing Title IV of the Jumpstart Our Business Startups Act of 2012 took effect in June 2015, we have no experience complying with the new provisions of Regulation A or making the public filings required by the rule. Besides qualifying this Form 1-A, we must file an annual report on Form 1-K, a semiannual report on Form 1-SA, and current reports on Form 1-U.

 

Our legal and financial staff may need to be increased in order to comply with Regulation A. Compliance with Regulation A will also require greater expenditures on outside counsel, outside auditors, and financial printers in order to remain in compliance. Failure to remain in compliance with Regulation A may subject us to sanctions, penalties, and reputational damage and would adversely affect our results of operations.

 

We may not be able to satisfy listing requirements of the NASDAQ or the NYSE MKT, whichever is applicable, to maintain a listing of our Common Stock.

 

Following the registration of our Common Stock under the Exchange Act following the termination of this offering, if our Common Stock is listed on the NASDAQ or the NYSE MKT, whichever is applicable, we must meet certain financial and liquidity criteria to maintain such listing. If we fail to meet any of the NASDAQ’s or the NYSE MKT’s, whichever is applicable, listing standards, our Common Stock may be delisted. In addition, our board may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our Common Stock from the NASDAQ or the NYSE MKT, whichever is applicable, may materially impair our stockholders’ ability to buy and sell our Common Stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our Common Stock. In addition, the delisting of our Common Stock could significantly impair our ability to raise capital.

 

After the completion of this offering, we intend to become an emerging growth company and subject to less rigorous public reporting requirements and cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.

 

After the completion of this offering, we expect to become a public reporting company under the Exchange Act, and thereafter publicly report on an ongoing basis as an “emerging growth company” (as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act) under the reporting rules set forth under the Exchange Act. For so long as we remain an “emerging growth company”, we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not “emerging growth companies”, including but not limited to:

 

  not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
     
  taking advantage of extensions of time to comply with certain new or revised financial accounting standards;
     
  being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
     
  being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

 41 
  

 

We expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We could be an emerging growth company for up to five years, circumstances could cause us to lose that status earlier, including if the market value of our Common Stock held by non-affiliates exceeds $700 million, if we issue $1 billion or more in non-convertible debt during a three-year period, or if our annual gross revenues exceed $1 billion. We would cease to be an emerging growth company on the last day of the fiscal year following the date of the fifth anniversary of our first sale of common equity securities under an effective registration statement or a fiscal year in which we have $1 billion in gross revenues (note that the offering of Common Stock pursuant to this Offering Circular will not result in the sale of securities under an effective registration statement). Finally, at any time we may choose to opt-out of the emerging growth company reporting requirements. If we choose to opt out, we will be unable to opt back in to being an emerging growth company.

 

If we elect not to become a public reporting company under the Exchange Act, we will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. The ongoing reporting requirements under Regulation A are more relaxed than for “emerging growth companies” under the Exchange Act. The differences include, but are not limited to, being required to file only annual and semiannual reports, rather than annual and quarterly reports. Annual reports are due within 120 calendar days after the end of the issuer’s fiscal year, and semiannual reports are due within 90 calendar days after the end of the first six months of the issuer’s fiscal year.

 

In either case, we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies”, and our stockholders could receive less information than they might expect to receive from more mature public companies.

 

We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

 

If our shares of Common Stock become subject to the penny stock rules, it would become more difficult to trade our shares.

 

The Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price per share of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on the NASDAQ or the NYSE MKT, whichever is applicable, and if the price of our Common Stock is less than $5.00 per share, our Common Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before effecting a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that, before effecting any such transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.

 

 42 
  

 

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. The FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading activity in our Common Stock. As a result, fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder’s ability to resell shares of our Common Stock.

 

Muscle Maker is a holding company with no operations and relies on its operating subsidiaries to provide it with funds necessary to meet its financial obligations and to pay taxes, expenses and dividends.

 

We are a holding company with no direct operations that will hold as our principal assets a 100% ownership interest in Muscle Maker Brands, LLC (“Muscle Maker Brands”) and will rely on Muscle Maker Brands to provide us with funds necessary to meet any financial obligations. As such, we will have no independent means of generating revenue. Muscle Maker Brands is treated by its members as a partnership for federal and applicable state income tax purposes and, as such, generally is not expected to be subject to income tax (except that it may be required to withhold and remit taxes as a withholding agent). Instead, taxable income will be allocated to us as the sole holder of its limited liability company units (“LLC Units”). Accordingly, we will incur income taxes on any net taxable income of Muscle Maker Brands and will also incur expenses related to our operations. Pursuant to the operating agreement of Muscle Maker Brands (“LLC Agreement”), Muscle Maker Brands will be obligated to make tax distributions to us, as a holder of the LLC Units, subject to the conditions described below. We intend to cause Muscle Maker Brands to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow us to pay our taxes and operating expenses. However, Muscle Maker Brands’ ability to make such distributions and payments to Muscle Maker may be subject to various limitations and restrictions, including the operating results, cash requirements and financial condition of Muscle Maker Brands, the applicable provisions of California law that may limit the amount of funds available for distribution to the members of Muscle Maker Brands, compliance by Muscle Maker Brands and its subsidiaries with restrictions, covenants and financial ratios related to existing or future indebtedness, and other agreements entered into by Muscle Maker Brands or its subsidiaries with third parties. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations (i.e., as a result of Muscle Maker Brands’ inability to make distributions due to various limitations and restrictions), we may have to borrow funds, and thus our liquidity and financial condition could be materially and adversely affected.

 

 43 
  

 

Members of our board of directors and our executive officers will have other business interests and obligations to other entities.

 

Neither our directors nor our executive officers will be required to manage the Company as their sole and exclusive function and they may have other business interests and may engage in other activities in addition to those relating to the Company, provided that such activities do not compete with the business of the Company or otherwise breach their agreements with the Company. We are dependent on our directors and executive officers to successfully operate our Company. Their other business interests and activities could divert time and attention from operating our business.

 

Risks Related to Ownership of Our Common Stock, the Offering and Lack of Liquidity

 

An active trading market for our common stock may not develop and you may not be able to resell your shares at or above the initial offering price.

 

Prior to this offering, there has been no public market for shares of our common stock. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial offering price or at the time that they would like to sell. In addition, we intend to submit a listing application for our common stock to be listed on the NASDAQ Capital Market (“NASDAQ”) or The NYSE MKT (“NYSE MKT”) after we register our common stock under the Securities Exchange Act of 1934, as amended (“Exchange Act”), following the termination of this offering, and there is no guarantee that our common stock will be registered under the Exchange Act or that we can meet the listing standards or that such listing application will be accepted. Even if our common stock is registered under the Exchange Act, such application is accepted and our common stock is listed on the NASDAQ or NYSE MKT, an active trading market for our common stock may never develop, which will adversely impact your ability to sell our shares. If shares of common stock are not eligible for listing on the NASDAQ and NYSE MKT, we intend to apply for quotation of our common stock on the OTCQX Marketplace by the OTC Markets Group, Inc. following the termination of this offering. Even if we obtain quotation on the OTCQX, we do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market. Purchasers will be required to wait until at least after the final termination date of this offering for such listing, if the shares are registered under the Exchange Act, or quotation. The initial offering price for shares of our common stock will be determined by negotiation between us and our Underwriter. You may not be able to sell your shares of common stock at or above the initial offering price.

 

The OTCQX, as with other public markets, has from time to time experienced significant price and volume fluctuations. As a result, the market price of shares of our common stock may be similarly volatile, and holders of shares of our common stock may from time to time experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. The price of shares of our common stock could be subject to wide fluctuations in response to a number of factors, including those listed in this “Risk Factors” section of this Offering Circular.

 

No assurance can be given that the market price of shares of our common stock will not fluctuate or decline significantly in the future or that common stockholders will be able to sell their shares when desired on favorable terms, or at all.

 

 44 
  

 

The Company’s stock price may be volatile.

 

The market price of the Company’s Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various potential factors, many of which will be beyond the Company’s control, including the following:

 

  services by the Company or its competitors;
     
  additions or departures of key personnel;
     
  the Company’s ability to execute its business plan;
     
  operating results that fall below expectations;
     
  loss of any strategic relationship;
     
  industry developments;
     
  economic and other external factors; and
     
  period-to-period fluctuations in the Company’s financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company’s common stock.

 

This is a fixed price offering and the fixed offering price may not accurately represent the current value of us or our assets at any particular time. Therefore, the purchase price you pay for Offered Shares may not be supported by the value of our assets at the time of your purchase.

 

This is a fixed price offering, which means that the offering price for our Shares is fixed and will not vary based on the underlying value of our assets at any time. Our board of directors, in consultation with our Underwriter, has determined the offering price in its sole discretion. The fixed offering price for our Shares has not been based on appraisals of any assets we own or may own, or of our Company as a whole, nor do we intend to obtain such appraisals. Therefore, the fixed offering price established for our Shares may not be supported by the current value of our Company or our assets at any particular time.

 

The entire amount of your purchase price for your Shares will not be available for investment in the Company.

 

A portion of the offering proceeds will be used to pay selling commissions of six percent (6%) of the offering proceeds to our Underwriter, which it may re-allow and pay to participating broker-dealers, who sell Shares. See “Plan of Distribution.” Thus, a portion of the gross amount of the offering proceeds will not be available for investment in the Company. See “Use of Proceeds.”

 

 45 
  

 

If investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.

 

Our Shares have not been registered under the Securities Act of 1933, or the Securities Act, and are being offered in reliance upon the exemption provided by Section 3(b) of the Securities Act and Regulation A promulgated thereunder. We represent that this Offering Circular does not contain any untrue statements of material fact or omit to state any material fact necessary to make the statements made, in light of all the circumstances under which they are made, not misleading. However, if this representation is inaccurate with respect to a material fact, if this offering fails to qualify for exemption from registration under the federal securities laws pursuant to Regulation A, or if we fail to register the Shares or find an exemption under the securities laws of each state in which we offer the Shares, each investor may have the right to rescind his, her or its purchase of the Shares and to receive back from the Company his, her or its purchase price with interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining such judgment may outweigh the benefits. If investors successfully seek rescission, we would face severe financial demands we may not be able to meet and it may adversely affect any non-rescinding investors.

 

If our securities are quoted on the OTCQX rather than listed on either of the NASDAQ or NYSE MKT, our securities holders may face significant restrictions on the resale of our securities due to state “Blue Sky” laws.

 

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether our common stock will be registered or exempt from registration under the laws of any state. If our securities are quoted on the OTCQX rather than listed on either of the NASDAQ or NYSE MKT, a determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our common stock. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our common stock. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your common stock without the significant expense of state registration or qualification.

 

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

 

The initial public offering price per share will be substantially higher than the pro forma net tangible book value per share of our common stock outstanding prior to this offering. As a result, investors purchasing common stock in this offering will experience immediate dilution of $1.71 per share. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of common stock. In addition, if we issue additional equity securities, you will experience additional dilution.

 

 46 
  

 

Fiduciaries investing the assets of a trust or pension or profit sharing plan must carefully assess an investment in our Company to ensure compliance with ERISA.

 

In considering an investment in the Company of a portion of the assets of a trust or a pension or profit-sharing plan qualified under Section 401(a) of the Code and exempt from tax under Section 501(a), a fiduciary should consider (i) whether the investment satisfies the diversification requirements of Section 404 of ERISA; (ii) whether the investment is prudent, since the Offered Shares are not freely transferable and there may not be a market created in which the Offered Shares may be sold or otherwise disposed; and (iii) whether interests in the Company or the underlying assets owned by the Company constitute “Plan Assets” under ERISA. See “ERISA Consideration.”

 

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

 

The market price of shares of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares.

 

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

 

The principal purposes of this offering are to raise additional capital, to create a public market for our common stock and to facilitate our future access to the public equity markets. We currently intend to use the proceeds we receive from this offering after deducting estimated underwriting discounts and commissions and fees and expenses associated with qualification of Offering under Regulation A, including legal, auditing, accounting, escrow agent, transfer agent, financial printer and other professional fees, primarily for (a) the implementation of our business plan, including but not limited to, (i) opening new corporate stores, (ii) funding possible acquisition opportunities, and (iii) funding a national marketing campaign, and (b) working capital and general corporate purposes. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, results of operations and prospects could be harmed, and the market price of our common stock could decline.

 

We do not intend to pay dividends for the foreseeable future.

 

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

 

 47 
  

USE OF PROCEEDS

 

We intend to use the net proceeds for the following purposes in the following order: (a) first towards credit card fees of up to approximately $400,000 (2% of the gross proceeds from the Offering); (b) second towards the fees and expenses associated with qualification of Offering under Regulation A of up to $900,000, including legal, auditing, accounting, escrow agent, transfer agent, financial printer and other professional fees; (c) third towards the implementation of our business plan, including but not limited to, (i) opening new corporate stores, (ii) funding possible strategic acquisition opportunities, and (iii) funding a national marketing campaign, and (d) the balance towards working capital and general corporate purposes. In the event that we sell less than the maximum shares offered in the Offering, our first priority is to pay fees associated with the qualification of this Offering under Regulation A. No proceeds will be used to compensate or otherwise make payments to officers or directors except for ordinary payments under employment or consulting agreements.

 

If all of the Common Stock offered hereunder are purchased, we expect to receive net proceeds from this offering of approximately $18,800,000 after deducting estimated underwriting discounts and commissions in the amount of $1,200,000 (6% of the gross proceeds of the Offering). However, we cannot guarantee that we will sell all of the Common Stock being offered by us. The following table summarizes how we anticipate using the gross proceeds of this Offering, depending upon whether we sell 25%, 50%, 75%, or 100% of the shares being offered in the Offering:

 

   If 25% of
Shares
Sold
   If 50% of
Shares
Sold
   If 75% of
Shares
Sold
   If 100% of
Shares
Sold
 
Gross Proceeds  $5,000,000   $10,000,000   $15,000,000   $20,000,000 
Offering Expenses (Underwriting Discounts and Commissions to Placement Agent and other broker dealers)  ($300,000)  ($600,000)  ($900,000)  ($1,200,000)
                     
Net Proceeds  $4,700,000   $9,400,000   $14,100,000   $18,800,000 
                     
Our intended use of the net proceeds is as follows:                    
Credit card fees*  ($100,000)  ($200,000)  ($300,000)  ($400,000)
Fees for Qualification of Offering under Regulation A (includes legal, auditing, accounting, escrow agent, transfer agent, financial printer and other professional fees)  ($900,000)  ($900,000)  ($900,000)  ($900,000)
Opening New Corporate Stores   (2,000,000)   (5,000,000)   (7,000,000)   (10,000,000)
Acquisition Opportunities   (1,300,000)   (2,300,000)   (4,400,000)   (5,600,000)
National Marketing Campaign   (100,000)   (200,000)   (300,000)   (400,000)
Working Capital and General Corporate Purposes   (300,000)   (800,000)   (1,200,000)   (1,500,000)
Total Use of Proceeds  $5,000,000   $10,000,000   $15,000,000   $20,000,000 

 

*Represents credit card fees associated with subscription agreement transactions.

 

 48 
  

 

CAPITALIZATION

The following table shows:

 

  Our actual capitalization as of June 30, 2016; and
     
 

Our unaudited capitalization as of June 30, 2016, as adjusted to reflect (i) the receipt of the net proceeds from the sale by us in this offering of shares of common stock, after deducting $2,100,000 in estimated underwriting discounts and commissions, reimbursements to Placement Agent, and estimated offering expenses payable by us, (ii) the issuance of 2,165,240 shares of Common Stock to American Restaurant Holdings in connection with the conversion of the 2015 ARH Note in the principal amount of $1,082,620, (iii) the issuance of 6,554,604 shares of Common Stock to American Restaurant Holdings in connection with the conversion of the 2016 ARH Note in the principal amount of $2,621,842, (iv) the issuance of 2,452,373 shares of Common Stock to American Restaurant Holdings in connection with the conversion of the 2017 ARH Note in the principal amount of $980,949, (v) the issuance of 14,475,676 shares of Common Stock to the MMF Members in exchange for their membership units of Muscle Maker Brands which were initially recorded at $1,466,541, which exchange we assume will occur prior to this Offering, and (vi) the grant of 1,115,000 shares of Common Stock to the employees and consultants of Muscle Maker, which grant we assume will occur prior to this Offering.

 

We derived this table from, and it should be read in conjunction with and is qualified in its entirety by reference to, our historical and unaudited consolidated financial statements and the accompanying notes included elsewhere in this Offering Circular. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

  

As of June 30, 2016

(unaudited)

 
   Actual   Pro Forma As
Adjusted (1)
 
         
Cash and cash equivalents  $648,671   $20,774,462 
Total debt at face value  $2,489,620   $- 
Stockholders’ equity:          

Common stock, no par value; 100,000,000 shares authorized and 42,978,571 shares issued and outstanding on an actual basis, and 100,000,000 shares authorized and 79,741,464 shares issued and outstanding on an as adjusted basis

   5,157,010    

29,814,469

 
Additional paid-in capital   216,524    216,524 
Accumulated deficit   (1,632,982)   (1,632,982)
Non-controlling interest   967,121    10,073 
Total stockholders’ equity   4,707,673    

28,408,084

 
Total capitalization  $7,197,293   $

28,408,084

 

 

 49 
  

 

(1)

The number of shares of common stock to be outstanding after the offering is based on 79,741,464, which is the number of shares outstanding on March 30, 2017, and excludes:

 

  3,827,442 shares of common stock issuable upon the exercise of all of the outstanding warrants; and
     
  300,000 shares of our common stock issuable upon the exercises of warrants which would be issued by Muscle Maker to the Placement Agent assuming all of the shares offered in this Offering are sold.

 

DETERMINATION OF OFFERING PRICE

 

The public offering price of the shares was determined by negotiation between us and the placement agent. That public offering price is subject to change as a result of market conditions and other factors. Prior to this offering, no public market exists for our common stock. The principal factors considered in determining the public offering price of the shares included:

 

  the information in this Offering Circular and otherwise available to the placement agent, including our financial information;
     
  the history and the prospects for the industry in which we compete;
     
  the ability of our management;
     
  the prospects for our future earnings;
     
  the present state of our development and our current financial condition;
     
  the general condition of the economy and the securities markets in the United States at the time of this offering;
     
  the recent market prices of, and the demand for, publicly-traded securities of generally comparable companies; and
     
  other factors as were deemed relevant.

 

DILUTION

 

Dilution is the amount by which the offering price paid by purchasers of common stock sold in this offering will exceed the pro forma net tangible book value per share of common stock after the offering. As of June 30, 2016, our net tangible book value was approximately $(1,572,000), or $(0.04) per share. Net tangible book value is the value of our total tangible assets less total liabilities. As of June 30, 2016 our total liabilities exceed our total tangible assets by approximately $1,572,000. This section accounts for issuances of Muscle Maker after June 30, 2016, including (i) 2,165,240 shares of Common Stock to American Restaurant Holdings in connection with the conversion of the 2015 ARH Note in the principal amount of $1,082,620, (ii) 6,554,604 shares of Common Stock to American Restaurant Holdings in connection with the conversion of the 2016 ARH Note in the principal amount of $2,621,842, and (iii) the issuance of 2,452,373 shares of Common Stock to American Restaurant Holdings in connection with the conversion of the 2017 ARH Note in the principal amount of $980,949. In addition, this section assumes the issuance of 14,475,676 shares of Common Stock to the MMF Members in exchange for their membership units of Muscle Maker Brands which were initially recorded at $1,466,541, which we assume will occur prior to this Offering. Furthermore, this section assumes the grant of 1,115,000 shares of Common Stock to our employees and consultants, which grant we assume will occur prior to this Offering. Moreover, this section assumes the exercise of (a) the 5-year warrant to purchase 625,000 shares of Common Stock of Muscle Maker at an exercise price of $0.75 per share; (b) the 3-year warrant to purchase 2,294,112 shares of Common Stock of Muscle Maker at an exercise price of $1.00 per share; (c) the 3-year warrant purchase of 858,330 shares of Common Stock of Muscle Maker at an exercise price of $1.00 per share; and (d) a 3-year warrant to purchase of 50,0000 shares of Common Stock of Muscle Maker at an exercise price of $1.00 per share.

 

 50 
  

 

Based on the initial offering price of $2.00 per one share of common stock, on an as adjusted basis as of June 30, 2016, after giving effect to the issuance of common stock in exchange for MMB Units, common stock on the conversion of debt, assumed exercise of warrants to purchase common stock and the offering of shares of common stock and the application of the related net proceeds, our net tangible book value would be:

 

(i) $24,284,434, or $0.29 per share of common stock, assuming the sale of 100% of the shares offered 10,000,000 shares) with net proceeds in the amount of $17,500,000 after deducting estimated broker commissions of $1,200,000 and estimated offering expenses of $1,300,000;

 

(ii) $19,684,434, or $0.24 per share of common stock, assuming the sale of 75% of the shares offered (7,500,000 shares) with net proceeds in the amount of $12,900,000 after deducting estimated broker commissions of $900,000 and estimated offering expenses of $1,200,000;

 

(iii) $15,084,434, or $0.19 per share of common stock, assuming the sale of 50% of the shares offered (5,000,000 shares) with net proceeds in the amount of $8,300,000 after deducting estimated broker commissions of $600,000 and estimated offering expenses of $1,100,000; and

 

(iv) $10,484,434, or $0.14 per share of common stock, assuming the sale of 25% of the shares offered (2,500,000 shares) with net proceeds in the amount of $3,700,000 after deducting estimated broker commissions of $300,000 and estimated offering expenses of $1,000,000.

 

Purchasers of shares of common stock in this offering will experience immediate and substantial dilution in net tangible book value per share for financial accounting purposes, as illustrated in the following table on an approximate dollar per share basis, depending upon whether we sell 100%, 75%, 50%, or 25% of the shares being offered in this offering:

 

Percentage of offering shares of common stock sold  100%  75%  50%  25%

Offering price per share of common stock

  $2.00   $2.00   $2.00   $2.00 
Net tangible book value per share of common stock before this offering  $6,634,434   $6,634,434   $6,634,434   $6,634,434 
Increase in net tangible book value per share attributable to new investors  $17,500,000   $12,900,000   $8,300,000   $3,700,000 
Pro forma net tangible book value per share after this offering  $0.29   $0.24   $0.19   $0.14 

Immediate dilution in net tangible book value per share to new investors

  $1.71   $1.76   $1.81   $1.86 

 

 51 
  

 

The following tables sets forth depending upon whether we sell 100%, 75%, 50%, or 25% of the shares being offered in this offering, as of June 30, 2016, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering, after giving pro forma effect to the issuance of common stock on the conversion of debt, assumed exercise of warrants to purchase common stock, assumed issuance of common stock in exchange for MMB Units, assumed the grant of common stock to our employees and consultants and the new investors in this offering at the offering price of $2.00 per share of common stock, together with the total consideration paid an average price per share paid by each of these groups, before deducting estimated broker commissions and estimated offering expenses.

 

   100% of the Offered Shares Sold 
   Shares Purchased   Total Consideration  

Average

Price

 
   Number   Percent   Amount   Percent   per Share 
Existing stockholders as of June 30, 2016   42,978,571    52%  $5,157,010    15%  $0.12 
Assumed issuance of common stock in exchange for MMB Units   14,475,676    17%  $957,048    3%  $0.07 
Issuance of common stock for converted debt   11,172,217    13%  $4,685,411    13%  $0.42 
Assumed exercise of warrants to purchase common stock prior to the Offering   3,827,442    5%  $3,671,192    10%  $0.96 
Assumed grant of common stock to our employees and consultants   

1,115,000

    

1

%  $1,115,000    3%  $1.00 
New investors   10,000,000    12%  $20,000,000    56%  $2.00 
Total   

83,568,906

    100.0%  $35,585,661    100.0%  $0.43 

 

   75% of the Offered Shares Sold 
   Shares Purchased   Total Consideration  

Average

Price

 
   Number   Percent   Amount   Percent   per Share 
Existing stockholders as of June 30, 2016   42,978,571    53%  $5,157,010    17%  $0.12 
Issuance of common stock in exchange for MMB Units   14,475,676    18%  $957,048    3%  $0.07 
Assumed issuance of common stock for converted debt   11,172,217    14%  $4,685,411    15%  $0.42 
Assumed exercise of warrants to purchase common stock prior to the Offering   3,827,442    5%  $3,671,192    12%  $0.96 
Assumed grant of common stock to our employees and consultants   

1,115,000

    1%  $

1,115,000

    4%  $1.00 
New investors   7,500,000    9%  $15,000,000    49%  $2.00 
Total   

81,068,906

    100.0%  $30,585,661    100.0%  $0.38 

 

 52 
  

 

    50% of the Offered Shares Sold  
    Shares Purchased     Total Consideration    

Average

Price

 
    Number     Percent     Amount     Percent     per Share  
Existing stockholders as of June 30, 2016     42,978,571       55 %   $ 5,157,010       20 %   $ 0.12  
Issuance of common stock in exchange for MMB Units     14,475,676       19 %   $ 957,048       4 %   $ 0.07  
Issuance of common stock for converted debt     11,172,217       14 %   $ 4,685,411       18 %   $ 0.42  
Assumed exercise of warrants to purchase common stock prior to the Offering     3,827,442       5 %   $ 3,671,192       14 %   $ 0.96  
Assumed grant of common stock to our employees and consultants     1,115,000       1 %   $ 1,115,000       5 %   $ 1.00  
New investors     5,000,000       6 %   $ 10,000,000       39 %   $ 2.00  
Total     78,568,906       100.0 %   $ 25,585,661       100.0 %   $ 0.33  

 

    25% of the Offered Shares Sold  
    Shares Purchased     Total Consideration    

Average

Price

 
    Number     Percent     Amount     Percent     per Share  
Existing stockholders as of June 30, 2016     42,978,571       57 %   $ 5,157,010       25 %   $ 0.12  
Issuance of common stock in exchange for MMB Units     14,475,676       19 %   $ 957,048       5 %   $ 0.07  
Issuance of common stock for converted debt     11,172,217       15 %   $ 4,685,411       23 %   $ 0.42  
Assumed exercise of warrants to purchase common stock prior to the Offering     3,827,442       5 %   $ 3,671,192       18 %   $ 0.96  
Assumed grant of common stock to our employees and consultants     1,115,000       1 %   $ 1,115,000       5 %   $ 1.00  
New investors     2,500,000       3 %   $ 5,000,000       24 %   $ 2.00  
Total     76,068,906       100.0 %   $ 20,585,661       100.0 %   $ 0.27  

 

The foregoing discussion and tables include the issuance of 11,172,217 shares of common stock of Muscle Maker for converted debt of Muscle Maker on March 14, 2017 and assume the following transactions immediately prior to the completion of this Offering:

 

  (i) issuance of 14,475,676 shares of Common Stock of Muscle Maker in exchange for MMB Units;
     
  (ii) grant of 1,115,000 shares of Common Stock of Muscle Maker to our employees and consultants; and
     
  (iii) the exercise of all outstanding warrants to purchase (a) 625,000 shares of Common Stock at $0.75 per share, (b) 2,294,112 shares of Common Stock at $1.00 per share, (c) 858,330 shares of Common Stock at $1.00 per share; and (d) 50,000 shares of Common Stock at $1.00 per share.

 

 53 
  

 

The foregoing discussion and tables above do not give effect to the 300,000 shares of our common stock issuable upon the exercise of warrants at an exercise price of $2.20 per share which would be issued by Muscle Maker to the Placement Agent in connection with the Offering assuming all of the shares offered in this Offering are sold.

 

PLAN OF DISTRIBUTION

Placement Agent

 

Wellington Shields & Co., LLC, a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (“FINRA”) which we refer to herein as the Placement Agent, has agreed to act as a placement agent in connection with this Offering. Subject to the terms and conditions of an engagement letter with the placement agent dated July 10, 2016, we have agreed to sell and the Placement Agent has agreed to sell on our behalf, at the offering price less the underwriting discounts and commissions set forth below a maximum of 10,000,000 shares of Common Stock (“Offered Shares”). The Placement Agent is not purchasing any securities offered by this Offering Circular, nor are they required to arrange the purchase or sale of any specific number or dollar amount of securities, but have agreed to use their best efforts to arrange for the sale of all of the securities offered hereby. The Placement Agent may retain other brokers or dealers to act as sub-agents or selected-dealers on its behalf in connection with the Offering.

 

The term of the engagement letter began on July 10, 2016 and continues until the earlier of the completion or cancellation of the Offering or the termination of the engagement by either the Company or Placement Agent unilaterally deciding to terminate the engagement agreement upon thirty days’ prior written notice to the other party.

 

We have agreed to pay the Placement Agent a fee equal to six percent (6%) of the aggregate purchase price of the Offered Shares sold in this Offering. In addition, we have agreed to reimburse the Placement Agent for its reasonable and accountable out-of-pocket expenses subject to our prior written consent. We paid the Placement Agent a non-refundable retainer fee of $25,000. If the maximum of 10,000,000 shares of Common Stock are sold, the maximum amount of commissions that we estimate will be paid to our Placement Agent is $1,200,000. It is expected that the Placement Agent will conduct essentially all of the marketing and sales of the Common Stock. There is no assurance that additional placement agents will participate in the Offering. We are responsible for all offering fees and expenses estimated to be $900,000 in the aggregate, including the following: (i) fees and disbursements of our legal counsel, accountants and other professionals we engage; (ii) fees and expenses incurred in the production of offering documents, including design, printing, photograph, and written material procurement costs; (iii) reimbursements of accountable expenses of the Placement Agent; (iv) all filing fees, including blue sky filing fees; (v) all of the legal fees related to the registration and qualification of the Offered Shares under state securities laws; and (vi) all costs of Direct Transfer’s and Regions Bank’s services.

 

 54 
  

 

Placement Agent’s Warrants

 

Upon each closing of this offering, we have agreed to issue to the Placement Agent warrants to purchase a number of shares of our common stock equal to three percent (3%) of the total shares of our common stock sold in such closing (“Placement Agent’s Warrants”). The Placement Agent’s Warrants are exercisable commencing 180 days after the qualification date of the offering statement related to this offering, and will be exercisable until the fifth anniversary of the qualification date. The Placement Agent’s Warrants are not redeemable by us. The exercise price for the Placement Agent’s Warrants will be at purchase price equal to $2.20 per share (110% of the implied price per share of the Offering).

 

The Placement Agent’s Warrants and the shares of common stock underlying the Placement Agent’s Warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Placement Agent, or permitted assignees under such rule, may not exercise, sell, transfer, assign, pledge, or hypothecate the Placement Agent’s Warrants or the shares of common stock underlying the Placement Agent’s Warrants, nor will the Placement Agent, or permitted assignees engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Placement Agent’s Warrants or the underlying shares of common stock for a period of 180 days from the qualification date of the offering statement, except that they may be transferred, in whole or in part, by operation of law or by reason of our reorganization, or to any Placement Agent or selected dealer participating in the offering and their officers or partners if the Placement Agent’s Warrants or the underlying shares of our common stock so transferred remain subject to the foregoing lock-up restrictions for the remainder of the time period. The Placement Agent’s Warrants will provide for adjustment in the number and price of the Placement Agent’s Warrants and the shares of common stock underlying such Placement Agent’s Warrants in the event of recapitalization, merger, stock split, or other structural transaction, or a future financing undertaken by us.

 

Escrow Account

 

Regions Bank, an Alabama banking corporation (“Escrow Agent”), will act as escrow agent for the Offering. Prior to the date the SEC issues a qualification for the sale of the shares of common stock pursuant to this Offering Circular, the escrow agent shall establish a non-interest-bearing account, which account shall be titled “Subscription Account for Muscle Maker, Inc” (the “Escrow Account”). The Escrow Account shall be a segregated deposit account at the bank. The Escrow Account maintained by the escrow agent shall be terminated in whole or in part on the earliest to occur of: (a) the first to occur of the (i) the maximum offering amount being raised, or (ii) 18 months from the date of SEC qualification; or (b) within fifteen (15) days from the date upon which a determination is made by the company to terminate the Offering. The foregoing sentence describes the escrow period the “Escrow Period”. During the Escrow Period, the parties agree that (i) the Escrow Account and escrowed funds will be held for the benefit of investors, and that (ii) the Company is not entitled to any funds received into escrow, and that no amount deposited into the Escrow Account shall become the property of the Company or any other entity, or be subject to any debts, liens or encumbrances of any kind of any other entity, until the Company has triggered closing of such funds. In the event the escrow agent does not receive written instructions from the Company to release funds from the Escrow Account on or prior to termination of the Escrow Period, the escrow agent shall terminate the escrow and make a full and prompt return of funds so that refunds are made to each investor in the exact amount received from said investor, without deduction, penalty or expense to investor.

 

 55 
  

 

The escrow agent, Regions Bank, shall process all escrowed amounts for collection through the banking system and shall maintain an accounting of each deposit posted to its ledger, which also sets forth, among other things, each investor’s name and address, the quantity of shares of common stock purchased, and the amount paid.

 

If any subscription agreement for the purchase of shares of common stock is rejected by the Company in its sole discretion, then the subscription agreement and the escrowed amounts for such investor shall be returned to the rejected investor by the escrow agent within fifteen (15) business days from the date of rejection.

 

The Company shall pay certain itemized fees to Regions Bank for its escrow services, including: (i) a closing fee of $300 per closing; (ii) one-time administration fee of $7,000; and (iii) Return Subscription Deposit to Subscribers fee of $10.00. Wire fees have been waived for this Offering.

 

Escrow agent, in no way endorses the merits of the offering of the securities.

 

Technology and Administrative Services

 

The Company has engaged Direct Transfer, LLC (“Direct Transfer”), a wholly owned subsidiary of Issuer Direct Corp., to provide certain technology and administrative services in connection with the Offering, including the online platform of Direct Transfer by which, after the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, investors of Muscle Maker will receive, review, execute and deliver subscription agreements electronically. After the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, payment of the purchase price by ACH debit transfer, wire transfer or by major credit card shall be made through the online platform of Direct Transfer to Regions Bank (the “Escrow Agent”) and received and held by Escrow Agent in a non-interest bearing escrow account (“Escrow Account”) in compliance with SEC Rule 15c2-4, with funds released to the Company only after we closed on the subscription as described in this Offering Circular. Payments made by major credit card shall be limited to $300 per Subscriber. The Company may close on investments on a “rolling” basis (so not all investors will receive their Shares on the same date). Direct Transfer, LLC will transfer the subscriber funds to the escrow agent, Regions Bank. Regions Bank will deposit the funds in the Company’s Escrow Account. Direct Transfer, LLC is not acting as escrow agent and will not hold any funds. We will pay certain itemized administrative fees to Direct Transfer, LLC for these services, including: (i) $1,500 for a one-time set up fee for the Test the Waters Platform; (ii) $1,000 for a one-time set up fee for the Click Invest Platform; (iii) $500.00 for a one-time fee for the SubDoc Builder; (iv) $5.00 per investor for a one-time accounting fee (investor onboarding) upon receipt of funds (the “Invest Now” button fee); (v) $1.50 per inbound ACH transfer; (vi) $25.00 per inbound wire transfer for processing incoming funds; and (vii) $25.00 per wire transfer for outbound funds to the Company. A 2% credit card fee will be imposed on payments made by credit cards. Direct Transfer, LLC is not participating as an underwriter or placement agent of the Offering and will not solicit any investment in the company, recommend the Company’s securities, or provide investment advice to any prospective investor, or distribute the Offering Circular or other offering materials to investors. All inquiries regarding this offering or escrow should be made directly to the Company or the Placement Agent.

 

 56 
  

  

Anti-Money Laundering Services

 

Direct Transfer, LLC has been engaged to provide certain anti-money laundering services in connection with this offering. The Company has agreed to pay Direct Transfer, LLC $2.00 per domestic investor, $65.00 per international investor for anti-money laundering checks, as well as $45.00 per bad actor check.

 

Direct Transfer, LLC is not a FINRA member and is not participating as an underwriter of the offering. As such, it will not solicit any investment in the Company, recommend the Company’s securities or provide investment advice to any prospective investor, or distribute the Offering Circular or other offering materials to investors. All inquiries regarding this offering should be made directly to the Company.

 

Transfer Agent and Registrar

 

Interwest Transfer Company, Inc. (“Transfer Agent”) is the transfer agent and registrar for our common stock.

 

The Transfer Agent’s address is at 1981 Murray Holladay Road, Suite 100, Salt Lake City, UT 84117 and its telephone number is (801) 292-9294.

 

We will pay certain itemized fees to the Transfer Agent for these transfer agent services, including: (i) an annual transfer agent fee of $950 and (ii) $12 per investor for a one-time accounting fee upon onboarding the investor.

 

 57 
  

 

Stock Certificates

 

Ownership of the Offered Shares will be “book-entry” only form, meaning that ownership interests shall be recorded by the Transfer Agent, and kept only on the books and records of Transfer Agent. No physical certificates shall be issued, nor received, by Transfer Agent or any other person. The Transfer Agent records and maintains securities of Company in in book-entry form only. Book-entry form means the Transfer Agent maintains shares on an investor’s behalf without issuing or receiving physical certificates. Securities that are held in un-certificated book-entry form have the same rights and privileges as those held in certificate form, but the added convenience of electronic transactions (e.g. transferring ownership positions between a broker-dealer and the Transfer Agent), as well as reducing risks and costs required to store, manage, process and replace lost or stolen securities certificates. Transfer Agent shall send out email confirmations of positions and notifications of changes “from” Company upon each and every event affecting any person’s ownership interest, with a footer referencing Transfer Agent.

 

Transfer Agent may email holders a “ceremonial certificate” in .pdf form, per our standard template, which will be clearly marked as such. All parties recognize and agree that these are not legal securities instruments but simply decorative, informal, commemorative, non-binding marketing confirmations of an ownership position. They are not legal tender of any form.

 

No Public Market

 

Our Common Stock are not quoted on any stock exchange or quotation system. In addition, applicable state securities laws and regulations impose transfer restrictions on our Common Stock. We intend to apply to list our common stock on the NYSE MKT (“NYSE MKT”) or the NASDAQ Capital Market (“NASDAQ”) under the symbol “MMG” after we register our common stock under the Securities Exchange Act of 1934, as amended (“Exchange Act”), following the termination of this offering. There is no assurance that our common stock will be registered under the Exchange Act or, if registered under the Exchange Act, that the application will be approved by the NYSE MKT or the NASDAQ. If not approved by the NYSE MKT or NASDAQ, we intend to apply for quotation of our common stock on the OTCQX Marketplace under the symbol “MMG” after the termination of this offering. 

Investment Amount Limitations

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

 58 
  

 

As a Tier 2, Regulation A offering, investors must comply with the 10% limitation to investment in the offering. The only investor in this offering exempt from this limitation is an accredited investor, an “Accredited Investor,” as defined under Rule 501 of Regulation D. If you meet one of the following tests you should qualify as an Accredited Investor:

 

(i) You are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;
   
(ii) You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase Offered Shares (please see below on how to calculate your net worth);
   
(iii) You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer;
   
(iv) You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Offered Shares, with total assets in excess of $5,000,000;
   
(v) You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940, as amended, or the Investment Company Act, or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940;
   
(vi) You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
   
(vii) You are a trust with total assets in excess of $5,000,000, your purchase of Offered Shares is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the Offered Shares; or
   
(viii) You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000.

 

 59 
  

 

Offering Period and Expiration Date

 

This Offering will start on the date this Offering Circular is declared qualified by the SEC. The Offering is expected to expire on the first of: (i) all of the Offered Shares are sold; or (ii) the close of business six (6) months after the date that this Offering is deemed qualified by the SEC, unless sooner terminated or extended up to no more than an additional six (6) months by the Company.

 

Testing the Waters

 

We will use our existing website, www.musclemakergrill.com to provide notification of this anticipated Offering. Prior to the qualification of the Offering by the SEC, if you desire information about this anticipated Offering, you would go to the Investor Relations page at www.musclemakergrill.com and click on the “Reserve Your Shares” button. The Muscle Maker website will redirect you, as a prospective investor, via the “Reserve Your Shares” button to a landing page on the website operated by Direct Transfer, LLC, where prospective investors are asked to provide certain information about themselves, such as his, her or its name, phone number, e-mail address, zip code and the amount of shares of interest, constituting a non-binding indication of interest (“Interest Holders”). This Offering Circular will be furnished to prospective investors via download 24 hours per day, 7 days per week on the Direct Transfer website as well. All Interest Holders have received and will continue to receive a series of comprehensive educational emails explaining the entire process and procedures for subscribing in the Offering and “what to expect” on the Direct Transfer platform. Upon qualification by the SEC, Interest Holders will be invited to participate in subscribing in the Offering (set forth below).

 

Procedures for Subscribing

 

After the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, if you decide to subscribe for any Common Stock in this Offering, you should:

 

Go to the Investor Relations page at www.musclemakergrill.com, click on the “Invest Now” button and follow the procedures as described.

 

  1. Electronically receive, review, execute and deliver to us through Direct Transfer a Subscription Agreement; and
     
  2. Deliver funds only by ACH, wire transfer or by major credit card for the amount set forth in the Subscription Agreement directly to the specified bank account maintained by Regions Bank. Payments made by major credit card shall be limited to $300 per subscriber.

 

 60 
  

 

The Company has engaged Direct Transfer, LLC to provide certain technology and administrative services in connection with the Offering, including the online platform by which, after the qualification by the SEC of the Offering Statement of which this Offering Circular is a part, subscribers may receive, review, execute and deliver subscription agreements electronically.

 

The Muscle Maker website will redirect interested investors via the “Invest Now” button to a platform operated by Direct Transfer, LLC, where investors can receive (upon their acknowledgement that they have had the opportunity to review this Offering Circular), review, execute and deliver subscription agreements electronically.

 

Any potential investor will have ample time to review the Subscription Agreement, along with their counsel, prior to making any final investment decision. We will not accept any money until the SEC declares this Offering Circular qualified.

 

We anticipate that we will hold closings for purchases of the shares of our common stock on at least a monthly basis until the offering is fully subscribed or we terminate the Offering. Proceeds will be held with the Escrow Agent in an escrow account subject to compliance with Exchange Act Rule 15c2-4 until closing occurs. Our dealer-manager and/or the participating broker-dealers will submit a subscriber’s form(s) of payment in compliance with Exchange Act Rule 15c2-4, generally by noon of the next business day following receipt of the subscriber’s subscription agreement and form(s) of payment.

 

You will be required to represent and warrant in your subscription agreement that you are an accredited investor as defined under Rule 501 of Regulation D or that your investment in the shares of common stock does not exceed 10% of your net worth or annual income, whichever is greater, if you are a natural person, or 10% of your revenues or net assets, whichever is greater, calculated as of your most recent fiscal year if you are a non-natural person. By completing and executing your subscription agreement you will also acknowledge and represent that you have received a copy of this offering circular, you are purchasing the shares of common stock for your own account and that your rights and responsibilities regarding your shares of common stock will be governed by our charter and bylaws, each filed as an exhibit to the offering statement of which this offering circular is a part.

 

 61 
  

 

Right to Reject Subscriptions. After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to the escrow agent, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.

 

Acceptance of Subscriptions. Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.

 

Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).

 

NOTE: For the purposes of calculating your Net Worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the Offered Shares.

 

In order to purchase Offered Shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to the Company’s satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this offering.

 

Selling Restrictions

 

Notice to prospective investors in Canada

 

The offering of the Offered Shares in Canada is being made on a private placement basis in reliance on exemptions from the prospectus requirements under the securities laws of each applicable Canadian province and territory where the Common Stock may be offered and sold, and therein may only be made with investors that are purchasing as principal and that qualify as both an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus and Registration Exemptions and as a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligation. Any offer and sale of the Offered Shares in any province or territory of Canada may only be made through a dealer that is properly registered under the securities legislation of the applicable province or territory wherein the Offered Shares is offered and/or sold or, alternatively, by a dealer that qualifies under and is relying upon an exemption from the registration requirements therein.

 

 62 
  

 

Any resale of the Offered Shares by an investor resident in Canada must be made in accordance with applicable Canadian securities laws, which may require resales to be made in accordance with prospectus and registration requirements, statutory exemptions from the prospectus and registration requirements or under a discretionary exemption from the prospectus and registration requirements granted by the applicable Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the Offered Shares outside of Canada.

 

Upon receipt of this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.

 

Notice to prospective investors in the European Economic Area

 

In relation to each Member State of the European Economic Area (each, a “Relevant Member State”), no offer of Offered Shares may be made to the public in that Relevant Member State other than:

 

A. to any legal entity which is a qualified investor as defined in the Prospectus Directive;
   
B. to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or
   
C. in any other circumstances falling within Article 3(2) of the Prospectus Directive,

 

provided that no such offer of Offered Shares shall require the Company or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

 

Each person in a Relevant Member State who initially acquires any Offered Shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any Offered Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the Offered Shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any Offered Shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

 

 63 
  

 

The Company, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.

 

This offering circular has been prepared on the basis that any offer of Offered Shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of Offered Shares. Accordingly, any person making or intending to make an offer in that Relevant Member State of Offered Shares which are the subject of the offering contemplated in this offering circular may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. The Company has not authorized, nor does it authorize, the making of any offer of Offered Shares in circumstances in which an obligation arises for the Company to publish a prospectus for such offer.

 

For the purpose of the above provisions, the expression “an offer to the public” in relation to any Offered Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Offered Shares to be offered so as to enable an investor to decide to purchase or subscribe the Offered Shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

Notice to prospective investors in the United Kingdom

 

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”).

 

Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

 

 64 
  

 

Notice to Prospective Investors in Switzerland

 

The Offered Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the Offered Shares or this offering may be publicly distributed or otherwise made publicly available in Switzerland.

 

Neither this document nor any other offering or marketing material relating to this offering, the Company, the Offered Shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of Offered Shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of Offered Shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of Offered Shares.

 

Notice to Prospective Investors in the Dubai International Financial Centre

 

This offering circular relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This offering circular is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this offering circular nor taken steps to verify the information set forth herein and has no responsibility for the offering circular. The Offered Shares to which this offering circular relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Offered Shares offered should conduct their own due diligence on the Offered Shares. If you do not understand the contents of this offering circular you should consult an authorized financial advisor.

 

Notice to Prospective Investors in Australia

 

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to this offering. This offering circular does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

 

Any offer in Australia of the Offered Shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the Offered Shares without disclosure to investors under Chapter 6D of the Corporations Act.

 

 65 
  

 

The Offered Shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under this offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring Offered Shares must observe such Australian on-sale restrictions.

 

This offering circular contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this offering circular is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

 

Notice to prospective investors in China

 

This offering circular does not constitute a public offer of the Offered Shares, whether by sale or subscription, in the People’s Republic of China (the “PRC”). The Offered Shares are not being offered or sold directly or indirectly in the PRC to or for the benefit of, legal or natural persons of the PRC.

Further, no legal or natural persons of the PRC may directly or indirectly purchase any of the Offered Shares or any beneficial interest therein without obtaining all prior PRC’s governmental approvals that are required, whether statutorily or otherwise. Persons who come into possession of this document are required by the issuer and its representatives to observe these restrictions.

 

Notice to Prospective Investors in Hong Kong

 

The Offered Shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the Offered Shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Offered Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

 

 66 
  

 

Notice to Prospective Investors in Japan

 

The Offered Shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

 

Notice to Prospective Investors in Singapore

 

This offering circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this offering circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of Offered Shares may not be circulated or distributed, nor may the Offered Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

 

Where the Offered Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

 

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Offered Shares pursuant to an offer made under Section 275 of the SFA except:

 

(a) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

(b) where no consideration is or will be given for the transfer;

 

(c) where the transfer is by operation of law;

 

(d) as specified in Section 276(7) of the SFA; or

 

(e) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

 

 67 
  

DIVIDEND POLICY

 

We have not declared or paid dividends on our common stock since our formation, and we do not anticipate paying dividends in the foreseeable future. Declaration or payment of dividends, if any, in the future, will be at the discretion of our Board of Directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board of Directors. There are no contractual restrictions on our ability to declare or pay dividends. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not anticipate paying dividends, and if we are not successful in establishing an orderly public trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we may not pay dividends in the foreseeable future, we may have trouble raising additional funds which could affect our ability to expand our business operations.

 

DESCRIPTION OF BUSINESS

 

Our Business

 

The Muscle Maker Grill is a high-growth, 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 $34.5 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 restaurant concepts such as Muscle Maker Grill.

 

We believe our 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 following core values form the foundation of our brand:

 

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

 

 68 
  

 

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

 

As of June 30, 2016, Muscle Maker and its subsidiaries and franchisees operate 48 Muscle Maker Grill restaurants located in 10 states, five of which are owned and operated by Muscle Maker, and 43 are franchise restaurants.

 

Our restaurants generated company-operated restaurant revenue of $1,032,558 and $875,566 for the year ended December 31, 2015, and the six-months ended June 30, 2016, respectively. Total company revenue was $3,124,823 and $1,917,540 and net losses were $1,021,641 and $1,203,627 for the year ended December 31, 2015, and the six-months ended June 30, 2016, respectively.

 

We are the owner of the trade name and service mark Muscle Maker Grill® and other trademarks and intellectual property we use in connection with the operation of Muscle Maker Grill® restaurants. We license the right to use the Muscle Maker Grill® trademarks and intellectual property to our wholly-owned subsidiary, Muscle Maker Brands, and to further sublicense them to our franchisees for use in connection with Muscle Maker Grill® restaurants.

 

Seasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the fourth quarter due to reduced December traffic and higher traffic in the first, second, and third quarters.

 

Our healthy-inspired menu, value proposition, and culture have helped us to deliver strong and consistent financial and operating performance, as illustrated by the following:

 

 

our company-owned annual average unit volumes, or AUVs, grew from $600,000 in fiscal year 2014 to $625,000 in fiscal year 2015; and

     
  from fiscal year 2014 to fiscal year 2015, we increased our total revenue by 4.83% from $2,980,877 to $3,124,823.

 

Our Industry

 

We operate within the LSR segment of the U.S. restaurant industry, which includes QSR and fast-casual restaurants. According to Technomic, 2015 sales for the total LSR category increased 5.2% from 2014 to $255 billion. We offer fast-casual quality food combined with quick-service speed, convenience and value across multiple dayparts. According to Technomic, sales for the total QSR segment grew 4.1% from 2014 to $212 billion in 2015, and are projected to grow to $254 billion by 2019, representing a compounded annual growth rate, or CAGR, of 4.6%. Total sales in the fast-casual segment grew 11.3% from 2014 to $43 billion in 2015, and are projected to grow to $64 billion by 2019, representing a CAGR of 10.2%. We believe our differentiated, high-quality menu delivers great value all day, every day, positions us to compete successfully against both QSR and fast-casual concepts, providing us with a large addressable market.

 

 69 
  

 

We expect that the trend towards healthier eating will attract and increase consumer demand for fresh and hand-prepared dishes, leading to a positive impact on our sales.

 

Strategy

 

We plan to pursue the following strategies to continue to grow our revenues and profits.

 

Expand Our System-Wide Restaurant Base.  We believe we are in the early stages of our growth story with 48 current locations in 10 states, as of June 30, 2016, and estimate, based on internal analysis and a study prepared by ESRI, a long-term total restaurant potential in the United States of approximately 3,000 to 5,000 locations. For the year ended December 31, 2014, we opened 12 new franchised restaurants and no new company-operated restaurants. For the year ended December 31, 2015, we opened one new company-operated and seven new franchised restaurants. For the year ended December 31, 2016, we opened six new company-operated and four new franchised restaurants. In 2017, we intend to open 15 to 20 new company-operated and 15 new franchised restaurants, including military bases, across Arizona, California, Florida, Georgia, Illinois, Louisiana, Kansas, Massachusetts, Nebraska, New Jersey, New York, Nevada, North Carolina, Pennsylvania, Texas, Washington and Internationally. Over the long term, we plan to grow the number Muscle Maker Grill restaurants by 30% to 50% annually. There is no guarantee that we will be able to increase the number of our restaurants. We may be unsuccessful in expanding within our existing or into new markets for a variety of reasons described herein under “Risk Factors” above, including competition for customers, sites, franchisees, employees, licenses and financing.

 

Drive Comparable Restaurant Sales. We plan to continue delivering comparable restaurant sales growth through the following strategies:

 

  Menu Strategy and Evolution. We will continue to adapt our menu to create entrees that complement our health-inspired offerings and that reinforce our differentiated fast casual positioning. We believe we have opportunities for menu innovation as we look to provide customers more choices through customization and limited time alternative proteins. Our marketing and operations teams collaborate to ensure that the items developed in our test kitchen can be executed to our high standards in our restaurants with the speed and value that our customers have come to expect. We plan to continue introducing and marketing limited time offers to increase occasions across our dayparts as well as to educate customers on our lunch and dinner offerings.
     
  Attract New Customers Through Expanded Brand Awareness: We expect to attract new customers as Muscle Maker Grill becomes more widely known due to new restaurant openings and marketing efforts focused on broadening the reach and appeal of our brand. We expect consumers will become more familiar with Muscle Maker Grill as we continue to penetrate our markets, which we believe will benefit our existing restaurant base. Our marketing strategy centers on our “Great Food with Your Health in Mind” campaign, which highlights the desirability of healthy-inspired food and made-from-scratch quality of our food. We also utilize social media community engagement and public relations to increase the reach of our brand. Additionally, our system will benefit from increased contributions to our marketing and various advertising funds as we continue to grow our restaurant base.
     
  Increase Existing Customer Frequency: We are striving to increase customer frequency by providing a service experience and environment that “compliments” the quality of our food and models our culture. We expect to accomplish this by enhancing customer engagement, while also improving throughput, order execution and quality. Additionally, we have recently implemented a customer experience measurement system, which provides us with real-time feedback and customers’ insights to enhance our service experience. We believe that always striving for excellent customer service will create an experience and environment that will support increased existing customer visits.
     
  Continue to Grow Dayparts: We expect to drive growth across these dayparts through optimized labor and management allocation, enhanced menu offerings, innovative merchandising and marketing campaigns, which have successfully driven growth in our dayparts. We plan to continue introducing and marketing limited time offers to increase occasions across our dayparts as well as to educate customers on our lunch and dinner offerings.

 

 70 
  

 

Continue to Enhance Profitability. We focus on expanding our profitability while also investing in personnel and infrastructure to support our future growth. We will seek to further enhance margins over the long-term by maintaining fiscal discipline and leveraging fixed costs. We constantly focus on restaurant-level operations, including cost controls, while ensuring that we do not sacrifice the quality and service for which we are known. Additionally, as our restaurant base grows, we believe we will be able to leverage support costs as general and administrative expenses grow at a slower rate than our revenues.

 

Our Brand

 

Iconic Brand and Unique Concept: We provide guests healthier versions of mainstream-favorite dishes that taste great, making it convenient, affordable and enjoyable to eat healthy. Our diverse menu was created for everyone – fitness enthusiasts, those starting their journey to a healthier lifestyle, and people trying to eat better while on-the-go. Now, guests can have delicious, nutritionally balanced food without the regret. More than just food, our restaurants are a friendly, relaxed and social environment where guests can enjoy great-tasting food and engage with fellow health enthusiasts in their area.

We are focused on expanding our presence within new and existing markets by continuing to add marquee franchise partners to our system, increasing the number of corporately owned locations and through partnership deals with reputable venues including MetLife Stadium in East Rutherford, NJ and Angel Stadium in Anaheim, CA. The health-focused concept anticipates expanding its footprint exponentially over the next couple of years, with more than 100 units currently in development.

 

Our Food

 

High-Quality, Healthy Options of Mainstream Dishes: Providing “Great Food with Your Health in Mind,” Muscle Maker Grill’s menu features items with grass-fed steak and all-natural chicken, as well as options that satisfy all dietary preferences – from the carb-free consumer to guests following gluten-free or vegetarian diets. Muscle Maker Grill does not sacrifice taste to serve healthy options. We boast superfoods such as avocado, kale, quinoa, omega-3 packed shrimp, spinach, and use only healthier carb options such as whole wheat pasta and brown rice. We develop and source proprietary sauces and fat free dressings to enhance our unique flavor profiles. Our open style kitchen allows the guests to experience our preparation and cooking methods such as an open flame grill and sauté. In addition to our healthy and diverse food platform, Muscle Maker Grill offers 100% real fruit smoothies, boosters and proprietary protein shakes as well as retail supplements.

 

 71 
  

 

 

 

Our Strengths

 

Compelling Speed Using Cook to Order Preparation: Our guests can expect to enjoy their meals in eight minutes or less. While this service time may be slightly higher than the QSR segment, it fits well within the range of the fast casual segment. Our meals are prepared from a cook to order method using only the freshest, all natural ingredients.

 

Daypart Mix and Revenue Streams: Standard operating hours for a Muscle Maker Grill are from 10:30 AM to 8:30 PM, Monday through Friday, 11:00 AM to 6 PM, Saturday, and closed on Sunday. While our daypart mix is typical to the QSR fast casual segment which is 5% pre-lunch, 45% lunch, 35% dinner and 15% late evening. We have multiple revenue streams that allow for greater efficiencies and operations and ultimately higher profitability. A typical QSR fast casual brand has two to three revenue streams: dine-in, take-out and delivery. Muscle Maker Grill executes on eight different revenue streams; including: dine-in, take-out, delivery, catering, meal plans, retail and grab and go kiosks and food trucks.

 

Attractive Price Point and Perceived Value: Muscle Maker Grill offers meals with ‘power sides’ beginning at $8.99, using only the highest quality ingredients such as grass-fed beef, all natural chicken, whole wheat pastas, brown rice and a power blend of kale, romaine and spinach. Our cook to order method, speed of service, hospitality and the experience of our exhibition style kitchen creates a great value perception for our customers. Meal Plan meals begin at $8 a meal making them not only convenient but affordable too. Muscle Maker Grill also offers a boxed lunch program for schools and other organizations starting at $10 a box. These lunches include a wrap, salad or entrée, and a side and a drink. We not only reward our guests with a great value and guest experience, we reward them for their loyalty as well. Frequent Muscle Maker Grill guests can take advantage of its loyalty program, Muscle Maker Grill Rewards, where points are awarded for every dollar spent towards free or discounted menu items. Cards are not required to participate as members can provide their phone number or use the mobile app, Muscle Maker Grill Rewards, to receive notifications announcing new menu items, special events and more. The program is enjoyed by thousands or guests!

 

 72 
  

 

Muscle Maker Grill Business Facts:

 

  Largest protein based QSR fast casual in the united states.
     
  Established in 1995 in Colonia, NJ.
     
 

Muscle Maker Grill currently operates 51 restaurants, 39 franchised and 12 company as of March 30, 2017 with system-wide sales exceeding 24 million in 2016.

     
  Ranked in the future 50 list of the fastest growing small chains in America and achieved a spot on Fastcasual.com’s top 100 Movers and Shakers in 2016 and expecting a top five ranking in 2017.
     
 

National footprint in 12 states as of March 30, 2017 and soon to be 18 states in 2017.

     
  Multiple International expansion opportunities including: Kuwait, Dubai and India.
     
  Currently a preferred vendor for the US military with restaurants in development in GA, KY, MA, NY, NC, SC, VA, TX and WA.

 

Restaurant Level Profitability and Unit Economics: We believe our brand position in a segment with limited competition, strong value perception and multiple revenue streams provides a great opportunity for continued corporate and franchise growth. Our low cost of entry and real estate strategy allows for greater operating efficiencies and higher profitability. See below for corporate store economics. We primarily operate in urban and suburban markets using in line locations and targeting second generation restaurants. Typical capital investment is $180,000 for buildout and equipment. Expected annual venues to achieve a 10% operating profit should be approximately $800,000 providing a payback period of 27 months. Other company venue sources include a franchise fee of $35,000 per unit on a sliding scale for multi-unit development. Franchisees currently pay 5% off gross sales in royalties and 3% of gross sales for marketing and advertising.

 

 

 73 
  

 

Leveraging Non-Traditional Revenue Streams:

 

Delivery: A significant differentiator is that Muscle Maker Grill offers delivery at every location nation-wide. Delivery is an option through our mobile app, online ordering platform making it easy and convenient for our guests. Delivery percentages range from 10% up to 56% of sales. We strongly believe this segment will continue to grow as our core demographic has demonstrated the need for online ordering and delivery versus dine-in and take-out.

 

Catering: Our diverse menus items are also offered through our catering program making it easy and affordable to feed a group. We can feed a group ranging from 10 or 5,000. Muscle Maker Grill has secured large catering contracts with multi-national corporations, universities as well as professional and college athletic programs. Our boxed lunch program, which includes a wrap, salad, or entrée, a side and a drink for a set price is widely popular within schools and other organizations.

 

Meal Plans: To make healthy eating even easier, Muscle Maker Grill’s signature nutritionally-focused menu items are available through its new Meal Plan program, allowing pre-orders of meals that taste great via phone, online or in-store, available for pick up or delivered right to their door. Available as five, 10, 15 or 20 meals, guests can choose from 28 Muscle Maker Grill menu items, including the Hollywood Salad, Turkey Meatball Wrap, Arizona and many more.

 

Retail: All Muscle Maker Grill locations participate in our retail merchandising and supplement program. This is a unique revenue stream specific to the Muscle Maker Grill brand and is atypical in the QSR fast casual segment. Guests can purchase our propriety protein in bulk, supplements, boosters, protein and meal replacement bars and cookies. This program gives our guests the opportunity to manage their healthy lifestyle beyond the four walls of our restaurants.

 

Grab and Go Kiosks: Muscle Maker Grill offers grab and go kiosks both in the restaurants and non-traditional locations. The kiosks are comprised of 10 to 12 core meal plan menu items. We have positioned the kiosks so that guests can grab a meal on the run. These meals are convenient to guests that chose not to dine in or want additional meals for themselves or family members.

 

Food Trucks: Food trucks have become a more main stream point of destination for restaurant goers and we strongly believe the growth trend in the segment will continue. Muscle Maker Grill wants to make our healthy options available to all consumers and will continue to develop and grow this revenue stream. Muscle Maker Grill currently has one food truck in operation in Dallas, TX and three to five in the pipeline for US military bases such as Hans comb Airforce Base, Quantico Marine Base and West Point Military Academy.

 

 74 
  

 

 

Our Innovative, Healthy Menu:

 

A Muscle Maker Grill Restaurant offers quality food, freshly prepared with our proprietary recipes, designed to provide our guests, business neighbors and families with a healthy alternative to fast food. Our menu features chicken, seafood, pasta, burgers, wraps, flat breads, entrée salads, smoothies, and yogurt (including frozen yogurt), in a variety of assorted flavors. Restaurants offer a wide selection of protein supplements and protein snacks, and, where approved by us, breakfast and a nutritious children’s menu.

 

Muscle Maker Grill prides itself on making healthier versions of the guest’s favorite food, giving them easy access to the food they love, without any guilt. This means catering to an array of healthy eating lifestyles. For over 20 years Muscle Maker Grill has been keeping gluten-free diners, low-carb consumers and vegetarians satisfied. We offer 32 healthier versions of salads, wraps, bowls, sandwiches and flatbreads.

 

 

 75 
  

 

 

 76 
  

 

Our Culture

 

Culture Driven Management Team: We have a highly experienced senior management team comprised of seven diverse individuals with 145 years of combined experience in franchising, development, real estate, operations, marketing, distribution and finance. Our president and chief executive officer, Robert Morgan, is a 40-year veteran of the restaurant industry, Mr. Morgan is responsible for all facets of Muscle Maker Grill’s rapidly-growing fast casual brand – including its aggressive expansion strategy in new and existing markets, operations, real estate, strategic marketing and more. A founding member of the company, Mr. Morgan joined Muscle Maker Grill as its Chief Operating Officer in 2007 – its inception as a franchised brand. His extensive experience in the franchise and restaurant industries combined with his strong leadership and in-depth knowledge of the Muscle Maker Grill brand have been a major contributor to the overall success of the company. Under Mr. Morgan’s leadership, Muscle Maker Grill has grown from one single location to over 50 franchised and corporate restaurants in 14 states, including universities, military bases and professional sports stadiums with more than 100 sites currently in development domestically and internationally. While we are highly motivated and focused on the growth of our brand and providing a return to our shareholders, we are equally committed to the individual, personal and professional growth of our franchisees, restaurant level management and team members. Their success will ultimately determine the success of our company.

 

Properties

 

Our restaurants are typically in-line. A typical restaurant generally ranges from 1,200 to 2,000 square feet with seating for approximately 40 people. Our leases for the store sites occupied by our company-operated restaurants generally have terms of 5 years, with 1 or 2 renewal terms of 5 years. Restaurant leases provide for a specified annual rent, and some leases call for additional or contingent rent based on revenue above specified levels. Generally, our leases are “net leases” that require us to pay a pro rata share of taxes, insurance and maintenance costs.

 

As of June 30, 2016, our restaurant system consisted of 48 restaurants comprised of five company-operated restaurants and 43 franchised restaurants located in Arizona, California, Connecticut, Florida, Illinois, New Jersey, New York, North Carolina, Pennsylvania and Texas.

 

We lease our executive offices, consisting of approximately 2,500 square feet in Houston, Texas, for a term expiring in 2020, plus one five-year extension option. We believe our current office space is suitable and adequate for its intended purposes and our near-term expansion plans.

 

 77 
  

 

As of March 30, 2017, our domestic footprint is as follows:

 

 

 

Currently Operating System-Wide Restaurants

 

As of March 30, 2017, company-operated, franchised and total system-wide restaurants by jurisdiction are:

 

State  Company-Owned Restaurants   Franchise Restaurants   Total Restaurants 
Arizona   -    1    1 
California   3    2    5 
Florida   -    2    2 
Illinois   -    2    2 
Kansas   -    1    1 
Nebraska   -    1    1 
Nevada   -    1    1 
New Jersey   3    17    20 
New York   4    6    10 
North Carolina   1    1    2 
Pennsylvania   -    2    2 
Texas   1    3    4 
TOTAL   12    39    51 

 

 78 
  

 

Anticipated System-Wide Restaurants

 

We anticipate by December 31, 2017 that our company-operated, franchised and total system-wide restaurants will be:

 

State  Company-Owned Restaurants   Franchise Restaurants   Total Restaurants 
Arizona   -    2    2 
California   5    4    9 
Florida   -    3    3 
Georgia   1    1    2 
Illinois   4    3    7 
Kansas   -    1    1 
Massachusetts   1    1    2 
Nebraska   -    1    1 
New Jersey   4    18    22 
New York   5    8    13