Sadot Group Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the results of operations and financial condition of Muscle Maker, Inc. (“Muscle Maker”), together with its subsidiaries (collectively, the “Company”) as of December 31, 2022 and 2021 and for the years ended December 31, 2022 and 2021 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Annual Report on Form 10-K following Item 16. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to Muscle Maker. “Muscle Maker Grill”, “SuperFit Foods”, “Pokemoto”, and “Sadot” refers to the names under which our corporate and franchised restaurants do business depending on the concept. This Annual Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Annual Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “forecast,” “model,” “proposal,” “should,” “may,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Factors That May Affect Future Results and Financial Condition” in this Item 7 for a discussion of some of the uncertainties, risks and assumptions associated with these statements. OVERVIEW The Company operates under the name Muscle Maker Grill, Pokemoto, SuperFit Foods and Sadot and is a franchisor and owner operator of Muscle Maker Grill restaurants, Pokemoto restaurants, SuperFit Foods Meal Prep and Sadot. As of December 31, 2022, the Company’s restaurant and meal prep system included 19 Company-owned restaurants, 25 franchise restaurants and 34 SuperFit Foods pick up locations. As of December 31, 2022, the Company has franchise agreements for 46 Pokemoto franchises that have sold but have not opened. In addition to these restaurants, the Company also operates with the following brand names under our ghost kitchen model: Meal Plan AF, Muscle Maker Burger Bar, Bowls Deep, Burger Joe’s, Wrap It Up, Salad Vibes, Mr. T’s House of Boba and Gourmet Sandwich. Our direct mail to consumer meal prep/plan program operates under the musclemakerprep.com and superfitfoods.com websites. As of December 31, 2022, MMI consisted of five operating segments: ● Muscle Maker Grill Restaurant Division ● Pokemoto Hawaiian Poke Restaurant Division ● Non-Traditional (Hybrid) Division ● SuperFit Foods Meal Prep Division ● Sadot Division 40 Muscle Maker, Inc. is our parent company. We own and operate three unique “healthier for you” restaurant concepts within our portfolio of companies: Muscle Maker Grill restaurants, SuperFit Foods and Pokemoto restaurants. Non-Traditional (Hybrid) Division is a combination of the aforementioned brands and provides its own unique experience for the customer. Non-Traditional (Hybrid) locations are designed for unique locations such as universities and military bases. Our Company was founded on the belief of taking every-day menu options and converting them into “healthier for you” menu choices. Consumers are demanding healthier choices, customization, flavor and convenience. We believe our portfolio of companies directly satisfy these consumer needs. We take focus on lean proteins, fresh fruits and vegetables, proprietary sauces, whole grains and various other items like protein shakes, meal plans, specialty drinks and super foods. Each of our three concepts offers different menus that are tailored to specific consumer segments. We operate in the fast-casual and meal prep segments of the restaurant industry. We believe our “healthier for you” inspired concepts deliver a highly differentiated customer experience. In 2022 Muscle Maker, Inc created the Sadot Division. Sadot is focused on international food commodity shipping, farming, sourcing and production of key ingredients such as soy meal, corn, wheat, food oils, etc. Sadot was formed as part of the Company’s diversification strategy to own and operate, through its subsidiaries, the business lines throughout the whole spectrum of the food chain. On October 19, 2022, MMI formed Sadot LLC, a Delaware limited liability company and a wholly owned subsidiary of MMI. Sadot is focused on international food commodity shipping, farming, sourcing and production of key ingredients such as soy meal, corn, wheat, food oils, etc. A typical shipment contains 25,000 to 75,000 metric tons of product, although some transactions can be smaller. Sadot was formed as part of the Company’s diversification strategy to own and operate, through its subsidiaries, the business lines throughout the whole spectrum of the food chain. On November 14, 2022, MMI, Sadot and Aggia LLC FC, a company formed under the laws of United Arab Emirates (“Aggia”) entered into a Services Agreement whereby Sadot engaged Aggia to provide certain advisory services to Sadot for creating, acquiring and managing Sadot’s business of wholesaling food and engaging in the purchase and sale of physical food commodities. As consideration for Aggia providing the services to Sadot, the Company agreed to issue shares of common stock of the Company, par value $0.0001 per share, to Aggia subject to Sadot generating net income measured on a quarterly basis at per share price of $1.5625, subject to equitable adjustments for any combinations or splits of the Common Stock. The Company may only issue authorized, unreserved Shares of Common Stock. The Company will not issue Aggia in excess of 14,424,275 shares representing 49.999% of the number of issued and outstanding shares of Common Stock. Further, once Aggia has been issued a number of Shares constituting 19.99% of the issued and outstanding shares of Common Stock of the Company, no additional Shares shall be issued to Aggia unless and until this transaction has been approved by the shareholders of the Company. In the event that the Shares Cap has been reached, then the remaining portion of the net income, if any, not issued as Shares shall accrue as debt payable by Sadot to Aggia until such Debt has reached a maximum of $71,520,462. We believe our healthy-inspired restaurant concept delivers a highly differentiated customer experience by combining the quality and hospitality that customers commonly associate with our full service and fast-casual restaurant competitors with the convenience and value customers generally expect from traditional fast-food restaurants. The foundation of our brand is based on our core values of quality, empowerment, respect, service and value. ● Quality . Commitment to provide high quality, healthy-inspired food for a perceived wonderful experience for our guests. ● Empowerment and Respect . We seek to empower our employees to take initiative and give their best while respecting themselves and others to maintain an environment for teamwork and growth. ● Service . Provide world class service to achieve excellence each passing day. ● Value . Our combination of high-quality, healthy-inspired food, empowerment of our employees, world class service, all delivered at an affordable price, strengthens the value proposition for our customers. In striving for these goals, we aspire to connect with our target market and create a great brand with a strong and loyal customer base. As of December 31, 2022, the Company had a cash balance, a working capital surplus and an accumulated deficit of $9,898,420, $4,032,888, and $79,355,064, respectively. During the year ended December 31, 2022, the Company incurred a Pre-tax net loss of $7,937,657 and Net cash used in operations of $198,629. The Company believes that our existing cash on hand and future cash flows from our franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next 12 months. Key Financial Definitions Total Revenues Our revenues are derived from four primary sources: Physical Commodity sales, Company restaurant sales, Franchise revenues and vendor rebates from Franchisees. Franchise revenues are comprised of Franchise royalty revenues collected based on 2% to 6% of franchisee net sales and other franchise revenues which include initial and renewal franchisee fees. Vendor rebates are received based on volume purchases or services from franchise owned locations. In addition, we have Other revenues which consists of gift card breakage, which is recognized when we determine that there is no further legal obligation to remit the unredeemed gift card balance. 41 Commodity Operating Expenses Commodity Cost Commodity cost include the direct cost associated with purchasing the physical food commodities. The cost includes cost of the inventory, insurance, shipping and other cost associated with transporting the physical food commodity. The components of Commodity cost are variable in nature, change with sales volume, logistics and are subject to fluctuations in Commodity costs. Labor Commodity labor cost consists of consulting fees paid for traders, logistics, and operations personal to perform the purchases and sale of physical food commodities. Similar to other cost items, we expect total Commodity labor costs to increase as our Commodity sales revenues grows. Other Commodity Operating Expenses Other commodity operating expenses, consist of food commodity purchase and sales expenses not inclusive of Commodity cost and Labor. These expenses are generally travel and office expense. Restaurant Operating Expenses Food and Beverage Costs Food and beverage costs include the direct costs associated with food, beverage and packaging of our menu items at Company-operated restaurants partially offset by vendor rebates from Company-owned stores. The components of food, beverages and supplies are variable in nature, change with sales volume, are affected by menu mix and are subject to fluctuations in Commodity costs. Labor Restaurant labor costs, consists of Company-operated restaurant-level management and hourly labor costs, including salaries, wages, payroll taxes, workers’ compensation expense, benefits and bonuses paid to our Company-operated restaurant-level team members. Like other cost items, we expect total restaurant labor costs at our Company-operated restaurants to increase due to inflation and as our Company restaurant revenues grow. Factors that influence labor costs include minimum wage and employer payroll tax legislation, mandated health care costs and operational productivity established by the management team. Our labor costs in 2021 was partially offset by employee retention tax credits provided by the Internal Revenue Service due to the impact of COVID-19. Rent Restaurant rent, consist of Company-operated restaurant-level rental or lease payments applicable to executed rental or lease agreements. In many cases these rental payments may include payments for common area maintenance as well as property tax assessments. Our rent strategy in some locations consists of a variable rent structure calculated on net sales of the restaurant. While this can have a negative effect on higher volume locations where we cannot leverage a fixed rent, it provides downside protection for lower volume locations. Other Restaurant Operating Expenses Other restaurant operating expenses, consist of Company-operated restaurant-level ancillary expenses not inclusive of Food and beverage, Labor and Rent expense. These expenses are generally marketing, advertising, merchant and bank fees, utilities, leasehold and equipment repairs, insurance and maintenance. A portion of these costs are associated with third party delivery services such as Uber Eats, Grub Hub, DoorDash and others. The fees associated with these third-party delivery services can range up to 25% of the total order being delivered. Management believes delivery is a critical component of our business model and industry trends will continue to push consumers towards delivery. We have adjusted our cost structure to reflect different pricing models, portion sizes, menu offerings and other considerations to potentially partially offset these rising costs of delivery. 42 Impairment of Intangible Assets Impairment of intangible assets consist of an amount by which the carry amount of the intangible assets exceeds its fair value. This is recognized by us when the carry amount of an intangible asset is greater than the projected future undiscounted cash flows, as the asset is not fully recoverable. Impairment of Goodwill Impairment of goodwill consist of an amount by which the carry amount of the goodwill assets exceeds its fair value. This is recognized by us when the carry amount of goodwill is greater than the projected future discounted cash flows, as the asset is not fully recoverable. Depreciation and Amortization Expenses Depreciation and amortization expenses primarily consist of the depreciation of property and equipment and amortization of intangible assets. Franchise Advertising Expenses In accordance with Topic 606, the Company recognizes sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee incurs the corresponding advertising expense. The Company records the related advertising expenses as incurred under Sales, general and administrative expenses. Preopening Expenses Preopening expense primarily consist of expenses associated with opening a Company-operated location and expenses related to Company-operated locations prior to the location opening. Post-Closing Expenses Post-closing expense primarily consist of expenses associated with closing a Company-operated location and expenses related to Company-operated locations after the location has closed. Stock-based Consulting Expenses Stock-based consulting expenses are related to consulting fees due to Aggia for Sadot operations. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 80% of the Net income generated by the Sadot business segment. For the year ended December 31, 2022, $3,601,987 is recorded as Stock-based consulting expense in the accompanying Consolidated Statements of Operations and a corresponding liability is recorded as Accrued stock-based consulting expense in the accompanying Consolidated Balance Sheets. This expense is expected to be paid in stock in 2023. Sales, General and Administrative Expenses Sales, general and administrative expenses include expenses associated with corporate and administrative functions that support our operations, including wages, benefits, travel expense, stock-based compensation expense, legal and professional fees, training, investor relations and other corporate costs. We incur incremental Sales, general and administrative expenses as a result of being a publicly listed company on the NASDAQ capital market. A certain portion of these expenses are related to the preparation of an initial stock offering and subsequent capital raises and should be considered one-time expenses. Other (Expense) / Income Other (expense) / income consists of amortization of debt discounts on the convertible notes, interest expense related to notes payable, Change in fair value of accrued compensation and gains on debt extinguishments in connection with the Paycheck Protection Program, (“PPP”) loan forgiveness. Income Taxes Income taxes represent federal, state and local current and deferred income tax expense. 43 Consolidated Results of Operations The following table represents selected items in our Consolidated Statements of Operations for the years ended December 31, 2022 and 2021, respectively: For the Years Ended December 31, 2022 2021 Revenues: Commodity sales $ 150,585,644 $ — Company restaurant sales, net of discounts 10,300,394 9,320,920 Franchise royalties and fees 726,854 778,181 Franchise advertising fund contributions 80,536 188,539 Other revenue 4,989 61,996 Total revenues 161,698,417 10,349,636 Operating Costs and Expenses: Commodity operating expenses: Commodity cost 145,671,454 — Labor 346,750 — Other commodity operating expenses 19,000 — Total commodity operating expenses 146,037,204 — Restaurant operating expenses: Food and beverage costs 3,940,321 3,532,907 Labor 3,844,140 1,917,979 Rent 1,190,903 1,261,096 Other restaurant operating expenses 2,294,688 2,343,137 Total restaurant operating expenses 11,270,052 9,055,119 Impairment of intangible asset 347,110 1,139,908 Impairment of goodwill — 86,348 Depreciation and amortization expenses 2,015,048 1,206,505 Franchise advertising fund expenses 80,536 188,539 Preopening expenses 116,728 31,829 Post-closing expenses 197,101 — Stock-based consulting expenses 3,601,987 — Sales, general and administrative expenses 6,149,801 8,088,682 Total costs and expenses 169,815,567 19,796,930 Loss from Operations (8,117,150 ) (9,447,294 ) Other Income: Other income / (expense) 44,944 (9,097 ) Interest expense, net (6,730 ) (69,514 ) Change in fair value of accrued compensation — 127,500 Gain on debt extinguishment 141,279 1,228,308 Total other income, net 179,493 1,277,197 Loss Before Income Tax (7,937,657 ) (8,170,097 ) Income tax 24,771 6,033 Net loss $ (7,962,428 ) $ (8,176,130 ) 44 Year Ended December 31, 2022 Compared with Year Ended December 31, 2021 Revenues Our revenues totaled $161,698,417 for the year ended December 31, 2022, compared to $10,349,636 for the year ended December 31, 2021. The $151,348,781 increase is primarily attributed to an increase in Commodity sales as a direct result of the formation of Sadot. We generated Commodity sales of $150,585,644 for the year ended December 31, 2022. We did not have any Commodity sales for the year ended December 31, 2021. This represented an increase of $150,585,644, or 100%, which is attributable to the formation of Sadot, and the sales generated from physical food related commodities. We generated Company restaurant sales, net of discounts, of $10,300,394 for the year ended December 31, 2022, compared to $9,320,920 for the year ended December 31, 2021. This represented an increase of $979,474, or 10.51%, which is mainly attributable to a full year of sales for Pokemoto restaurants and SuperFit Foods compared to 2021. Franchise royalties and fees for the years ended December 31, 2022 and 2021 totaled $726,854 compared to $778,181, respectively. This represents a decrease of $51,327, or 6.60%. In 2021, the franchise fees were higher, primarily due to the closing of several Muscle Maker Grill Franchise restaurants, which corresponds to accelerating the recognition of initial franchise fees. Franchise advertising fund contributions for the years ended December 31, 2022 and 2021 totaled $80,536 compared to $188,539, respectively. In accordance with Topic 606, the Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The decrease of $108,003 or 57.28%, is a direct result of the decrease in Muscle Maker Grill franchises and the national advertising services to benefit the brand as a whole. Other revenues for the years ended December 31, 2022 and 2021 totaled $4,989 and $61,996, respectively. Other revenues consisted of gift card breakage recognized. Operating Costs and Expenses Operating costs and expenses primarily consist of Commodity costs, Restaurant food and beverage costs, Restaurant labor expense, Restaurant rent expense, Other restaurant operating expenses, Depreciation and amortization expenses and Sales, general and administrative expenses. Commodity costs for the year ended December 31, 2022, totaled $145,671,454 or 96.74% as a percentage of Commodity sales. There was no Commodity cost for the year ended December 31, 2021. The $145,671,454 increase resulted from a new line of business operated by Sadot. Commodity labor costs for the year ended December 31, 2022, totaled $346,750 or 0.23% as a percentage of Commodity sales. There were no Commodity labor costs for the year ended December 31, 2021. The $346,750 increase resulted from a new line of business operated by Sadot. Other commodity operating expenses for the year ended December 31, 2022 totaled $19,000 or 0.01% as a percentage of Commodity sales There was no Other commodity operating expenses for the year ended December 31, 2021. The $19,000 increase resulted from a new line of business operated by Sadot. Restaurant food and beverage costs for the years ended December 31, 2022 and 2021 totaled $3,940,321 or 38.25% as a percentage of Company restaurant net sales, and $3,532,907 or 37.90%, as a percentage of Company restaurant net sales, respectively. The $407,414 increase resulted from a full year of sales for Pokemoto restaurants and SuperFit Foods during the current year as compared to the prior year resulting in higher sales. Total restaurant food and beverage cost as a percentage of sales increased by 0.35% as a result of higher commodity prices in 2022. Restaurant labor expense for the years ended December 31, 2022 and 2021 totaled $3,844,140, or 37.32%, as a percentage of Company restaurant net sales, and $1,917,979, or 20.58%, as a percentage of Company restaurant net sales, respectively. The $1,926,161 increase resulted from a reduction in Labor expense in 2021 as a result of approximately $1,920,000 in employee retention credits that were made available to us due to the effects of COVID-19. Without the employee retention credit restaurant labor for the year ended December 31, 2021, totaled $3,837,979 or 41.17% as a percentage of Company restaurant net sales. Notwithstanding the positive effect of the tax credits on our 2021 Labor costs we were able to reduce our overall labors as a percentage of sales by 3.85% due to increased sales and also due to improvements in operations. Restaurant rent expense for the years ended December 31, 2022 and 2021 totaled $1,190,903, or 11.56% as a percentage of restaurant sales, and $1,261,096, or 13.53%, as a percentage of restaurant sales, respectively. The decrease of $70,193 is directly attributed to the closure of nonperforming corporate location. The percent of total sales decreased by 1.97% as sales increased overall, and we are able to leverage fixed rent against these higher sales levels in conjunction with closing underperforming stores. 45 Other restaurant operating expenses for the years ended December 31, 2022 and 2021 totaled $2,294,688, or 22.28% as a percentage of restaurant sales, and $2,343,137, or 25.14% as a percentage of restaurant sales, respectively. The $48,449 decrease is primarily due to a decrease in insurance cost resulting from a consolidation in insurance companies and a decrease in third party processing fees, partially offset by an increase in delivery orders and a full year of sales for Pokemoto restaurants and SuperFit Foods during the year as compared to the prior year. The Other restaurant operating expenses as a percent of total sales reduced by 2.86%. Impairment of intangible assets for the years ended December 31, 2022, and 2021 totaled $347,110 and $1,139,908, respectively. We performed a recoverability test on the Muscle Maker Grill trademark and franchise agreements based on its projected future undiscounted cash flows. The forecast was based on actual revenues, and we also considered recent developments as well as our strategic plans and intentions. Based on the forecasts we recorded an aggregate impairment charge. The impairment charges are directly attributed to the closure of our Muscle Maker Grill Company-owned restaurants and our franchise locations as compared to the prior periods. We had no Impairment of goodwill for the years ended December 31, 2022. For the year ended December 31, 2021 Impairment of goodwill totaled $86,348. We performed an impairment test on the Muscle Maker Grill goodwill based on its projected future undiscounted cash flows. The forecast was based on actual revenues of the location the goodwill was recorded on. The 2021 impairment charge was directly attributed to the Muscle Maker Grill Midtown location that was closed in late 2022. Depreciation and amortization expenses for the years ended December 31, 2022 and 2021 totaled $2,015,048 and $1,206,505, respectively. The $808,543 increase is mainly attributed to amortization expense due to the transition of the trademark of Muscle Maker Grill from an infinite life asset to a finite life asset and a full year of amortization expense of intangibles acquired in 2021 of approximately $788,867. Preopening expenses for the years ended December 31, 2022 and 2021, totaled $116,728 and $31,829, respectively. The increase in preopening expense resulted from expenses incurred prior to the opening of our new Company-owned stores. Post-closing expenses for the year ended December 31, 2022 totaled $197,101. There were no Post-closing expenses for the year ended December 31, 2021. The increase in Post-closing expenses resulted from expenses incurred after the closing of underperforming Company-owned stores. Stock-based consulting expenses for the year ended December 31, 2022, totaled $3,601,987. There were no Stock-based consulting expenses for the year ended December 31, 2021. The increase in Stock-based consulting expenses is the result of consulting fees due to Aggia for Sadot operations. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 80% of the Net income generated by the Sadot business segment. This expense is expected to be paid in stock in 2023. Sales, general and administrative expenses for the years ended December 31, 2022 and 2021 totaled $6,149,801, or 3.80% of total revenue, and $8,088,682, or 78.15% of total revenue, respectively. The $1,938,881 decrease was primarily attributable to a reduction in consulting expenses of approximately $1,471,056 , which is mainly due to stock-based compensation expense recorded for services rendered in the prior year as compared to the current year and a decrease in professional fees of approximately $ 1,173,900. The decrease was offset by an increase in salaries, wages and benefits of approximately $483,762 due to a full year of salary for additional staff members as a result of our acquisitions in 2021. The remainder of the variance was attributed to various other expenses including insurance, recruiting, marketing and computer expenses. Loss from Operations Our loss from operations for the years ended December 31, 2022 and 2021 totaled $8,117,150, or 5.02% of total revenues and $9,447,294, or 91.28% of total revenue, respectively. The decrease of $1,330,144 in Loss from operations is primarily attributable to the increase of Total revenues of $151,348,781, partially offset by the increase in Total cost and expenses of $150,018,637 as discussed above. Other Income Other income for the years ended December 31, 2022 and 2021 totaled $179,493 and $1,277,197, respectively. The $1,097,704 decrease in Other income was primarily attributable to a decrease in the Gain on extinguishment of debt of $1,087,028 due to the forgiveness of our PPP loans, a decrease of $127,500 in the Change in fair value of accrued compensation, partially offset by a $62,783 decrease in Interest expense and a $54,041 increase in Other income. Net Loss Our Net loss for the year ended December 31, 2022, was $7,962,428 which was an improvement of $213,702 as compared to a Net loss of $8,176,130 for the year ended December 31, 2021, resulting from an increase in our Total revenue of $151,348,781, partially offset by an increase of our Total cost and expenses of $150,018,637 and a decrease in Other income of $1,097,704. 46 The following table represents selected items in our Consolidated Statements of Operations for the year ended December 31, 2022, by our operating segments: Consolidated Muscle Maker Grill Division Pokemoto Division Non-Traditional (Hybrid) Division SuperFit Foods Division Sadot Division (a) Unallocated Revenues: Commodity sales $ 150,585,644 $ — $ — $ — $ — $ 150,585,644 $ — Company restaurant sales, net of discounts 10,300,394 3,933,924 4,649,833 383,270 1,333,367 — — Franchise royalties and fees 726,854 423,728 303,126 — — — — Franchise advertising fund contributions 80,536 80,536 — — — — — Other revenue 4,989 4,989 — — — — — Total revenues 161,698,417 4,443,177 4,952,959 383,270 1,333,367 150,585,644 — Operating Costs and Expenses: Commodity cost 145,671,454 — — — — 145,671,454 — Labor 346,750 — — — — 346,750 — Other commodity operating expenses 19,000 — — — — 19,000 — Total commodity operating expenses 146,037,204 — — — — 146,037,204 — Restaurant operating expenses: Food and beverage costs 3,940,321 1,528,197 1,754,428 164,139 493,557 — — Labor 3,844,140 1,777,050 1,447,474 248,912 370,704 — — Rent 1,190,903 573,418 413,969 73,559 129,957 — — Other restaurant operating expenses 2,294,688 895,177 1,012,990 123,464 263,057 — — Total restaurant operating expenses 11,270,052 4,773,842 4,628,861 610,074 1,257,275 — — Impairment of intangible assets 347,110 347,110 — — — — — (b) Depreciation and amortization expenses 2,015,048 179,950 231,214 101,773 38,207 — 1,463,904 (b) Franchise advertising fund expenses 80,536 80,536 — — — — — Preopening expenses 116,728 — — — — — 116,728 (c) Post-closing expenses 197,101 — — — — — 197,101 (c) Stock-based consulting expenses 3,601,987 — — — — — 3,601,987 Sales, general and administrative expenses 6,149,801 — — — — — 6,149,801 (d) Total costs and expenses 169,815,567 5,381,438 4,860,075 711,847 1,295,482 146,037,204 11,529,521 (Loss) / income from operations (8,117,150 ) (938,261 ) 92,884 (328,577 ) 37,885 4,548,440 (11,529,521 ) Other Income: Other income 44,944 — — — — — 44,944 Interest expense, net (6,730 ) — — — — — (6,730 ) Gain on debt extinguishment 141,279 — — — — — 141,279 Total other income, net 179,493 — — — — — 179,493 Loss Before Income Tax (7,937,657 ) (938,261 ) 92,884 (328,577 ) 37,885 4,548,440 (11,350,028 ) Income tax 24,771 — — — — — 24,771 Net (loss) / income $ (7,962,428 ) $ (938,261 ) $ 92,884 $ (328,577 ) $ 37,885 $ 4,548,440 $ (11,374,799 ) (a) Sadot Division – Statement of operations for the period from November 14, 2022 (agreement date with Aggia) through December 31, 2022. (b) Includes charges of $347,110 related to the Impairment of intangible assets, related to Muscle Maker Grill restaurants intangible assets. This also includes amortization of intangible assets and depreciation of corporate assets. See Note 7. (c) Includes charges related to locations that have not opened yet or charges related to locations that have already closed. (d) Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $3,682,605 and professional fees of $922,828. 47 The following table represents selected items in our Consolidated Statements of Operations for the year ended December 31, 2021, by our operating segments: Consolidated Muscle Maker Grill Division Pokemoto Division (a) Non-Traditional (Hybrid) Division SuperFit Foods Division (b) Unallocated Revenues: Commodity sales $ — $ — $ — $ — $ — $ — Company restaurant sales, net of discounts 9,320,920 4,652,535 2,535,050 665,884 1,467,451 — Franchise royalties and fees 778,181 627,733 150,448 — — — Franchise advertising fund contributions 188,539 188,539 — — — — Other revenue 61,996 61,996 — — — — Total revenues 10,349,636 5,530,803 2,685,498 665,884 1,467,451 — Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 3,532,907 1,802,931 857,756 377,535 494,685 — Labor 1,917,979 692,301 386,610 457,776 381,292 — Rent 1,261,096 717,111 204,281 265,051 74,653 — Other restaurant operating expenses 2,343,137 1,071,988 555,903 414,414 300,832 — Total restaurant operating expenses 9,055,119 4,284,331 2,004,550 1,514,776 1,251,462 — Impairment of intangible assets 1,139,908 1,139,908 — — — — (c) Impairment of goodwill 86,348 86,348 — — — — (c) Depreciation and amortization expenses 1,206,505 325,312 48,019 160,882 23,200 649,092 (c) Franchise advertising fund expenses 188,539 188,539 — — — — Preopening expenses 31,829 — — — — 31,829 (d) Sales, general and administrative expenses 8,088,682 — — — — 8,088,682 (e) Total costs and expenses 19,796,930 6,024,438 2,052,569 1,675,658 1,274,662 8,769,603 (Loss) / income from operations (9,447,294 ) (493,635 ) 632,929 (1,009,774 ) 192,789 (8,769,603 ) Other Income: Other income (9,097 ) — — — — (9,097 ) Interest expense, net (69,514 ) — — — — (69,514 ) Change in fair value of accrued compensation 127,500 — — — — 127,500 Gain on debt extinguishment 1,228,308 — — — — 1,228,308 Total other income, net 1,277,197 — — — — 1,277,197 Loss Before Income Tax (8,170,097 ) (493,635 ) 632,929 (1,009,774 ) 192,789 (7,492,406 ) Income tax 6,033 — — — — 6,033 Net (loss) / income $ (8,176,130 ) $ (493,635 ) $ 632,929 $ (1,009,774 ) $ 192,789 $ (7,498,439 ) (a) Pokemoto Division – Statement of operations for the period from May 14, 2021 (acquisition date) through December 31, 2022. (b) SuperFit Foods Division – Statement of operations for the period from March 25, 2021 (acquisition date) through December 31, 2022. (c) Includes charges of $1,139,908 and $86,348 related to the Impairment of intangible assets and goodwill, respectively, related to Muscle Maker Grill restaurants intangible assets and goodwill. This also includes amortization of intangible assets and depreciation of corporate assets. See Note 7. (d) Includes charges related to locations that have not opened yet. (e) Includes charges related to corporate expense that the Company does not allocate to the respective divisions. The largest portion of this expense relates to payroll, benefits and other compensation expense of $3,198,884 and professional fees and consulting fees of $3,707,773. 48 Liquidity and Capital Resources Liquidity We measure our liquidity in a number of ways, including the following: December 31, December 31, 2022 2021 Cash $ 9,898,420 $ 15,766,703 Working capital surplus $ 4,032,888 $ 15,041,334 Notes payable $ 981,178 $ 1,352,537 Availability of Additional Funds Although we have a working capital surplus of $4,032,888, we presently have an accumulated deficit of $79,355,064, as of December 31, 2022, and we utilized $198,629 of cash in operating activities during the year ended December 31, 2022. We believe that our existing cash on hand and future cash flows from our franchise operations and commodity trading operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next 12 months. In the event we are required to obtain additional financing, either through borrowings, private placements, public offerings, or some type of business combination, such as a merger, or buyout, and there can be no assurance that we will be successful in such pursuits. We may be unable to acquire the additional funding necessary to continue operating. Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company. If we need to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities could dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional funds on favorable terms could have a material adverse effect on our liquidity and financial condition. On April 7, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor for a private placement pursuant to which the investor purchased from the Company for an aggregate purchase price of approximately $10,000,000 (i) 1,250,000 shares of common stock of the Company (ii) a common stock purchase warrant to purchase up to 4,115,227 shares of common stock (the “common warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 2,865,227 shares of common stock (the “pre-funded warrant”). Each share and accompanying common warrant were sold together at a combined offering price of $2.43 per share and common warrant, and each pre-funded warrant and accompanying common warrant was sold together at a combined offering price of $2.42 per pre-funded warrant and accompanying common warrant. The pre-funded warrant is immediately exercisable, at a nominal exercise price of $0.01 per share, and may be exercised at any time until the pre-funded warrant is fully exercised. The common warrant has an exercise price of $2.43 per share, are immediately exercisable and will expire 5.5 years from the date of issuance. The private placement closed on April 9, 2021. On November 17, 2021, the Company entered into a Securities Purchase Agreement with accredited investors for a private placement pursuant to which the investors purchased from the Company for an aggregate purchase price of approximately $15,000,000 (i) 6,772,000 shares (the “shares”) of common stock of the Company, (ii) a common stock purchase warrant to purchase up to 10,830,305 shares of common stock (the “November common warrant”) and (iii) a pre-funded common stock purchase warrant to purchase up to 4,058,305 shares of common stock (the “pre-funded warrant”). Each share and accompanying November common warrant was sold together at a combined offering price of $1.385 per share and November common warrant, and each pre-funded warrant and accompanying November common warrant was sold together at a combined offering price of $1.3849 per pre-funded warrant and accompanying November common warrant. The November pre-funded warrant is immediately exercisable, at a nominal exercise price of $0.0001 per share, and may be exercised at any time until the November pre-funded warrant is fully exercised. The November common warrant will have an exercise price of $1.385 per share, are immediately exercisable and will expire 5 years from the date of issuance. The private placement closed on November 22, 2021. 49 Sources and Uses of Cash for the Years Ended December 31, 2022 and December 31, 2021 For the years ended December 31, 2022 and 2021, we used Net cash of $198,629 and $6,392,711, respectively, in operations. Our Net cash used for the year ended December 31, 2022, was primarily attributable to our Net loss of $7,962,428, adjusted for net non-cash income in the aggregate amount of $6,202,336 offset by $1,561,463 of Net cash provided by changes in the levels of operating assets and liabilities. Our Net cash used for the year ended December 31, 2021, was primarily attributable to our Net loss of $8,176,130, adjusted for net non-cash income in the aggregate amount of $3,484,067, partially offset by $1,700,648 of Net cash used in changes in the levels of operating assets and liabilities. For the year ended December 31, 2022, Net cash used in investing activities was $5,439,618, of which $4,914,191 was used for a Deposit on farmland, $596,611 was used to purchase Property and equipment and $71,184 was collected from loans to franchisees loan issuances. For the year ended December 31, 2021, Net cash used in investing activities was $3,575,809, of which $262,019 was used to purchase Property and equipment, $3,315,390 used in connection with the acquisition of new Company stores from former franchisees and $1,600 was collected from loans to franchisees and related parties net of loan issuances. For the year ended December 31, 2022, Net cash used in financing activities was $230,036, consisting of repayments of various other notes payable of $230,080 and $44 of proceeds from the exercise of pre-funded warrants. For the year ended December 31, 2021, Net cash provided by financing activities was $21,539,291, consisting of $22,890,950 in proceeds from Private Placement offerings, net of underwriter’s discount and offering costs, and the proceeds from the exercising of the pre-funded warrants of $28,773, partially offset by repayments of various other notes payable of $1,280,432, which consisted mainly of U.S. Small Business Administration (the “SBA”) loans that was acquired through the Pokemoto acquisition and $100,000 cash paid to a former investor in connection with the cancellation of their shares. Recently Issued Accounting Pronouncements In February 2016, the FASB” issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires companies to recognize lease liabilities and corresponding right-of-use leased assets on the Balance Sheets and to disclose key information about leasing arrangements. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2021, with early adoption permitted. Additionally, in 2018 and 2019, the FASB issued the following Topic 842–related ASUs: ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, which clarifies the applicability of Topic 842 to land easements and provides an optional transition practical expedient for existing land easements; ASU 2018-10, Codification Improvements to Topic 842, Leases, which makes certain technical corrections to Topic 842; ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows companies to adopt Topic 842 without revising comparative period reporting or disclosures and provides an optional practical expedient to lessors to not separate lease and non-lease components of a contract if certain criteria are met; and ASU 2019-01, Leases (Topic 842): Codification Improvements, which provides guidance for certain lessors on determining the fair value of an underlying asset in a lease and on the cash flow statement presentation of lease payments received; ASU No. 2019-01 also clarifies disclosures required in interim periods after adoption of ASU No. 2016-02 in the year of adoption. The Company adopted Topic 842 as of January 1, 2022 and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit of $15,010 as of the adoption date, and recognized an additional $7,789 during the second quarter of 2022, based on updated information on two of our leases, for an aggregate cumulative-effect adjustment to accumulated deficit of $22,799. 50 In October 2021, the FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers”, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements and related disclosures. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements required by this Item 8 are included in this Annual Report following Item 16 hereof. As a smaller reporting company, we are not required to provide supplementary financial information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.