Sadot Group Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Preliminary Note The following Management’s Discussion and Analysis (“MD&A”), prepared as of August 9, 2023, should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements of Sadot Group Inc. (f/k/a Muscle Maker, Inc.), for the three and six months ended June 30, 2023 together with the audited financial statements of the Company for the year ended December 31, 2022 and the accompanying MD&A for that fiscal year appearing in our Annual Report on 2022 Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2023. Unless otherwise indicated or the context otherwise requires, all references to the terms “Company,” “company,” "Sadot", “Muscle Maker,” “we,” “us,” “our”, “Group” and similar terms refer to Sadot Group, Inc., together with its consolidated subsidiaries. Our website address is http://sadotgroupinc.com. The information on, or that can be accessed through, our website is not part of this Report. The SEC also maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at www.sec.gov. This MD&A is the responsibility of management. Prior to its release, the Company’s Board of Directors (the “Board”) approved this MD&A on the Audit Committee’s recommendation. The Company presents its financial statements in U.S. Dollars. Amounts in this MD&A are stated in U.S. Dollars unless otherwise indicated. Forward-Looking Statements This Report contains forward-looking statements as defined in the federal securities laws. Forward-looking statements generally relate to future events or our future financial or operating performance. These forward-looking statements are not guarantees of future performance, conditions, or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside of Muscle Maker’s management’s control. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “forecast,” “model,” “proposal,” “should,” “may,” “intend,” “estimate,” and “continue,” and similar expressions (or the negative versions of such words or expressions), are intended to identify forward-looking statements. These forward-looking statements include, without limitation, information concerning Sadot’s possible or assumed future results of operations, business strategies, debt levels, competitive position, industry environment and possible growth opportunities . 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 2 for a discussion of some of the uncertainties, risks and assumptions associated with these statements. OVERVIEW Sadot Group Inc. (f/k/a Muscle Maker, Inc.) ("MMI") is our parent company and is headquartered in Ft. Worth, Texas. In late 2022, MMI began a transformation from a U.S.-centric restaurant business into a global, food-focused organization with two distinct business units. Effective July 27, 2023, MMI changed its name to Sadot Group Inc. 1. Sadot LLC (Sadot Agri-Foods") is an international agri-commodities company engaged in trading and shipping of food and feed (e.g., soybean meal, wheat and corn) via dry bulk cargo ships to/from markets such as Argentina, Brazil, Canada, China, Egypt, Guinea, India, Indonesia, Japan, Kenya Malaysia, Philippines, Poland, Romania, Sri Lanka, Ukraine and Vietnam. Sadot Agri-Foods competes with the ABCD commodity companies (ADM, Bunge, Cargill, Louis-Dreyfus) as well as many regional organizations. Sadot Agri-Foods was formed as part of the Company’s diversification strategy to own and operate, through its subsidiaries, the business lines throughout the food value chain. Sadot Agri-Foods is Sadot Group's largest operating unit. 2. Sadot Restaurant Group has three unique “healthier for you” concepts, including two fast casual restaurant concepts, Pokémoto and Muscle Maker Grill, plus one subscription-based fresh prep meal concept, SuperFit Foods. 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. Each of our three concepts offers different menus that are tailored to specific consumer segments. We believe our concepts deliver highly differentiated customer experiences. The Company has expanded its Sadot Agri-Foods subsidiary within the agri-commodity sourcing and trading operations into North, Central and South America, further diversifying the Company’s geographic reach beyond its existing operations in Europe, Asia, the Middle East and Africa. The expansion was facilitated by a strategic agreement between Sadot Agri- 44 Table of Contents Foods’ agri-food operations and newly-formed Buenaventura Trading LLC (“Buenaventura”) based in Miami FL. Buenaventura’s team brings a wealth of experience and exposure to new trade routes throughout the Americas by adding multiple sourcing and trading consultants to Sadot Agri-Foods with backgrounds from several of the largest international food supply chain organizations. In order to support the expansion into the Americas and our agreement with Buenaventura, Sadot LLC has formed a new subsidiary, Sadot Latam LLC. This agreement marks a significant milestone for Sadot Agri-Foods as it provides access to new trade routes originating in North America to markets in Central and South America. The planned Americas trade routes are intended to generate accretive value for the Company by tapping into the thriving market demand for agricultural products across Central and South America. This planned expansion is expected to further enhance Sadot Agri-Foods’ position as an emerging entity in the global commodity trading industry. As of June 30, 2023, the Company had a cash balance, a working capital surplus and an accumulated deficit of $5.1 million, $7.7 million and $80.2 million, respectively. During the three and six months ended June 30, 2023, the Company incurred a Pre-tax net income / loss of $0.2 million and $0.9 million, respectively. Net cash used in operations of $4.2 million for the six months ended June 30, 2023. The Company believes that our existing cash on hand and future cash flows from our commodity trades and franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next 12 months. Key Financial Definitions We review a number of financial and operating metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Governmental and other economic factors affecting our operations may vary. 45 Table of Contents For the Three Months Ended June 30, For the Six Months Ended June 30, 2023 2022 2023 2022 $’000 $’000 $’000 $’000 Revenues: Commodity sales 157,559 — 367,925 — Company restaurant sales, net of discounts 2,487 2,751 4,788 5,445 Franchise royalties and fees 238 163 522 371 Franchise advertising fund contributions 20 16 36 34 Other revenues 13 — 13 — Total revenues 160,317 2,930 373,284 5,850 Operating Costs and Expenses: Commodity operating expenses: Commodity cost 153,240 — 358,295 — Labor 852 — 1,472 — Other commodity operating expenses 485 — 639 — Total commodity operating expenses 154,577 — 360,406 — Restaurant operating expenses: — — Food and beverage costs 867 1,117 1,706 2,143 Labor 956 903 1,836 1,976 Rent 290 327 564 667 Other restaurant operating expenses 551 688 1,023 1,338 Total restaurant operating expenses 2,664 3,035 5,129 6,124 Depreciation and amortization expenses 441 489 1,074 965 Franchise advertising fund expenses 20 16 36 34 Preopening expenses — — 36 — Post-closing expenses 19 — 113 — Stock-based consulting expenses 1,068 — 4,427 — Sales, general and administrative expenses 1,888 1,127 4,030 2,451 Loss from operations (360) (1,737) (1,967) (3,724) EBITDA 656 (1,263) 223 (2,653) Adjusted EBITDA 1,149 (1,248) 3,534 (2,759) The breakout of our main revenue streams by business segment is shown below: For the Three Months Ended June 30, For the Six Months Ended June 30, 2023 2022 2023 2022 Sadot agri-foods 98.3 % — 98.6 % — Restaurant division 1.7 % 100.0 % 1.4 % 100.0 % Our key business and financial metrics are explained in detail below. 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. 46 Table of Contents Commodity Operating Expenses Commodity Cost Commodity costs include the direct cost associated with purchasing the physical food commodities. The cost includes the 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 personnel 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 expenses. 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. 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. 47 Table of Contents 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 Franchise advertising expenses are recognized 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. Pre-Opening Expenses Pre-opening expenses 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 expenses 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 Agri-Foods operations. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 40.0% of the Net income generated by the Sadot Agri-Foods business segment. For the three and six months ended June 30, 2023, $1.1 million and $4.4 million respectively, are recorded as Stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and a corresponding liability is recorded as Accrued stock-based consulting expense in the accompanying Unaudited Condensed Consolidated Balance Sheets. This expense was paid in stock. 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 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. Non-GAAP Measures 48 Table of Contents EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP measures. We define EBITDA as Net loss, adjusted for depreciation, amortization, interest income / (expense), and income taxes. We define Adjusted EBITDA as Net loss, adjusted for depreciation, amortization, net interest (income) expense, income taxes, impairment expenses, stock-based consulting expense, derived from amounts presented in the Unaudited Condensed Consolidated Statement of Operations and the associated Notes to the Unaudited Condensed Consolidated Financial Statements. We believe that EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, (collectively, the “Non-GAAP Measures”) are useful metrics for investors to understand and evaluate our operating results and ongoing profitability because they permit investors to evaluate our recurring profitability from our ongoing operating activities. EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, have certain limitations, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported under U.S. GAAP. We caution investors that amounts presented in accordance with our definitions of any of the Non-GAAP Measures may not be comparable to similar measures disclosed by other issuers, because some issuers calculate certain of the Non-GAAP Measures differently or not at all, limiting their usefulness as direct comparative measures. Reconciliations of EBITDA, Adjusted EBITDA and Other Non-GAAP Measures The following table presents a reconciliation of EBITDA and Adjusted EBITDA from the most comparable U.S. GAAP measure, Net loss, and the calculations of the Net loss Margin and Adjusted EBITDA Margin for the three and six months ended June 30, 2023 and 2022: For the Three Months Ended June 30, For the Six Months Ended June 30, 2023 2022 2023 2022 $’000 $’000 $’000 $’000 Net income / (loss) 190 (1,774) (876) (3,660) Adjustments to EBITDA: Depreciation and amortization expenses 441 489 1,074 965 Interest expense, net 22 10 19 28 Income tax 3 12 6 14 EBITDA 656 (1,263) 223 (2,653) Adjustments to Adjusted EBITDA: Other income / (expense) (251) 15 (251) 34 Change in fair value of accrued compensation (324) — (865) — Gain on debt extinguishment — — — (140) Stock-based consulting expenses 1,068 — 4,427 — Adjusted EBITDA 1,149 (1,248) 3,534 (2,759) Total revenue 160,317 2,930 373,284 5,850 Net income / (loss) Margin 0.1 % (60.5) % (0.2) % (62.6) % Adjusted EBITDA Margin 0.7 % (42.6) % 0.9 % (47.2) % 49 Table of Contents Unaudited Condensed Consolidated Results of Operations - Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022 The following table represents selected items in our Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022, respectively: Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Revenues: Commodity sales 157,559 — 157,559 NM Company restaurant sales, net of discounts 2,487 2,751 (264) (9.6) % Franchise royalties and fees 238 163 75 46.0 % Franchise advertising fund contributions 20 16 4 24.2 % Other revenues 13 — 13 NM Total revenues 160,317 2,930 157,387 5371.4 % Operating Costs and Expenses: Commodity operating expenses: Commodity cost 153,240 — 153,240 NM Labor 852 — 852 NM Other commodity operating expenses 485 — 485 NM Total commodity operating expenses 154,577 — 154,577 NM Restaurant operating expenses: Food and beverage costs 867 1,117 (250) (22.4) % Labor 956 903 53 5.9 % Rent 290 327 (37) (11.3) % Other restaurant operating expenses 551 688 (137) (19.9) % Total restaurant operating expenses 2,664 3,035 (371) (12.2) % Depreciation and amortization expenses 441 489 (48) (9.8) % Franchise advertising fund expenses 20 16 4 24.2 % Post-closing expenses 19 — 19 NM Stock-based consulting expenses 1,068 — 1,068 NM Sales, general and administrative expenses 1,888 1,127 761 67.5 % Total costs and expenses 160,677 4,667 156,010 3342.8 % Loss from operations (360) (1,737) 1,377 (79.3) % Other Income / (Expense): Other income / (expense) 251 (15) 266 (1773.3) % Interest income / (expense), net (22) (10) (12) 120.0 % Change in fair value of accrued compensation 324 — 324 NM Total other income / (expense), net 553 (25) 578 (2312.0) % Income / (Loss) Before Income Tax 193 (1,762) 1,955 (111.0) % Income tax 3 12 (9) (75.0) % Net income / (loss) 190 (1,774) 1,964 (110.7) % NM= not meaningful 50 Table of Contents The following table sets forth our results of operations as a percentage of total revenue for each period presented preceding: Three Months Ended June 30, 2023 2022 Revenues: Commodity sales 98.3 % — Company restaurant sales, net of discounts 1.6 % 93.9 % Franchise royalties and fees 0.1 % 5.6 % Franchise advertising fund contributions — 0.5 % Other revenues — — Total revenues 100.0 % 100.0 % Operating Costs and Expenses: Commodity operating expenses: Commodity cost 95.6 % — Labor 0.5 % — Other commodity operating expenses 0.3 % — Total commodity operating expenses 96.4 % — Restaurant operating expenses: Food and beverage costs 0.5 % 38.1 % Labor 0.6 % 30.8 % Rent 0.2 % 11.2 % Other restaurant operating expenses 0.3 % 23.5 % Total restaurant operating expenses 1.7 % 103.6 % Depreciation and amortization expenses 0.3 % 16.7 % Franchise advertising fund expenses — 0.5 % Post-closing expenses — — Stock-based consulting expenses 0.7 % — Sales, general and administrative expenses 1.2 % 38.5 % Total costs and expenses 100.2 % 159.3 % Loss from operations (0.2) % (59.3) % Other Income / (Expense): Other income / (expense) — (0.5) % Interest income / (expense), net — (0.3) % Change in fair value of accrued compensation 0.2 % — Gain on debt extinguishment — — Total other income / (expense), net 0.3 % (0.9) % Income / (Loss) Before Income Tax 0.1 % (60.1) % Income tax — 0.4 % Net income / (loss) 0.1 % (60.5) % 51 Table of Contents Revenues Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Revenues: Commodity sales 157,559 — 157,559 NM Company restaurant sales, net of discounts 2,487 2,751 (264) (9.6) % Franchise royalties and fees 238 163 75 46.0 % Franchise advertising fund contributions 20 16 4 24.2 % Other revenues 13 — 13 NM Total revenues 160,317 2,930 157,387 5371.4 % NM= not meaningful Our revenues totaled $160.3 million for the three months ended June 30, 2023, compared to $2.9 million for the three months ended June 30, 2022. The $157.4 million increase is primarily attributed to an increase in Commodity sales as a direct result of the formation of Sadot Agri-Foods and its added revenue. We generated Commodity sales of $157.6 million for the three months ended June 30, 2023. We did not have any Commodity sales for the three months ended June 30, 2022. This represented an increase of $157.6 million, which is attributable to Sadot Agri-Foods sales generated from physical food related commodities. We generated Company restaurant sales, net of discounts, of $2.5 million for the three months ended June 30, 2023, compared to $2.8 million for the three months ended June 30, 2022. This represented an decrease of $0.3 million, or 9.6%, which is mainly attributable to the closures of certain unprofitable Muscle Maker Grill locations. Franchise royalties and fees for the three months ended June 30, 2023 totaled $238.0 thousand compared to $163.0 thousand for the three months ended June 30, 2022. This represents an increase of $0.1 million, or 46.0%. In 2023, the franchise fees were higher, primarily due to the sales and opening of new Pokemoto franchises. Franchise advertising fund contributions for the three months ended June 30, 2023 totaled $20.0 thousand compared to $16.1 thousand for the three months ended June 30, 2022. The Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The increase of $3.9 thousand or 24.2%, is a direct result of the increase in Muscle Maker Grill national advertising services to benefit the brand as a whole. Other revenues for the three months ended June 30, 2023 totaled $13.0 thousand. There was no other revenues for the three months ended June 30, 2022. 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. 52 Table of Contents Commodity Costs Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Commodity cost 153,240 — 153,240 NM Commodity costs for the three months ended June 30, 2023, totaled $153.2 million or 97.3% as a percentage of Commodity sales. There was no Commodity cost for the three months ended June 30, 2022. The $153.2 million increase resulted from a new line of business operated by Sadot Agri-Foods. Commodity Labor Cost Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Labor 852 — 852 NM Commodity labor costs for the three months ended June 30, 2023, totaled $0.9 million or 0.5% as a percentage of Commodity sales. There were no Commodity labor costs for the three months ended June 30, 2022. The $0.9 million increase resulted from a new line of business operated by Sadot Agri-Foods. Other Commodity Operating Expenses Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Other commodity operating expenses 485 — 485 NM Other commodity operating expenses for the three months ended June 30, 2023 totaled $0.5 million or 0.3% as a percentage of Commodity sales There were no Other commodity operating expenses for the three months ended June 30, 2022. The $0.5 million increase resulted from a new line of business operated by Sadot Agri-Foods. Restaurant Food and Beverage Costs Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Food and beverage costs 867 1,117 (250) (22.4) % Restaurant food and beverage costs for the three months ended June 30, 2023 totaled $0.9 million or 34.9% as a percentage of Company restaurant net sales, and $1.1 million or 40.6%, as a percentage of Company restaurant net sales, for the three months ended June 30, 2022. The $0.3 million decrease resulted from a decrease in sales due to the closures of certain unprofitable Muscle Maker Grill locations. Total restaurant food and beverage cost as a percentage of sales decreased by 5.7% as a operational efficiencies in 2023. Restaurant Labor Expense 53 Table of Contents Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Labor 956 903 53 5.9 % Restaurant labor expense for the three months ended June 30, 2023 totaled $1.0 million, or 38.4%, as a percentage of Company restaurant net sales, and $0.9 million, or 32.8%, as a percentage of Company restaurant net sales, for the three months ended June 30, 2022. The $0.1 million increase is due to higher cost of labor in 2023. Restaurant Rent Expense Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Rent 290 327 (37) (11.3) % Restaurant rent expense for the three months ended June 30, 2023 totaled $0.3 million, or 11.7% as a percentage of restaurant sales, and $0.3 million, or 11.9%, as a percentage of restaurant sales, for the three months ended June 30, 2022. The decrease of $37.0 thousand is directly attributed to the closure of a nonperforming corporate location. The percentage of total sales decreased by 0.2% as sales decreased overall. Other Restaurant Operating Expenses Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Other restaurant operating expenses 551 688 (137) (19.9) % Other restaurant operating expenses for the three months ended June 30, 2023 totaled $0.6 million, or 22.2% as a percentage of restaurant sales, and $0.7 million, or 25.0% as a percentage of restaurant sales, for the three months ended June 30, 2022. The $0.1 million decrease is primarily due to a decrease in insurance costs resulting from a consolidation in insurance companies and a decrease in third party processing fees, partially offset by an increase in merchant processing fees. The Other restaurant operating expenses as a percent of total sales decreased by 2.9%. Depreciation and Amortization Expenses Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Depreciation and amortization expenses 441 489 (48) (9.8) % Depreciation and amortization expenses for the three months ended June 30, 2023 totaled $0.4 million compared to $0.5 million, for the three months ended June 30, 2022. The $48.0 thousand decrease is mainly attributed to the closing of nonperforming locations and the disposal of the corresponding assets. Franchise Advertising Fund Expenses 54 Table of Contents Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Franchise advertising fund expenses 20 16 4 24.2 % Franchise advertising fund expenses for the three months ended June 30, 2023 totaled $20.0 thousand compared to $16.1 thousand , for the three months ended June 30, 2022. The $3.9 thousand or 24.2% increase is mainly attributed to the increase in Muscle Maker Grill national advertising services to benefit the brand. Post-Closing Expenses Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Post-closing expenses 19 — 19 NM Post-closing expenses for the three months ended June 30, 2023 totaled $19.0 thousand. There were no Post-closing expenses for the three months ended June 30, 2022. The increase in Post-closing expenses resulted from expenses incurred after the closing of underperforming Company-owned stores. Stock-Based Consulting Expenses Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Stock-based consulting expenses 1,068 — 1,068 NM Stock-based consulting expenses for the three months ended June 30, 2023, totaled $1.1 million. There were no Stock-based consulting expenses for the three months ended June 30, 2022. The increase in Stock-based consulting expenses is the result of consulting fees due to Aggia for Sadot Agri-Foods operations. Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 40.0% of the Net income generated by the Sadot Agri-Foods business segment. Thi s expense is expected to be paid in stock in 2023. Sales, General and Administrative Expenses Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Sales, general and administrative expenses 1,888 1,127 761 67.5 % Sales, general and administrative expenses for the three months ended June 30, 2023 totaled $1.9 million, or 1.2% of total revenue, compared to $1.1 million, or 38.5% of total revenue, for the three months ended June 30, 2022. The $0.8 million increase was primarily attributable to an increase in professional and consulting fees and employee salaries and benefits. 55 Table of Contents Total Other Income, Net Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Total other income / (expense), net 553 (25) 578 (2312.0) % Total other income / (expense), net for the three months ended June 30, 2023 totaled $0.6 million income compared to $25.0 thousand expense, for the three months ended June 30, 2022. The $0.6 million increase in Total other income / (expense), net was primarily attributable to a increase of $0.3 million in the Change in fair value of accrued compensation and a $0.3 million increase in Other income, partially offset by a $12.0 thousand increase in Interest expense. Income Tax Three Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Income tax 3 12 (9) (75.0) % Our Income tax for the three months ended June 30, 2023, was $3.0 thousand which was an increase of $9.0 thousand as compared to Income taxes of $12.0 thousand for the three months ended June 30, 2022 due to an increase in current state taxes. 56 Table of Contents The following table represents selected items in our Condensed Consolidated Statements of Operations for the three months ended June 30, 2023, by our operating segments: Three Months Ended June 30, 2023 Restaurant division Sadot agri-foods Corporate adj. Consolidated $’000 $’000 $’000 $’000 Revenues: Commodity sales — 157,559 — 157,559 Company restaurant sales, net of discounts 2,487 — — 2,487 Franchise royalties and fees 238 — — 238 Franchise advertising fund contributions 20 — — 20 Other revenues 13 — — 13 Total revenues 2,758 157,559 — 160,317 Operating Costs and Expenses: Commodity operating expenses: Commodity cost — 153,240 — 153,240 Labor — 852 — 852 Other commodity operating expenses — 485 — 485 Total commodity operating expenses — 154,577 — 154,577 Restaurant operating expenses: Food and beverage costs 867 — — 867 Labor 956 — — 956 Rent 290 — — 290 Other restaurant operating expenses 551 — — 551 Total restaurant operating expenses 2,664 — — 2,664 Depreciation and amortization expenses 153 — 288 441 Franchise advertising fund expenses 20 — — 20 Post-closing expenses 19 — — 19 Stock-based consulting expenses — — 1,068 1,068 Sales, general and administrative expenses 88 301 1,499 1,888 Total costs and expenses 2,944 154,878 2,855 160,677 (Loss) / income from operations (186) 2,681 (2,855) (360) Other Income: Other income — — 251 251 Interest expense, net (1) (20) (1) (22) Change in fair value of accrued compensation — — 324 324 Total other income, net (1) (20) 574 553 (Loss) / Income Before Income Tax (187) 2,661 (2,281) 193 Income tax 1 — 2 3 Net (loss) / income (188) 2,661 (2,283) 190 57 Table of Contents The following table represents selected items in our Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2022, by our operating segments: Three Months Ended June 30, 2022 Restaurant division Sadot agri-foods Corporate adj. Consolidated $’000 $’000 $’000 $’000 Revenues: Company restaurant sales, net of discounts 2,751 — — 2,751 Franchise royalties and fees 70 — 93 163 Franchise advertising fund contributions — — 16 16 Total revenues 2,821 — 109 2,930 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 1,137 — (20) 1,117 Labor 903 — — 903 Rent 327 — — 327 Other restaurant operating expenses 688 — — 688 Total restaurant operating expenses 3,055 — (20) 3,035 Depreciation and amortization expenses 124 — 365 489 Franchise advertising fund expenses — — 16 16 Sales, general and administrative expenses 30 — 1,097 1,127 Total costs and expenses 3,209 — 1,458 4,667 Loss from operations (388) — (1,349) (1,737) Other Income: Other income / (expense) 10 — (25) (15) Interest expense, net (5) — (5) (10) Total other income, net 5 — (30) (25) Loss Before Income Tax (383) — (1,379) (1,762) Income tax — — 12 12 Net loss (383) — (1,391) (1,774) 58 Table of Contents Unaudited Condensed Consolidated Results of Operations - Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022 The following table represents selected items in our Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2023 and 2022, respectively: For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Revenues: Commodity sales 367,925 — 367,925 NM Company restaurant sales, net of discounts 4,788 5,445 (657) (12.1) % Franchise royalties and fees 522 371 151 40.7 % Franchise advertising fund contributions 36 34 2 5.9 % Other revenues 13 — 13 NM Total revenues 373,284 5,850 367,434 6280.9 % Operating Costs and Expenses: Commodity operating expenses: Commodity cost 358,295 — 358,295 NM Labor 1,472 — 1,472 NM Other commodity operating expenses 639 — 639 NM Total commodity operating expenses 360,406 — 360,406 NM Restaurant operating expenses: Food and beverage costs 1,706 2,143 (437) (20.4) % Labor 1,836 1,976 (140) (7.1) % Rent 564 667 (103) (15.4) % Other restaurant operating expenses 1,023 1,338 (315) (23.5) % Total restaurant operating expenses 5,129 6,124 (995) (16.2) % Depreciation and amortization expenses 1,074 965 109 11.3 % Franchise advertising fund expenses 36 34 2 5.9 % Pre-opening expenses 36 — 36 NM Post-closing expenses 113 — 113 NM Stock-based consulting expenses 4,427 — 4,427 NM Sales, general and administrative expenses 4,030 2,451 1,579 64.4 % Total costs and expenses 375,251 9,574 365,677 3819.5 % Loss from operations (1,967) (3,724) 1,757 (47.2) % Other Income / (Expense): Other income / (expense) 251 (34) 285 (838.2) % Interest income / (expense), net (19) (28) 9 (32.1) % Change in fair value of accrued compensation 865 — 865 NM Gain on debt extinguishment — 140 (140) (100.0) % Total other income / (expense), net 1,097 78 1,019 1306.4 % Income / (Loss) Before Income Tax (870) (3,646) 2,776 (76.1) % Income tax 6 14 (8) (57.1) % Net income / (loss) (876) (3,660) 2,784 (76.1) % NM= not meaningful 59 Table of Contents The following table sets forth our results of operations as a percentage of total revenue for each period presented preceding: For the Six Months Ended June 30, 2023 2022 Revenues: Commodity sales 98.6 % — Company restaurant sales, net of discounts 1.3 % 93.1 % Franchise royalties and fees 0.1 % 6.3 % Franchise advertising fund contributions — 0.6 % Other revenues — — Total revenues 100.0 % 100.0 % Operating Costs and Expenses: Commodity operating expenses: Commodity cost 96.0 % — Labor 0.4 % — Other commodity operating expenses 0.2 % — Total commodity operating expenses 96.6 % — Restaurant operating expenses: Food and beverage costs 0.5 % 36.6 % Labor 0.5 % 33.8 % Rent 0.2 % 11.4 % Other restaurant operating expenses 0.3 % 22.9 % Total restaurant operating expenses 1.4 % 104.7 % Depreciation and amortization expenses 0.3 % 16.5 % Franchise advertising fund expenses — 0.6 % Pre-opening expenses — — Post-closing expenses — — Stock-based consulting expenses 1.2 % — Sales, general and administrative expenses 1.1 % 41.9 % Total costs and expenses 100.5 % 163.7 % Loss from operations (0.5) (63.7) % Other Income: Other income / (expense) 0.1 % (0.6) % Interest income / (expense), net — (0.5) % Change in fair value of accrued compensation 0.2 % — Gain on debt extinguishment — 2.4 % Total other income, net 0.3 % 1.3 % Loss Before Income Tax (0.2) % (62.3) % Income tax — 0.2 % Net loss (0.2) % (62.6) % 60 Table of Contents Revenues For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Revenues: Commodity sales 367,925 — 367,925 NM Company restaurant sales, net of discounts 4,788 5,445 (657) (12.1) % Franchise royalties and fees 522 371 151 40.7 % Franchise advertising fund contributions 36 34 2 5.9 % Other revenues 13 — 13 NM Total revenues 373,284 5,850 367,434 6280.9 % NM= not meaningful Our revenues totaled $373.3 million for the six months ended June 30, 2023, compared to $5.9 million for the six months ended June 30, 2022. The $367.4 million increase is primarily attributed to an increase in Commodity sales as a direct result of the formation of Sadot Agri-Foods and its added revenue. We generated Commodity sales of $367.9 million for the six months ended June 30, 2023. We did not have any Commodity sales for the six months ended June 30, 2022. This represented an increase of $367.9 million, which is attributable to Sadot Agri-Foods sales generated from physical food related commodities. We generated Company restaurant sales, net of discounts, of $4.8 million for the six months ended June 30, 2023, compared to $5.4 million for the six months ended June 30, 2022. This represented an decrease of $0.7 million, or 12.1%, which is mainly attributable to the closures of certain unprofitable Muscle Maker Grill locations. Franchise royalties and fees for the six months ended June 30, 2023 totaled $0.5 million compared to $0.4 million for the six months ended June 30, 2022. This represents an increase of $0.2 million, or 40.7%. In 2023, the franchise fees were higher, primarily due to termination of one Muscle Maker Grill franchise agreement, which corresponds to accelerating the recognition of initial franchise fees and an increase in Pokemoto franchise sales and store openings. Franchise advertising fund contributions for the six months ended June 30, 2023 totaled $36.0 thousand compared to $34.0 thousand for the six months ended June 30, 2022. The Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense. The increase of $2.0 thousand or 5.9%, is a direct result of the increase in Muscle Maker Grill national advertising services to benefit the brand as a whole. Other revenues for the six months ended June 30, 2023 totaled $13.0 thousand. There were no Other revenues for the six months ended June 30, 2022. 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. 61 Table of Contents Commodity Costs For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Commodity cost 358,295 — 358,295 NM Commodity costs for the six months ended June 30, 2023, totaled $358.3 million or 97.4% as a percentage of Commodity sales. There was no Commodity cost for the six months ended June 30, 2022. The $358.3 million increase resulted from a new line of business operated by Sadot Agri-Foods. Commodity Labor Cost For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Labor 1,472 — 1,472 NM Commodity labor costs for the six months ended June 30, 2023, totaled $1.5 million or 0.4% as a percentage of Commodity sales. There were no Commodity labor costs for the six months ended June 30, 2022. The $1.5 million increase resulted from a new line of business operated by Sadot Agri-Foods. Other Commodity Operating Expenses For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Other commodity operating expenses 639 — 639 NM Other commodity operating expenses for the six months ended June 30, 2023 totaled $0.6 million or 0.2% as a percentage of Commodity sales There were no Other commodity operating expenses for the six months ended June 30, 2022. The $0.6 million increase resulted from a new line of business operated by Sadot Agri-Foods. Restaurant Food and Beverage Costs For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Food and beverage costs 1,706 2,143 (437) (20.4) % Restaurant food and beverage costs for the six months ended June 30, 2023 totaled $1.7 million or 35.6% as a percentage of Company restaurant net sales, and $2.1 million or 39.4%, as a percentage of Company restaurant net sales, for the six months ended June 30, 2022. The $0.4 million decrease resulted from a decrease in sales due to the closures of certain unprofitable Muscle Maker Grill locations. Total restaurant food and beverage cost as a percentage of sales decrease by 3.7% as a result of increased efficiencies in 2023. Restaurant Labor Expense 62 Table of Contents For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Labor 1,836 1,976 (140) (7.1) % Restaurant labor expense for the six months ended June 30, 2023 totaled $1.8 million, or 38.3%, as a percentage of Company restaurant net sales, and $2.0 million, or 36.3%, as a percentage of Company restaurant net sales, for the six months ended June 30, 2022. The $0.1 million decrease resulted from the closure of nonperforming corporate locations. Restaurant Rent Expense For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Rent 564 667 (103) (15.4) % Restaurant rent expense for the six months ended June 30, 2023 totaled $0.6 million, or 11.8% as a percentage of restaurant sales, and $0.7 million, or 12.2%, as a percentage of restaurant sales, for the six months ended June 30, 2022. The decrease of $0.1 million is directly attributed to the closure of nonperforming corporate locations. The percentage of total sales decreased by 0.5% as sales decreased overall. Other Restaurant Operating Expenses For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Other restaurant operating expenses 1,023 1,338 (315) (23.5) % Other restaurant operating expenses for the six months ended June 30, 2023 totaled $1.0 million, or 21.4% as a percentage of restaurant sales, and $1.3 million, or 24.6% as a percentage of restaurant sales, for the six months ended June 30, 2022. The $0.3 million decrease is primarily due to a decrease in insurance costs resulting from a consolidation in insurance companies and a decrease in third party processing fees, partially offset by an increase in merchant processing fees. The Other restaurant operating expenses as a percent of total sales decreased by 3.2%. Depreciation and Amortization Expenses For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Depreciation and amortization expenses 1,074 965 109 11.3 % Depreciation and amortization expenses for the six months ended June 30, 2023 totaled $1.1 million compared to $1.0 million, for the six months ended June 30, 2022. The $0.1 million increase is mainly attributed to the accelerated depreciation of leasehold improvements for leases that were modified resulting in a shorter life. Franchise Advertising Fund Expenses 63 Table of Contents For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Franchise advertising fund expenses 36 34 2 5.9 % Franchise advertising fund expenses for the six months ended June 30, 2023 totaled $36.0 thousand compared to $34.0 thousand , for the six months ended June 30, 2022. The $2.0 thousand increase or 5.9% is mainly attributed to the increase in Muscle Maker Grill national advertising services to benefit the brand. Pre-Opening Expenses For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Pre-opening expenses 36 — 36 NM Pre-opening expenses for the six months ended June 30, 2023 totaled $36.0 thousand . There were no Pre-opening expenses for the six months ended June 30, 2022. The increase in pre-opening expense resulted from expenses incurred prior to the opening of our new Company-owned stores. Post-Closing Expenses For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Post-closing expenses 113 — 113 NM Post-closing expenses for the six months ended June 30, 2023 totaled $0.1 million. There were no Post-closing expenses for the six months ended June 30, 2022. The increase in Post-closing expenses resulted from expenses incurred after the closing of underperforming Company-owned stores. Stock-Based Consulting Expenses For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Stock-based consulting expenses 4,427 — 4,427 NM Stock-based consulting expenses for the six months ended June 30, 2023, totaled $4.4 million. There were no Stock-based consulting expenses for the six months ended June 30, 2022. The increase in Stock-based consulting expenses is the result of consulting fees due to Aggia for Sadot Agri-Foods operations. Based on the servicing agreement with Aggia, the consulting fees are calculated at approxim ately 80% and 40.0% of the Net income generated by the Sadot Agri-Foods business segment for the first quarter of 2023 and the second quarter of 2023, respectively. Sales, General and Administrative Expenses 64 Table of Contents For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Sales, general and administrative expenses 4,030 2,451 1,579 64.4 % Sales, general and administrative expenses for the six months ended June 30, 2023 totaled $4.0 million, or 1.1% of total revenue, compared to $2.5 million, or 41.9% of total revenue, for the six months ended June 30, 2022. The $1.6 million increase was primarily attributable to an increase in professional and consulting fees and employee salaries and benefits. Total Other Income, Net For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Total other income / (expense), net 1,097 78 1,019 1306.4 % Total other income / (expense), net for the six months ended June 30, 2023 totaled $1.1 million compared to $0.1 million, for the six months ended June 30, 2022. The $1.0 million increase in Total other income / (expense), net was attributable to an decrease in the Gain on extinguishment of debt of $0.1 million due to the forgiveness of our PPP loans, a increase of $0.9 million in the Change in fair value of accrued compensation, partially offset by a $9.0 thousand decrease in Interest expense and a $0.3 million increase in Other income. Income Tax For the Six Months Ended June 30, Variance 2023 2022 $ % $’000 $’000 $’000 Income tax 6 14 (8) (57.1) % Our Income tax for the six months ended June 30, 2023, was $6.0 thousand which was an increase of $8.0 thousand as compared to Income taxes of $14.0 thousand for the six months ended June 30, 2022 due to an increase in current state taxes. 65 Table of Contents The following table represents selected items in our Condensed Consolidated Statements of Operations for the six months ended June 30, 2023, by our operating segments: Six Months Ended June 30, 2023 Restaurant division Sadot agri-foods Corporate adj. Consolidated $’000 $’000 $’000 $’000 Revenues: Commodity sales — 367,925 — 367,925 Company restaurant sales, net of discounts 4,788 — — 4,788 Franchise royalties and fees 522 — — 522 Franchise advertising fund contributions 36 — — 36 Other revenues 13 — — 13 Total revenues 5,359 367,925 — 373,284 Operating Costs and Expenses: Commodity operating expenses: Commodity cost — 358,295 — 358,295 Labor — 1,472 — 1,472 Other commodity operating expenses — 639 — 639 Total commodity operating expenses — 360,406 — 360,406 Restaurant operating expenses: Food and beverage costs 1,706 — — 1,706 Labor 1,836 — — 1,836 Rent 564 — — 564 Other restaurant operating expenses 1,023 — — 1,023 Total restaurant operating expenses 5,129 — — 5,129 Depreciation and amortization expenses 469 — 605 1,074 Franchise advertising fund expenses 36 — — 36 Preopening expenses 36 — — 36 Post-closing expenses 112 — 1 113 Stock-based consulting expenses — — 4,427 4,427 Sales, general and administrative expenses 171 587 3,272 4,030 Total costs and expenses 5,953 360,993 8,305 375,251 (Loss) / income from operations (594) 6,932 (8,305) (1,967) Other Income: Other income — — 251 251 Interest income , net 2 (21) — (19) Change in fair value of accrued compensation — — 865 865 Total other income, net 2 (21) 1,116 1,097 (Loss) / Income Before Income Tax (592) 6,911 (7,189) (870) Income tax 2 — 4 6 Net (loss) / income (594) 6,911 (7,193) (876) 66 Table of Contents The following table represents selected items in our Condensed Consolidated Statements of Operations for the six months ended June 30, 2022, by our operating segments: Six Months Ended June 30, 2022 Restaurant division Sadot agri-foods Corporate adj. Consolidated $’000 $’000 $’000 $’000 Revenues: Company restaurant sales, net of discounts 5,445 — — 5,445 Franchise royalties and fees 132 — 239 371 Franchise advertising fund contributions — — 34 34 Total revenues 5,577 — 273 5,850 Operating Costs and Expenses: Restaurant operating expenses: Food and beverage costs 2,145 — (2) 2,143 Labor 1,976 — — 1,976 Rent 667 — — 667 Other restaurant operating expenses 1,338 — — 1,338 Total restaurant operating expenses 6,126 — (2) 6,124 Depreciation and amortization expenses 243 — 722 965 Franchise advertising fund expenses — — 34 34 Sales, general and administrative expenses 287 — 2,164 2,451 Total costs and expenses 6,656 — 2,918 9,574 Loss from operations (1,079) — (2,645) (3,724) Other Income: Other income 12 — (46) (34) Interest expense, net (2) — (26) (28) Gain on debt extinguishment 140 — — 140 Total other income, net 150 — (72) 78 Loss Before Income Tax (929) — (2,717) (3,646) Income tax — — 14 14 Net loss (929) — (2,731) (3,660) 67 Table of Contents Liquidity and Capital Resources Liquidity We measure our liquidity in a number of ways, including the following: As of June 30, 2023 December 31, 2022 $’000 $’000 Cash 5,090 9,898 Working capital surplus 7,716 4,033 Notes payable 4,412 981 Availability of Additional Funds Although we have a working capital surplus of $7.7 million, we presently have an accumulated deficit of $80.2 million, as of December 31, 2022, and we utilized $4.2 million of cash in operating activities during the six months ended June 30, 2023. 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 occurrence 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. Sources and Uses of Cash for the Six Months Ended June 30, 2023 and 2022 For the six months ended June 30, 2023, we used Net cash of $4.2 million compared to $1.9 million, for the six months ended June 30, 2022, in operations. Our Net cash used for the six months ended June 30, 2023, was primarily attributable to our Net loss of $0.9 million, adjusted for net non-cash income in the aggregate amount of $5.0 million offset by $8.4 million of Net cash provided by changes in the levels of operating assets and liabilities. Our Net cash used for the six months ended June 30, 2022, was primarily attributable to our Net loss of $3.7 million, adjusted for net non-cash income in the aggregate amount of $1.1 million, partially offset by $0.6 million of Net cash used in changes in the levels of operating assets and liabilities. For the six months ended June 30, 2023, Net cash used in investing activities was $4.0 million, of which $0.2 million was used to purchase Property and equipment, $0.1 million was used on the Disposal of property and equipment and $3.9 million was used for a deposit with the intent to purchase farmland. For the six months ended June 30, 2022, Net cash used in investing activities was $0.3 million, of which $0.3 million was used to purchase Property and equipment. For the six months ended June 30, 2023, Net cash provided by financing activities was $3.4 million, consisting of repayments of various other notes payable of $0.1 million. For the six months ended June 30, 2022, Net cash used in financing activities was $0.1 million, partially offset by repayments of various other notes payable of $0.1 million. 68 Table of Contents Recently Issued Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update 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 $15.0 thousand as of the adoption date, and recognized an additional $7.8 thousand during the second quarter of 2022, based on updated information on two of our leases, for an aggregate cumulative-effect adjustment to accumulated deficit of $22.8 thousand. In October 2021, the FASB issued ASU 2021-08 Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers”, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03. The guidance in the ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used. The standard also establishes additional disclosures related to credit risks. This standard is effective for fiscal years beginning after December 15, 2022. The adoption of this guidance on January 1, 2023 did not have a material impact on the Company's Unaudited Condensed 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 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 69 Table of Contents