What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-09 · 297 added, 408 removed, 379 unchanged (65% of the section changed)

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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.

The following Management’s Discussion and Analysis (“MD&A”), prepared as of November 14, 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 nine months ended September 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.

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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.

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Sadot Group Inc.

(f/k/a Muscle Maker, Inc.) ("MMI") is our parent company and is headquartered in Ft.

(f/k/a Muscle Maker, Inc.) ("SGI") 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.

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.

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-

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.

In late 2022, SGI began a transformation from a U.S.-centric restaurant business into a global, food-focused organization with three distinct business units.

Effective July 27, 2023, SGI changed its name to Sadot Group Inc.

Sadot Agri-Foods is an international agri-commodities company engaged in the trading and shipping of food and feed (e.g., soybean meal, wheat and corn) via dry bulk cargo ships to/from markets across the globe.

Sadot Agri-Foods executes agri-commodity trades between producing geographies such as the Americas, Africa, and the Black Sea to consumer markets in Southeast Asia, China, Latin America and the Middle East/North Africa (MENA) region.

Sadot Agri-Foods was formed as part of our diversification strategy to own and operate, through its subsidiaries, business lines throughout the food value chain and is our largest operating unit.

Sadot Food Service Operations has three unique concepts, including two fast casual restaurant concepts, Pokémoto and Muscle Maker Grill, plus one subscription-based fresh prep meal concept, SuperFit Foods.

Following our strategic pivot to the global food supply chain sector, we are fully engaged in the restructuring of these legacy restaurant operations.

By refranchising company-owned units and closing underperforming locations while growing Pokémoto through franchising, we will continue our restructuring efforts with the goal of reducing annualized restaurant operating expenses and overhead while potentially increasing franchise royalty revenue at Pokémoto.

Sadot Farm Operations includes approximately 5,000 acres of farmland in the Mkushi Region of Zambia which was acquired in August of 2023.

Farm operations are expected to provide a reliable supply of grains and tree crops (mango and avocado).

As of September 30, 2023, we had a cash balance, a working capital surplus and an accumulated deficit of $2.4 million, $9.0 million and $85.4 million, respectively.

During the three and nine months ended September 30, 2023, we incurred a Pre-tax net income / loss of $5.3 million and $6.2 million, respectively.

Net cash used in operations of $8.7 million for the nine months ended September 30, 2023.

We believe that our existing cash on hand, current accounts receivable and future cash flows from our commodity trading, farming and franchise operations, will be sufficient to fund our operations, anticipated capital expenditures and repayment obligations over the next 12 months.

In addition, we have access to additional liquidity if it is needed through an executed Standby Equity Purchase Agreement ("SEPA") for up to $25 million in capital whereby we may submit advance requests to the lender whereby the lender will provide cash in consideration of shares of common stock subject to certain limitations and conditions set forth in the SEPA.

Key Financial Definitions

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Governmental and other economic factors affecting our operations may vary.

For the Three Months Ended June 30, For the Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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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

Cost of goods sold 179,268 2,710 544,803 8,834

Impairment of goodwill 828 — 828 —

Impairment of intangible assets 810 — 810 —

Depreciation and amortization expenses 443 525 1,517 1,490

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Post-closing expenses 60 159 173 159

Stock-based consulting expenses 1,068 — 4,427 —

Stock-based expenses 1,075 32 5,667 82

Sales, general and administrative expenses 3,310 1,219 7,175 3,620

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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,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Sadot food service 1.2 % 100.0 % 1.4 % 100.0 %

Sadot agri-foods 98.5 % — 98.5 % —

Restaurant division 1.7 % 100.0 % 1.4 % 100.0 %

Sadot farming operations 0.3 % — 0.1 % —

Our key business and financial metrics are explained in detail below.

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.

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.

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.

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.

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.

Our revenues are derived from two primary sources:

Commodity sales revenue and revenue generated from Sadot Food service operations.

Commodity sales revenue is generated by our Sadot Agri-Foods and Farming operating units and is recognized with the commodity is delivered and invoiced.

Sadot Food service revenue consist of sales from Company restaurant sales, Franchise revenues, vendor rebates from Franchisees and other revenues generated by gift card breakage.

Operating Costs and Expenses

Cost of Goods Sold

Cost of goods sold includes commodity costs, labor, other commodity operating expenses, food and beverage costs, restaurant labor, rent and other operating expenses.

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.

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.

Depreciation and Amortization Expenses

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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.

We record the related advertising expenses as incurred under Sales, general and administrative expenses.

Pre-Opening Expenses

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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.

Post-closing expenses primarily consist of expenses associated with closing or selling a Company-operated location and expenses related to Company-operated locations after the location has closed.

Stock-Based Expenses

Stock-based expenses consist of expenses that are paid with stock.

This includes stock-based consulting fees due to Aggia and other consultants, stock compensation paid to the Company's board of directors, and stock compensation paid to employees.

Stock-based expenses are related to consulting fees due to Aggia for Sadot Agri-Foods and Farming operations.

Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 40.0% of the Net income generated by Sadot LLC.

For the three and nine months ended September 30, 2023, $1.1 million and $5.7 million respectively, are recorded as Stock-based expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss 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.

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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.

Warrant Modification Expense

Warrant modification expense consists of the expense incurred and the issuance of new warrants.

Gain / (loss) on Fair Value Remeasurement

Gain / (loss) on fair value remeasurement consists of the fair value remeasurement recorded on a recurring basis on the forward sales contract which was deemed to be a derivative within the scope of ASC 815.

Net Income Attributable to Non-controlling Interests

Net loss attributable to non-controlling interests was $0.1 million and $0.1 million for the three and nine months ended September 30, 2023.

During the three and nine months ended September 30, 2023 the Company created a joint-venture in which the Company has a 70% interest and the third-party equity ownership has a 30% Non-controlling interest.

Non-GAAP Measures

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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 define Adjusted EBITDA as Net loss, adjusted for depreciation, amortization, net interest (income) expense, income taxes, impairment expenses, stock-based expenses, derived from amounts presented in the Unaudited Condensed Consolidated Statement of Operations and Other Comprehensive Loss 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.

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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,

GAAP measure, Net loss, and the calculations of the Net loss Margin and Adjusted EBITDA Margin for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Depreciation and amortization expenses 443 525 1,517 1,490

Interest expense, net 22 10 19 28

Interest (income) / expense, net 301 (11) 320 17

Income tax (13) (2) (18) (16)

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Adjustments to Adjusted EBITDA:

Other income / (expense) (251) 15 (251) 34

Impairment of goodwill 828 — 828 —

Impairment of intangible assets 810 — 810 —

Other income (1) (55) (252) (21)

Change in fair value of accrued compensation (297) — (1,161) —

Gain on debt extinguishment — — — (140)

Stock-based consulting expenses 1,068 — 4,427 —

Warrant modification expense 958 — 958 —

Loss on fair value remeasurement 349 — 349 —

Stock-based expenses 1,075 32 5,667 82

Adjusted EBITDA (842) (1,409) 2,847 (4,146)

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Adjusted EBITDA Margin (0.5) % (49.9) % 0.5 % (47.8) %

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

Unaudited Condensed Consolidated Results of Operations - Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

The following table represents selected items in our Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the three months ended September 30, 2023 and 2022, respectively:

Three Months Ended September 30, Variance

2023 2022 $ %

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Franchise advertising fund contributions 16 24 (8) (33.3) %

Other revenues 13 — 13 NM

Total revenues 182,173 2,824 179,349 6350.9 %

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) %

Cost of goods sold 179,268 2,710 176,558 6515.1 %

Impairment of goodwill 828 — 828 NM

Impairment of intangible assets 810 — 810 NM

Depreciation and amortization expenses 443 525 (82) (15.6) %

Franchise advertising fund expenses 16 24 (8) (33.3) %

Post-closing expenses 19 — 19 NM

Stock-based consulting expenses 1,068 — 1,068 NM

Pre-opening expenses 335 117 218 186.3 %

Post-closing expenses 60 159 (99) (62.3) %

Stock-based expenses 1,075 32 1,043 3259.4 %

Sales, general and administrative expenses 3,310 1,219 2,091 171.5 %

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Other Income / (Expense):

Other income / (expense) 251 (15) 266 (1773.3) %

Other income 1 55 (54) (98.2) %

Interest income / (expense), net (301) 11 (312) (2836.4) %

Change in fair value of accrued compensation 297 — 297 NM

Warrant modification expense (958) — (958) NM

Loss on fair value remeasurement (349) — (349) NM

Total other income / (expense), net (1,310) 66 (1,376) (2084.8) %

Income / (Loss) Before Income Tax 193 (1,762) 1,955 (111.0) %

Loss Before Income Tax (5,282) (1,896) (3,386) 178.6 %

Income tax 13 2 11 550.0 %

Net income / (loss) 190 (1,774) 1,964 (110.7) %

Net loss (5,295) (1,898) (3,397) 179.0 %

NM= not meaningful

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,

Three Months Ended September 30,

Commodity sales 98.8 % —

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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 %

Cost of goods sold 98.4 % 96.0 %

Impairment of goodwill 0.5 % —

Impairment of intangible assets 0.4 % —

Depreciation and amortization expenses 0.2 % 18.6 %

Franchise advertising fund expenses — 0.8 %

Pre-opening expenses 0.2 % 4.1 %

Post-closing expenses — 5.6 %

Stock-based consulting expenses 0.7 % —

Stock-based expenses 0.6 % 1.1 %

Sales, general and administrative expenses 1.8 % 43.2 %

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Other Income / (Expense):

Other income / (expense) — (0.5) %

Other income — 1.9 %

Interest income / (expense), net (0.2) % 0.4 %

Change in fair value of accrued compensation 0.2 % —

Warrant modification expense (0.5) % —

Loss on fair value remeasurement (0.2) % —

Gain on debt extinguishment — —

Total other income / (expense), net (0.7) % 2.3 %

Income / (Loss) Before Income Tax 0.1 % (60.1) %

Loss Before Income Tax (2.9) % (67.1) %

Income tax — 0.1 %

Net income / (loss) 0.1 % (60.5) %

Three Months Ended June 30, Variance

Net loss (2.9) % (67.2) %

Three Months Ended September 30, Variance

2023 2022 $ %

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Franchise advertising fund contributions 16 24 (8) (33.3) %

Other revenues 13 — 13 NM

Total revenues 182,173 2,824 179,349 6350.9 %

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.

Our revenues totaled $182.2 million for the three months ended September 30, 2023, compared to $2.8 million for the three months ended September 30, 2022.

The $179.3 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.

We generated Commodity sales of $180.0 million for the three months ended September 30, 2023.

We did not have any Commodity sales for the three months ended September 30, 2022.

This represented an increase of $180.0 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.

We generated Company restaurant sales, net of discounts, of $1.9 million for the three months ended September 30, 2023, compared to $2.6 million for the three months ended September 30, 2022.

This represented an decrease of $0.7 million, or 26.3%, which is mainly attributable to the closures of certain unprofitable Muscle Maker Grill locations and the conversion of certain corporate owned Pokemoto locations to franchise locations.

Franchise royalties and fees for the three months ended September 30, 2023 totaled $0.2 million compared to $0.2 million for the three months ended September 30, 2022.

This represents an increase of $0.1 million, or 44.1%.

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.

Franchise advertising fund contributions for the three months ended September 30, 2023 totaled $16.0 thousand compared to $24.0 thousand for the three months ended September 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.

The decrease of $8.0 thousand or 33.3%, is a direct result of the decrease in Muscle Maker Grill national advertising services.

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

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

Three Months Ended June 30, Variance

Operating costs and expenses primarily consist of Cost of goods sold, Impairment of goodwill, Impairment of intangible assets, Depreciation and amortization expenses, Franchise advertising fund expenses, Pre-opening expenses, Post-closing expenses, Stock-based expenses and Sales, general and administrative expenses.

Cost of Good Sold

Three Months Ended September 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

Cost of goods sold 179,268 2,710 176,558 6515.1 %

Cost of goods sold for the three months ended September 30, 2023, totaled $179.3 million or 98.4% as a percentage of revenue.

The Cost of goods sold for the three months ended September 30, 2022 was $2.7 million.

The $176.6 million change was primarily due to adding Sadot Agri-Foods and entering into the new vertical.

Impairment of Goodwill

Three Months Ended September 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

Impairment of goodwill 828 — 828 NM

We had an Impairment of goodwill for the three months ended September 30, 2023 of $0.8 million.

There was no Impairment of goodwill for the three months ended September 30, 2022.

The increase in Impairment of goodwill was due to the structural change of the company's operations and the closing or marketing for sale our company owned restaurant stores.

Impairment of Intangible Assets

Three Months Ended September 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%.

Impairment of intangible assets 810 — 810 NM

We had an Impairment of intangible assets for the three months ended September 30, 2023 of $0.8 million.

There was no Impairment of goodwill for the three months ended September 30, 2022.

The increase in Impairment of intangible assets was due to the structural change of the company's operations and the closing or marketing for sale our company owned restaurant stores.

Depreciation and Amortization Expenses

Three Months Ended June 30, Variance

Three Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Depreciation and amortization expenses 443 525 (82) (15.6) %

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.

Depreciation and amortization expenses for the three months ended September 30, 2023 totaled $0.4 million compared to $0.5 million, for the three months ended September 30, 2022.

The $0.1 million decrease is mainly attributed to the closing of nonperforming locations and the disposal of the corresponding assets.

Franchise Advertising Fund Expenses

Three Months Ended June 30, Variance

Three Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Franchise advertising fund expenses 16 24 (8) (33.3) %

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.

Franchise advertising fund expenses for the three months ended September 30, 2023 totaled $16.0 thousand compared to $24.0 thousand , for the three months ended September 30, 2022.

The $8.0 thousand or 33.3% decrease is mainly attributed to the decrease in Muscle Maker Grill national advertising services.

Pre-Opening Expenses

Three Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

Pre-opening expenses 335 117 218 186.3 %

Pre-opening expenses for the three months ended September 30, 2023 totaled $0.3 million compared to $0.1 million for the three months ended September 30, 2022.

The increase in Pre-opening expenses resulted from expenses incurred at the farm from the time that the purchase documents were signed and local government approval was obtained.

Post-Closing Expenses

Three Months Ended June 30, Variance

Three Months Ended September 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

Post-closing expenses 60 159 (99) (62.3) %

Post-closing expenses for the three months ended September 30, 2023 totaled $0.1 million compared to $0.2 million for the three months ended September 30, 2022.

The decrease in Post-closing expenses resulted from expenses incurred after the closing of underperforming Company-owned stores.

Stock-Based Expenses

Three Months Ended September 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.

Stock-based expenses 1,075 32 1,043 3259.4 %

Stock-based expenses for the three months ended September 30, 2023, totaled $1.1 million compared to $32.0 thousand for the three months ended September 30, 2022.

The $1.0 million increase in Stock-based expenses is primarily the result of consulting fees due to Aggia for Sadot Agri-Foods and Farming operations.

Based on the servicing agreement with Aggia, the consulting fees are calculated at approximately 40.0% of the Net income generated by Sadot LLC.

Thi s expense is paid in the vesting in restricted stock that was issued to Aggia in 2023.

Sales, General and Administrative Expenses

Three Months Ended June 30, Variance

Three Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Sales, general and administrative expenses 3,310 1,219 2,091 171.5 %

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.

Sales, general and administrative expenses for the three months ended September 30, 2023 totaled $3.3 million, or 1.8% of total revenue, compared to $1.2 million, or 43.2% of total revenue, for the three months ended September 30, 2022.

The $2.1 million increase was primarily attributable to an increase in investor relations due to an investor relations program initiated in July, and increase in professional and consulting fees and stock based consulting fees related to a warrant exchange and new debt and equity agreements.

Total Other Income, Net

Three Months Ended June 30, Variance

Three Months Ended September 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.

Three Months Ended June 30, Variance

Total other (expense) / income, net (1,310) 66 (1,376) (2084.8) %

Total other (expense) / income, net for the three months ended September 30, 2023 totaled $1.3 million expense compared to $0.1 million income, for the three months ended September 30, 2022.

The $1.4 million decrease in Total other (expense) / income, net was primarily attributable to a $1.0 million increase in Warrant modification expense, a $0.3 million decrease in Interest (expense) / income, a decrease of $0.3 million in Loss on fair value remeasurement and a $0.1 million decrease in Other income, partially offset by an increase of $0.3 million in the Change in fair value of accrued compensation.

Three Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Income tax 13 2 11 550.0 %

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.

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.

Our Income tax for the three months ended September 30, 2023, was $13.0 thousand which was an increase of $11.0 thousand as compared to Income taxes of $2.0 thousand for the three months ended September 30, 2022 due to an increase in current state taxes.

Three Months Ended September 30, 2023

Sadot food service Sadot agri-foods Sadot farm operations Corporate adj.

$’000 $’000 $’000 $’000 $’000

6 unchanged sentences

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

Cost of goods sold 2,167 176,617 484 — 179,268

Impairment of goodwill 828 — — — 828

Impairment of intangible assets 810 — — — 810

Depreciation and amortization expenses 382 — 61 — 443

Franchise advertising fund expenses 16 — — — 16

Pre-opening expenses — — 335 — 335

Post-closing expenses 60 — — — 60

Stock-based consulting expenses — — 1,068 1,068

Stock-based expenses — — — 1,075 1,075

Sales, general and administrative expenses 278 549 4 2,479 3,310

1 unchanged sentence

(Loss) / income from operations (2,343) 2,298 (373) (3,554) (3,972)

Other Income:

Other Income / (Expense):

Other income 1 — — — 1

1 unchanged sentence

Change in fair value of accrued compensation — — — 297 297

Warrant modification expense — — — (958) (958)

Loss on fair value remeasurement — (349) — — (349)

Total other income, net (1) (354) — (955) (1,310)

2 unchanged sentences

Net (loss) / income (2,344) 1,944 (373) (4,522) (5,295)

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.

Three Months Ended September 30, 2022

Sadot food service Sadot agri-foods Sadot farm operations Corporate adj.

$’000 $’000 $’000 $’000 $’000

4 unchanged sentences

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

Cost of goods sold 2,710 — — — 2,710

Depreciation and amortization expenses 525 — — — 525

Franchise advertising fund expenses 24 — — — 24

Pre-opening expenses 117 — — — 117

Post-closing expenses 159 — — — 159

Stock-based expenses — — — 32 32

Sales, general and administrative expenses 76 — — 1,143 1,219

1 unchanged sentence

Loss from operations (787) — — (1,175) (1,962)

Other Income:

Other Income / (Expense):

Interest expense, net (5) — (5) (10)

Other income 43 — — 12 55

Interest income / (expense), net 12 — — (1) 11

Total other income, net 55 — — 11 66

2 unchanged sentences

Net loss (732) — — (1,166) (1,898)

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

Unaudited Condensed Consolidated Results of Operations - Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

The following table represents selected items in our Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the nine months ended September 30, 2023 and 2022, respectively:

Nine Months Ended September 30, Variance

2023 2022 $ %

7 unchanged sentences

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) %

Cost of goods sold 544,803 8,834 535,969 6067.1 %

Impairment of goodwill 828 — 828 NM

Impairment of intangible assets 810 — 810 NM

Depreciation and amortization expenses 1,517 1,490 27 1.8 %

Franchise advertising fund expenses 52 58 (6) (10.3) %

Pre-opening expenses 36 — 36 NM

Post-closing expenses 113 — 113 NM

Stock-based consulting expenses 4,427 — 4,427 NM

Pre-opening expenses 371 117 254 217.1 %

Post-closing expenses 173 159 14 8.8 %

Stock-based expenses 5,667 82 5,585 6811.0 %

Sales, general and administrative expenses 7,175 3,620 3,555 98.2 %

2 unchanged sentences

Other Income / (Expense):

Other income / (expense) 251 (34) 285 (838.2) %

Other income 252 21 231 1100.0 %

Interest income / (expense), net (320) (17) (303) 1782.4 %

Change in fair value of accrued compensation 1,161 — 1,161 NM

Warrant modification expense (958) — (958) NM

Loss on fair value remeasurement (349) — (349) NM

Gain on debt extinguishment — 140 (140) (100.0) %

Total other income / (expense), net (214) 144 (358) (248.6) %

Income / (Loss) Before Income Tax (870) (3,646) 2,776 (76.1) %

Loss Before Income Tax (6,153) (5,542) (611) 11.0 %

Income tax 18 16 2 12.5 %

Net income / (loss) (876) (3,660) 2,784 (76.1) %

Net loss (6,171) (5,558) (613) 11.0 %

NM= not meaningful

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,

Nine Months Ended September 30,

Commodity sales 98.7 % —

5 unchanged sentences

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 %

Cost of goods sold 98.1 % 101.8 %

Impairment of goodwill 0.1 % —

Impairment of intangible assets 0.1 % —

Depreciation and amortization expenses 0.3 % 17.2 %

2 unchanged sentences

Post-closing expenses — 1.8 %

Stock-based consulting expenses 1.2 % —

Stock-based expenses 1.0 % 0.9 %

Sales, general and administrative expenses 1.3 % 41.7 %

1 unchanged sentence

Loss from operations (1.1) % (65.6) %

Other Income:

Other Income / (Expense):

Other income / (expense) — 0.2 %

Interest income / (expense), net (0.1) % (0.2) %

Change in fair value of accrued compensation 0.2 % —

Warrant modification expense (0.2) % —

Loss on fair value remeasurement (0.1) % —

Gain on debt extinguishment — 1.6 %

3 unchanged sentences

Net loss (1.1) % (64.1) %

For the Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

2023 2022 $ %

7 unchanged sentences

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.

Our revenues totaled $555.5 million for the nine months ended September 30, 2023, compared to $8.7 million for the nine months ended September 30, 2022.

The $546.8 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.

We generated Commodity sales of $547.9 million for the nine months ended September 30, 2023.

We did not have any Commodity sales for the nine months ended September 30, 2022.

This represented an increase of $547.9 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.

We generated Company restaurant sales, net of discounts, of $6.7 million for the nine months ended September 30, 2023, compared to $8.1 million for the nine months ended September 30, 2022.

This represented an decrease of $1.4 million, or 16.7%, which is mainly attributable to the closures of certain unprofitable Muscle Maker Grill locations and the conversion of certain corporate owned Pokemoto locations to franchise locations.

Franchise royalties and fees for the nine months ended September 30, 2023 totaled $0.8 million compared to $0.5 million for the nine months ended September 30, 2022.

This represents an increase of $0.2 million, or 41.8%.

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.

In 2023, the franchise fees were higher, primarily due to an increase in Pokemoto franchise sales and store openings and the termination of one Muscle Maker Grill franchise agreement, which corresponds to accelerating the recognition of initial franchise fees.

Franchise advertising fund contributions for the nine months ended September 30, 2023 totaled $0.1 million compared to $0.1 million for the nine months ended September 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.

The decrease of $6.0 thousand or 10.3%, is a direct result of the decrease in Muscle Maker Grill national advertising services.

Other revenues for the nine months ended September 30, 2023 totaled $13.0 thousand.

There were no Other revenues for the nine months ended September 30, 2022.

Other revenues consisted of gift card breakage recognized.

Operating Costs and Expenses

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

For the Six Months Ended June 30, Variance

Cost of Goods Sold

Nine Months Ended September 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

Cost of goods sold 544,803 8,834 535,969 6067.1 %

Cost of goods sold for the nine months ended September 30, 2023, totaled $544.8 million or 98.1% as a percentage of total revenue.

The Cost of goods sold for the nine months ended September 30, 2022 was $8.8 million.

The $536.0 million change is primarily due to a new line of business operated by Sadot Agri-Foods and entering into the new vertical.

Impairment of Goodwill

Nine Months Ended September 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

Impairment of goodwill 828 — 828 NM

Impairment of goodwill for the nine months ended September 30, 2023 totaled $0.8 million.

There was no Impairment of goodwill for the nine months ended September 30, 2022.

The increase in Impairment of goodwill was due to the structural change of the company's operations and the closing or marketing for sale our company owned restaurant stores.

Impairment of Intangible Assets

Nine Months Ended September 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%.

Impairment of intangible assets 810 — 810 NM

Impairment of intangible assets for the nine months ended September 30, 2023 totaled $0.8 million.

There was no Impairment of goodwill for the nine months ended September 30, 2022.

The increase in Impairment of intangible assets was due to the structural change of the company's operations and the closing or marketing for sale our company owned restaurant stores.

Depreciation and Amortization Expenses

For the Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Depreciation and amortization expenses 1,517 1,490 27 1.8 %

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.

Depreciation and amortization expenses for the nine months ended September 30, 2023 totaled $1.5 million compared to $1.5 million, for the nine months ended September 30, 2022.

The $27.0 thousand increase is mainly attributed to the new assets purchased in conjunction with the farm asset acquisition and accelerated depreciation of leasehold improvements for leases that were modified resulting in a shorter life.

Franchise Advertising Fund Expenses

For the Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Franchise advertising fund expenses 52 58 (6) (10.3) %

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.

Franchise advertising fund expenses for the nine months ended September 30, 2023 totaled $0.1 million compared to $0.1 million , for the nine months ended September 30, 2022.

The $6.0 thousand decrease or 10.3% is mainly attributed to the decrease in Muscle Maker Grill national advertising services.

Pre-Opening Expenses

For the Six Months Ended June 30, Variance

Nine Months Ended September 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.

Pre-opening expenses 371 117 254 217.1 %

Pre-opening expenses for the nine months ended September 30, 2023 totaled $0.4 million a $0.3 million increase when compared to $0.1 million for the nine months ended September 30, 2022.

The increase in pre-opening expense resulted from expenses incurred at the farm from the time that the purchase documents were signed and local government approval was obtained and expenses incurred prior to the opening of our new Company-owned stores.

Post-Closing Expenses

For the Six Months Ended June 30, Variance

Nine Months Ended September 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.

Post-closing expenses 173 159 14 8.8 %

Post-closing expenses for the nine months ended September 30, 2023 totaled $0.2 million.

a $14.0 thousand increase when compared to $0.2 million for the nine months ended September 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

Stock-Based Expenses

Nine Months Ended September 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.

Stock-based expenses 5,667 82 5,585 6811.0 %

Stock-based expenses for the nine months ended September 30, 2023, totaled $5.7 million compared to $0.1 million for the nine months ended September 30, 2022.

The $5.6 million increase in Stock-based expenses is primarily the result of consulting fees due to Aggia for Sadot Agri-Foods and Farming operations.

Based on the servicing agreement with Aggia, the consulting fees are calculated at approxim ately 80.0% and 40.0% of the Net income generated by Sadot LLC for the first quarter of 2023 and the second and third quarter of 2023, respectively.

Sales, General and Administrative Expenses

For the Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Sales, general and administrative expenses 7,175 3,620 3,555 98.2 %

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.

Sales, general and administrative expenses for the nine months ended September 30, 2023 totaled $7.2 million, or 1.3% of total revenue, compared to $3.6 million, or 41.7% of total revenue, for the nine months ended September 30, 2022.

The $3.6 million increase was primarily attributable to an increase in investor relations, professional and consulting fees and employee salaries and benefits.

Total Other Income, Net

For the Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Total other income / (expense), net (214) 144 (358) (248.6) %

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.

For the Six Months Ended June 30, Variance

Total other income / (expense), net for the nine months ended September 30, 2023 totaled $0.2 million compared to $0.1 million, for the nine months ended September 30, 2022.

The $358.0 thousand decrease 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 $1.2 million in the Change in fair value of accrued compensation, partially offset by a $0.3 million increase in Interest expense, a $0.2 million increase in Other income, a $0.3 million decrease in Loss on fair value remeasurement and a $1.0 million increase in Warrant modification expense.

Nine Months Ended September 30, Variance

2023 2022 $ %

1 unchanged sentence

Income tax 18 16 2 12.5 %

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.

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.

Our Income tax for the nine months ended September 30, 2023, was $18.0 thousand which was an increase of $2.0 thousand as compared to Income taxes of $16.0 thousand for the nine months ended September 30, 2022 due to an increase in current state taxes.

Nine Months Ended September 30, 2023

Sadot food service Sadot agri-foods Sadot farm operations Corporate adj.

$’000 $’000 $’000 $’000 $’000

6 unchanged sentences

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

Cost of goods sold 7,295 537,023 485 — 544,803

Impairment of goodwill 828 — — — 828

Impairment of intangible assets 810 — — — 810

Depreciation and amortization expenses 1,456 — 61 — 1,517

Franchise advertising fund expenses 52 — — — 52

Preopening expenses 36 — — 36

Pre-opening expenses 36 — 335 — 371

Post-closing expenses 172 — — 1 173

Stock-based consulting expenses — — 4,427 4,427

Stock-based expenses — — — 5,667 5,667

Sales, general and administrative expenses 449 1,136 4 5,586 7,175

1 unchanged sentence

(Loss) / income from operations (3,541) 9,230 (374) (11,254) (5,939)

Other Income:

Other Income / (Expense):

Other income 1 — — 251 252

1 unchanged sentence

Change in fair value of accrued compensation — — — 1,161 1,161

Warrant modification expense — — — (958) (958)

Loss on fair value remeasurement — (349) — — (349)

Total other income, net 1 (376) — 161 (214)

2 unchanged sentences

Net (loss) / income (3,542) 8,854 (374) (11,109) (6,171)

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.

Nine Months Ended September 30, 2022

Sadot food service Sadot agri-foods Sadot farm operations Corporate adj.

$’000 $’000 $’000 $’000 $’000

4 unchanged sentences

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

Cost of goods sold 8,834 — — — 8,834

Depreciation and amortization expenses 1,490 — — — 1,490

Franchise advertising fund expenses 58 — — — 58

Pre-opening expenses 117 — — — 117

Post-closing expenses 159 — — — 159

Stock-based expenses — — — 82 82

Sales, general and administrative expenses 362 — — 3,258 3,620

1 unchanged sentence

Loss from operations (2,346) — — (3,340) (5,686)

Other Income:

Other income 12 — (46) (34)

Interest expense, net (2) — (26) (28)

Other Income / (Expense):

Other income / (expense) 55 — — (34) 21

Interest income / (expense), net 10 — — (27) (17)

Gain on debt extinguishment 140 — — — 140

Total other income, net 150 — (72) 78

Total other income / (expense), net 205 — — (61) 144

Loss Before Income Tax (2,141) — — (3,401) (5,542)

3 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash 2,422 9,898

2 unchanged sentences

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.

Although we have a working capital surplus of $9.0 million, we presently have an accumulated deficit of $85.4 million, as of September 30, 2023, and we utilized $8.7 million of cash in operating activities during the nine months ended September 30, 2023.

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.

10 unchanged sentences

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.

Sources and Uses of Cash for the Nine Months Ended September 30, 2023 and 2022

For the nine months ended September 30, 2023, we used Net cash of $8.7 million compared to $3.4 million, for the nine months ended September 30, 2022, in operations.

Our Net cash used for the nine months ended September 30, 2023, was primarily attributable to our Net loss of $6.2 million, adjusted for net non-cash income in the aggregate amount of $9.0 million offset by $11.5 million of Net cash provided by changes in the levels of operating assets and liabilities.

Our Net cash used for the nine months ended September 30, 2022, was primarily attributable to our Net loss of $5.6 million, adjusted for net non-cash income in the aggregate amount of $1.6 million, partially offset by $0.5 million of Net cash used in changes in the levels of operating assets and liabilities.

For the nine months ended September 30, 2023, Net cash used in investing activities was $3.7 million, of which $12.4 million was used to purchase Property and equipment, $0.2 million was used on the Disposal of property and equipment and $4.9 million was provided by the purchase farmland closing out of the deposit account and an Investment in a non-controlling interest of $3.7 million for the farm.

For the nine months ended September 30, 2022, Net cash used in investing activities was $0.5 million, of which $0.6 million was used to purchase Property and equipment.

For the nine months ended September 30, 2023, Net cash provided by financing activities was $4.9 million, consisting of repayments of various other notes payable of $5.0 million, proceeds from notes payable of $7.7 million and proceeds from exercise of warrants of $2.2 million.

For the nine months ended September 30, 2022, Net cash used in financing activities was $0.2 million, partially offset by repayments of various other notes payable of $0.2 million.

Recently Issued Accounting Pronouncements

25 unchanged sentences

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.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity.

Among other changes, ASU 2020-06 removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument.

Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium.

Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share and updates the disclosure requirements in ASC 470-20, making them easier to understand for financial statement preparers and improving the decision-usefulness and relevance of the information for financial statement users.

The Company early adopted the new guidance from January 1, 2023, noting no material impact.

In April 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”) to clarify the accounting by issuers for modifications or exchanges of equity-classified warrants.

The new ASU is effective for all entities in fiscal years starting after December 15, 2021.

Early adoption is permitted.

The Company adopted the new guidance from January 1, 2023, noting no material impact.

Off-Balance Sheet Arrangements

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis