What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-14 · 193 added, 486 removed, 190 unchanged (78% of the section changed)

1 unchanged sentence

Preliminary Note

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.

The following Management’s Discussion and Analysis (“MD&A”), prepared as of May 15, 2024, should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements of Sadot Group Inc.

("Sadot Group"), for the three months ended March 31, 2024 together with the audited financial statements of the Company for the year ended December 31, 2023 and the accompanying MD&A for that fiscal year appearing in our Annual Report on 2023 Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2024.

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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Sadot Group Inc.

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

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

Worth, Texas.

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.

In late 2022, Sadot Group began a transformation from a U.S.-centric restaurant business into a global organization focused on the Agri-foods supply-chain.

Effective July 27, 2023, we changed our company name from Muscle Maker, Inc., to Sadot Group Inc.

As of March 31, 2024, Sadot Group consisted of two distinct operating units.

Sadot LLC (“Sadot Agri-Foods”):

Sadot Group’s largest operating unit is a global Agri-Foods company engaged in farming, commodity 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, Australia, Bangladesh, Brazil, Canada, China, Columbia, Ecuador, Egypt, Guinea, Honduras, India, Indonesia, Ivory Coast, Japan, Kenya, Malaysia, Morocco, Mozambique, Nigeria, Philippines, Poland, Romania, Saudi Arabia, South Korea, Sri Lanka, Ukraine, United States and Vietnam, among others.

Sadot Agri-Foods competes with the ABCD commodity companies (ADM, Bunge, Cargill, Louis-Dreyfus) as well as many regional organizations.

Sadot Agri-Foods operates, through a majority owned subsidiary, a roughly 5,000 acre crop producing farm in Zambia with a focus on major commodities such as wheat, soy and corn alongside high-value tree crops such as avocado and mango.

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 seeks to diversify over time into a sustainable and forward-looking global agri-foods company.

Sadot Restaurant Group, LLC ("Sadot Food Services"):

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.

The restaurants were 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.

This entire operating segment was identified as held for sale.

Please see Note 3 – Assets held for sale for further details.

Key Financial Definitions

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Governmental and other economic factors affecting our operations may vary.

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

2023 2022 2023 2022

$’000 $’000 $’000 $’000

Three Months Ended March 31,

Commodity sales 106,507 210,366

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Franchise advertising fund contributions 15 16

Other revenues — — 13 —

Total revenues 182,173 2,824 555,457 8,674

Operating Costs and Expenses:

Cost of goods sold (108,276) (208,294)

Impairment of goodwill 828 — 828 —

Impairment of intangible assets 810 — 810 —

Gross profit (340) 4,673

Depreciation and amortization expenses (280) (633)

Franchise advertising fund expenses (15) (16)

Preopening expenses 335 117 371 117

Pre-opening expenses — (36)

Post-closing expenses (19) (94)

2 unchanged sentences

Loss from operations (3,546) (1,607)

EBITDA (4,564) (1,386) (4,352) (4,067)

Adjusted EBITDA (2,470) 2,385

The breakout of our main revenue streams by business segment is shown below:

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

Adjusted EBITDA attributable to Sadot Group Inc.

(2,422) 2,385

Sadot food service 1.2 % 100.0 % 1.4 % 100.0 %

The breakout of our main revenue streams by business segment is shown below:

Three Months Ended March 31,

Sadot agri-foods 98.7 % 98.8 %

Sadot farming operations 0.3 % — 0.1 % —

Sadot food service 1.3 % 1.2 %

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

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

Our revenues are derived from four primary sources:

Commodity sales, Company restaurant sales, Franchise revenues and vendor rebates from Franchisees.

Commodity sales revenues are comprised of revenues generated from the purchase and sales of physical food and feed commodities related to our trading and farming operations.

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.

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.

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

Depreciation and Amortization Expenses

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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.

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

In accordance with Topic 606, the Company recognizes sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee incurs the corresponding advertising expense.

The Company records the related advertising expenses as incurred under Sales, general and administrative expenses.

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.

Pre-opening expense primarily consist of expenses associated with opening a Company-operated location and expenses related to Company-operated locations or new business operations prior to the location opening or the transaction is finalized.

Post-closing Expenses

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.

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

Stock based 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.

Stock-based expenses include all expenses that are paid with stock.

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

The consulting fees due to Aggia related to ongoing Sadot Agri-Foods and expansion of the global agri-foods commodities business.

Based on the initial Services Agreement with Aggia LLC FZ, a Company formed under the laws of United Arab Emirates (“Aggia”), the consulting fees were calculated at approximately 80.0% of the Net Income generated by Sadot Agri-Foods through March 31, 2023.

As of April 1, 2023 the consulting agreement was amended to calculate consulting fees on 40.0% of the Net income generated by Sadot LLC.

For the three months ended March 31, 2024 and 2023, consulting fees were $0.8 million and $3.4 million, respectively, and are recorded as Stock-based expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss.

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.

Sales, general and administrative expenses include expenses associated with corporate and administrative functions that support our operations, including wages, benefits, travel 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.

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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 represent federal, state and local current and deferred income tax expenses.

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.

Other (expense) / income listed below the Loss from operations in the accompanying Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss consists of Gain of fair value remeasurement, Change in fair value of stock-based compensation, Loss on sale of trading securities and Interest expense, net.

Gain 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.

Income Tax Benefit /(Expense)

Income tax benefit / (expense) represent federal, state and local current and deferred income tax expense.

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.

Net loss attributable to non-controlling interests was $48.0 thousand and nil for the three months ended March 31, 2024 and 2023.

During the year ended December 31, 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 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 define Adjusted EBITDA as Net loss, adjusted for depreciation, amortization, net interest (income) expense, income taxes, impairment expenses, stock-based consulting expense, other income, change in fair value of stock-based compensation, gain on extinguishment, warrant modification expense, and gain on fair value remeasurement 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 nine months ended September 30, 2023 and 2022:

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

2023 2022 2023 2022

$’000 $’000 $’000 $’000

GAAP measure, Net loss, and the calculations of the Net loss Margin and Adjusted EBITDA Margin for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Net income / (loss) (313) (1,066)

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Interest (income) / expense, net 490 (3)

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

Income tax expense 1 3

EBITDA 458 (433)

Adjustments to Adjusted EBITDA:

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)

Warrant modification expense 958 — 958 —

Loss on fair value remeasurement 349 — 349 —

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

Change in fair value of stock-based compensation (476) (541)

Gain on fair value remeasurement (3,259) —

Stock-based consulting expenses 796 3,359

Loss on sale of trading securities 11 —

Adjusted EBITDA (2,470) 2,385

Total revenue 182,173 2,824 555,457 8,674

Net income / (loss) Margin (2.9) % (67.2) % (1.1) % (64.1) %

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

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

Adjusted EBITDA attributable to non-controlling interest 48 —

Adjusted EBITDA attributable to Sadot Group Inc.

(2,422) 2,385

Gross Profit (340) 4,673

Gross Profit attributable to Sadot Group Inc.

Net loss Margin attributable to Sadot Group Inc.

(0.3) % (0.5) %

Commodity sales 179,975 — 179,975 NM

Adjusted EBITDA Margin attributable to Sadot Group Inc.

(2.2) % 1.1 %

Unaudited Condensed Consolidated Results of Operations - Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

The following table represents selected items in our Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the three months ended March 31, 2024 and 2023, respectively:

Three Months Ended March 31, Variance

2024 2023 $ %

$’000 $’000 $’000

Commodity sales 106,507 210,366 (103,859) (49.4) %

Company restaurant sales, net of discounts 1,157 2,301 (1,144) (49.7) %

1 unchanged sentence

Franchise advertising fund contributions 15 16 (1) (6.3) %

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

Operating Costs and Expenses:

Cost of goods sold (108,276) (208,294) 100,018 (48.0) %

Impairment of goodwill 828 — 828 NM

Impairment of intangible assets 810 — 810 NM

Gross (loss) profit (340) 4,673 (5,013) (107.3) %

Depreciation and amortization expenses (280) (633) 353 (55.8) %

4 unchanged sentences

Sales, general and administrative expenses (2,096) (2,142) 46 (2.1) %

Total costs and expenses 186,145 4,786 181,359 3789.4 %

Loss from operations (3,546) (1,607) (1,939) 120.7 %

Other Income / (Expense):

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) %

Interest (expense) / income, net (490) 3 (493) (16433.3) %

Change in fair value of stock-based compensation 476 541 (65) (12.0) %

Gain on fair value remeasurement 3,259 — 3,259 NM

Loss on sale of trading securities (11) — (11) NM

Loss Before Income Tax (312) (1,063) 751 (70.6) %

Income tax 13 2 11 550.0 %

Income tax expense 1 3 (2) (66.7) %

Net loss (313) (1,066) 753 (70.6) %

1 unchanged sentence

The following table sets forth our results of operations as a percentage of total revenue for each period presented preceding:

Three Months Ended September 30,

Commodity sales 98.8 % —

Company restaurant sales, net of discounts 1.1 % 93.1 %

Franchise royalties and fees 0.1 % 6.1 %

Franchise advertising fund contributions — 0.8 %

Other revenues — —

Total revenues 100.0 % 100.0 %

Operating Costs and Expenses:

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 expenses 0.6 % 1.1 %

Sales, general and administrative expenses 1.8 % 43.2 %

Total costs and expenses 102.2 % 169.5 %

Loss from operations (2.2) % (69.5) %

Other Income / (Expense):

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 %

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

Income tax — 0.1 %

Net loss (2.9) % (67.2) %

Three Months Ended September 30, Variance

Three Months Ended March 31, Variance

2024 2023 $ %

$’000 $’000 $’000

Commodity sales 179,975 — 179,975 NM

Commodity sales 106,507 210,366 (103,859) (49.4) %

Company restaurant sales, net of discounts 1,157 2,301 (1,144) (49.7) %

1 unchanged sentence

Franchise advertising fund contributions 15 16 (1) (6.3) %

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

Cost of goods sold (108,276) (208,294) 100,018 (48.0) %

Gross (loss) profit (340) 4,673 (5,013) (107.3) %

NM= not meaningful

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

Our gross (loss) profit totaled $0.3 million loss for the three months ended March 31, 2024, compared to $4.7 million profit for the three months ended March 31, 2023.

The $5.0 million decrease is primarily attributed to a decrease in Commodity sales which is attributable to a decline in global prices of staple commodities, market seasonality and the largest global consumer being out of the market for the beginning of 2024.

We generated Commodity sales of $106.5 million for the three months ended March 31, 2024 compared to $210.4 million for the three months ended March 31, 2023.

This represented a decrease of $103.9 million, which is attributable to a decline in global prices of staple commodities, market seasonality and the largest global consumer being out of the market for the beginning of 2024.

We generated Company restaurant sales, net of discounts, of $1.2 million for the three months ended March 31, 2024, compared to $2.3 million for the three months ended March 31, 2023.

This represented an decrease of $1.1 million, or 49.7%, which is mainly attributable to the conversion of certain corporate owned Pokemoto locations to franchise locations and closing underperforming locations.

Franchise royalties and fees for the three months ended March 31, 2024 totaled $0.3 million compared to $0.3 million for the three months ended March 31, 2023.

This represents a decrease of $27.0 thousand, or 9.5%.

In 2024, the franchise fees were lower, primarily due to a termination of a Muscle Maker Grill development agreement in 2023 that escalated the revenue recognition.

Franchise advertising fund contributions for the three months ended March 31, 2024 totaled $15.0 thousand compared to $16.0 thousand for the three months ended March 31, 2023.

The Company recognizes these sales-based advertising contributions from franchisees as franchise revenue when the underlying franchisee Company incurs the corresponding advertising expense.

The decrease of $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 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

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

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

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.

The decrease of $1.0 thousand or 6.3%, is a direct result of the decrease in Muscle Maker Grill restaurant national advertising services.

Cost of goods sold for the three months ended March 31, 2024 totaled $108.3 million compared to $208.3 million for the three months ended March 31, 2023.

This represented a decrease of $100.0 million or 48.0% which is a direct result of the decrease in sales.

Depreciation and Amortization Expenses

Three Months Ended September 30, Variance

Three Months Ended March 31, Variance

2024 2023 $ %

1 unchanged sentence

Depreciation and amortization expenses (280) (633) 353 (55.8) %

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.

Depreciation and amortization expenses for the three months ended March 31, 2024 totaled $0.3 million compared to $0.6 million, for the three months ended March 31, 2023.

The $0.4 million decrease is mainly attributed to the closing and refranchising of corporate locations and the disposal of the corresponding assets.

Franchise Advertising Fund Expenses

Three Months Ended September 30, Variance

Three Months Ended March 31, Variance

2024 2023 $ %

1 unchanged sentence

Franchise advertising fund expenses (15) (16) 1 (6.3) %

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.

Franchise advertising fund expenses for the three months ended March 31, 2024 totaled $15.0 thousand compared to $16.0 thousand , for the three months ended March 31, 2023.

The $1.0 thousand or 6.3% decrease is mainly attributed to the decrease in Muscle Maker Grill restaurant national advertising services.

Pre-opening Expenses

Three Months Ended September 30, Variance

Three Months Ended March 31, Variance

2024 2023 $ %

1 unchanged sentence

Pre-opening expenses — (36) 36 (100.0) %

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.

There were no Pre-opening expenses for the three months ended March 31, 2024, compared to $36.0 thousand for the three months ended March 31, 2023.

The decrease in Pre-opening expenses resulted from no locations or operations that were open or preparing to open during the three months ended March 31, 2024.

Post-Closing Expenses

Three Months Ended September 30, Variance

Three Months Ended March 31, Variance

2024 2023 $ %

1 unchanged sentence

Post-closing expenses (19) (94) 75 (79.8) %

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.

Post-closing expenses for the three months ended March 31, 2024 totaled $19.0 thousand compared to $0.1 million for the three months ended March 31, 2023.

The decrease in Post-closing expenses resulted from closing fewer corporate owned locations in 2024 compared to 2023.

Stock-Based Expenses

Three Months Ended September 30, Variance

Three Months Ended March 31, Variance

2024 2023 $ %

1 unchanged sentence

Stock-based expenses (796) (3,359) 2,563 (76.3) %

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.

Stock-based expenses for the three months ended March 31, 2024, totaled $0.8 million compared to $3.4 million for the three months ended March 31, 2023.

The $2.6 million decrease 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 which is a decrease from 80.0% in 2023.

Thi s expense is paid in the vesting in restricted stock that was issued to Aggia in 2024.

Sales, General and Administrative Expenses

Three Months Ended September 30, Variance

Three Months Ended March 31, Variance

2024 2023 $ %

1 unchanged sentence

Sales, general and administrative expenses (2,096) (2,142) 46 (2.1) %

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 September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

Sales, general and administrative expenses for the three months ended March 31, 2024 totaled $2.1 million compared to $2.1 million for the three months ended March 31, 2023.

The $46.0 thousand decrease was primarily attributable to a decrease in normal operating activities.

Other Income / (Expense)

Three Months Ended March 31, Variance

2024 2023 $ %

$’000 $’000 $’000

Income tax 13 2 11 550.0 %

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.

Total other income / (expense), net 3,234 544 2,690 494 %

Other income for the three months ended March 31, 2024 totaled $3.2 million compared to $0.5 million for the three months ended March 31, 2023.

The $2.7 million increase was primarily attributable to a $3.3 million increase in the gain on the fair value remeasurement as a result of the mark to market adjustment of derivatives partially offset by a $0.5 million increase in interest expense, a $0.1 million decrease in change in fair value of stock-based compensation and a less than $0.1 million increase in loss on sale of trading securities.

Three Months Ended March 31, 2024

Sadot food service Sadot agri-foods Corporate adj.

$’000 $’000 $’000 $’000

3 unchanged sentences

Franchise advertising fund contributions 15 — — 15

Other revenues — — — — —

Total revenues 2,198 179,464 511 — 182,173

Operating Costs and Expenses:

Cost of goods sold (1,331) (106,945) — (108,276)

Impairment of goodwill 828 — — — 828

Impairment of intangible assets 810 — — — 810

Gross Profit (loss) 98 (438) — (340)

Depreciation and amortization expenses (189) (91) — (280)

Franchise advertising fund expenses (15) — — (15)

Pre-opening expenses — — 335 — 335

Post-closing expenses (19) — — (19)

1 unchanged sentence

Sales, general and administrative expenses (703) (731) (662) (2,096)

Total costs and expenses 4,541 177,166 884 3,554 186,145

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

Other Income / (Expense):

Other income 1 — — — 1

Loss from operations (828) (1,260) (1,458) (3,546)

Interest expense, net (262) (407) 179 (490)

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)

Change in fair value of stock-based compensation — — 476 476

Gain on fair value remeasurement — 3,259 — 3,259

Loss on sale of trading securities — (11) — (11)

(Loss) / Income Before Income Tax (1,090) 1,581 (803) (312)

Income tax — — — 13 13

Income tax (benefit) / expense — — 1 1

Net (loss) / income (1,090) 1,581 (804) (313)

Three Months Ended September 30, 2022

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

$’000 $’000 $’000 $’000 $’000

Company restaurant sales, net of discounts 2,630 — — — 2,630

Franchise royalties and fees 170 — — — 170

Franchise advertising fund contributions 24 — — — 24

Total revenues 2,824 — — — 2,824

Operating Costs and Expenses:

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

Total costs and expenses 3,611 — — 1,175 4,786

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

Other Income / (Expense):

Other income 43 — — 12 55

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

Total other income, net 55 — — 11 66

Loss Before Income Tax (732) — — (1,164) (1,896)

Income tax — — — 2 2

Net loss (732) — — (1,166) (1,898)

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 $ %

$’000 $’000 $’000

Commodity sales 547,900 — 547,900 NM

Company restaurant sales, net of discounts 6,725 8,075 (1,350) (16.7) %

Franchise royalties and fees 767 541 226 41.8 %

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

Other revenues 13 — 13 NM

Total revenues 555,457 8,674 546,783 6303.7 %

Operating Costs and Expenses:

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 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 %

Total costs and expenses 561,396 14,360 547,036 3809.4 %

Loss from operations (5,939) (5,686) (253) 4.4 %

Other Income / (Expense):

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) %

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

Income tax 18 16 2 12.5 %

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:

Nine Months Ended September 30,

Commodity sales 98.7 % —

Company restaurant sales, net of discounts 1.2 % 93.1 %

Franchise royalties and fees 0.1 % 6.2 %

Franchise advertising fund contributions — 0.7 %

Other revenues — —

Total revenues 100.0 % 100.0 %

Operating Costs and Expenses:

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 %

Franchise advertising fund expenses — 0.7 %

Pre-opening expenses 0.1 % 1.3 %

Post-closing expenses — 1.8 %

Stock-based expenses 1.0 % 0.9 %

Sales, general and administrative expenses 1.3 % 41.7 %

Total costs and expenses 101.1 % 165.6 %

Loss from operations (1.1) % (65.6) %

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 %

Total other income, net — 1.7 %

Loss Before Income Tax (1.1) % (63.9) %

Income tax — 0.2 %

Net loss (1.1) % (64.1) %

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

Commodity sales 547,900 — 547,900 NM

Company restaurant sales, net of discounts 6,725 8,075 (1,350) (16.7) %

Franchise royalties and fees 767 541 226 41.8 %

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

Other revenues 13 — 13 NM

Total revenues 555,457 8,674 546,783 6303.7 %

NM= not meaningful

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 $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 $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 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 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

Cost of Goods Sold

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

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

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

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

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

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

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

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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 Expenses

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

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

Nine Months Ended September 30, Variance

2023 2022 $ %

$’000 $’000 $’000

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

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 $ %

$’000 $’000 $’000

Income tax 18 16 2 12.5 %

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.

Total assets 6,950 142,673 904 150,527

Three Months Ended March 31, 2023

Sadot food service Sadot agri-foods Corporate adj.

$’000 $’000 $’000 $’000

3 unchanged sentences

Franchise advertising fund contributions 16 — — 16

Other revenues 13 — — — 13

Total revenues 7,557 547,389 511 — 555,457

Operating Costs and Expenses:

Cost of goods sold (2465) (205,829) — (208,294)

Impairment of goodwill 828 — — — 828

Impairment of intangible assets 810 — — — 810

Gross Profit 136 4,537 — 4,673

Depreciation and amortization expenses (633) — — (633)

4 unchanged sentences

Sales, general and administrative expenses (82) (286) (1,774) (2,142)

Total costs and expenses 11,098 538,159 885 11,254 561,396

(Loss) / income from operations (725) 4,251 (5,133) (1,607)

Other Income / (Expense):

Other income 1 — — 251 252

Interest income, net 3 — — 3

Change in fair value of accrued compensation — — 541 541

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

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

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

(Loss) / income Before Income Tax (722) 4,251 (4,592) (1,063)

Income tax 2 — — 16 18

Income tax (benefit) / expense 1 — 2 3

Net (loss) income (723) 4,251 (4,594) (1,066)

Nine Months Ended September 30, 2022

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

$’000 $’000 $’000 $’000 $’000

Company restaurant sales, net of discounts 8,075 — — — 8,075

Franchise royalties and fees 541 — — — 541

Franchise advertising fund contributions 58 — — — 58

Total revenues 8,674 — — — 8,674

Operating Costs and Expenses:

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

Total costs and expenses 11,020 — — 3,340 14,360

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

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 / (expense), net 205 — — (61) 144

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

Income tax — — — 16 16

Net loss (2,141) — — (3,417) (5,558)

Total assets 8,711 45,853 8,034 62,598

Liquidity and Capital Resources

Working Capital

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash 1,214 1,354

Working capital surplus 8,959 4,033

Notes payable 3,701 981

Accounts Receivable, net 23,095 52,920

Inventory 2,383 2,561

Other current assets (1)

58,584 56,016

Assets held for sale (5)

Total current assets 92,226 112,851

Accounts payable and accrued expenses 23,342 50,167

Notes payable, net 3,640 6,531

Other current liabilities (2)

48,276 47,884

Liabilities held for sale (6)

Total current liabilities 79,010 104,582

Working capital (3)

Current ratio (4)

(1) Consists of Prepaid expenses and other current assets, Prepaid forward on carbon offsets, Forward sales derivatives and Notes receivable, current

(2) Consists of Operating lease liability, current, Deferred revenue, current and Other current liabilities

(3) Working Capital is defined as Total current assets less Total current liabilities

(4) Current ratio is defined as Total current assets divided by Total current liabilities

(5) See Note 3 for additional information

(6) See Note 3 for additional information

Availability of Additional Funds

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.

Our main financial objectives are to prudently manage financial risk, ensure access to liquidity and minimize cost of capital in order to efficiently finance our business and maintain balance sheet strength.

We generally finance our ongoing operations with cash flows generated from operations, borrowings under various credit facilities and term loans.

At March 31, 2024, current ratio, which equals Total current assets divided by Total current liabilities, was 1.17, an increase of 0.09, compared to current ratio of 1.08 at December 31, 2023.

The increase in current ratio was primarily due to a decrease in Accounts payable and accrued expenses partially offset by the decrease in Accounts receivable.

At March 31, 2024, working capital, which equals Total current assets less Total current liabilities, was $13.2 million an increase of $4.9 million, compared to working capital of $8.3 million at December 31, 2023.

The increase in working capital was primarily due to a decrease in Accounts payable and accrued expenses and Notes payable, current.

In addition, the Company has access to additional liquidity if it is needed through an executed Standby Equity Purchase Agreement ("SEPA") for up to $25.0 million in capital whereby the Company, once the initial prepayment loan is fully paid off may submit advance requests to the lender and the lender will provide cash in consideration of shares of common stock subject to certain limitations and conditions set forth in the SEPA.

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.

2 unchanged sentences

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.

We will need to raise additional capital.

Such additional capital may not be available nor may the terms of such capital be generally acceptable.

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.

1 unchanged sentence

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.

The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.

In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.

1 unchanged sentence

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 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.

Sources and Uses of Cash for the Three Months Ended March 31, 2024 and 2023

For the three months ended March 31, 2024, Net cash provided by operating activities was $2.6 million compared to a use of $3.3 million for the three months ended March 31, 2023.

Our Net cash provided for the three months ended March 31, 2024, was primarily attributable to our Net loss of $0.3 million, adjusted for net non-cash income in the aggregate amount of $1.3 million offset by $1.6 million of Net cash provided by changes in the levels of operating assets and liabilities.

Our Net cash used for the three months ended March 31, 2023, was primarily attributable to our Net loss of $1.1 million, adjusted for net non-cash income in the aggregate amount of $4.6 million, partially offset by $6.8 million of Net cash used in changes in the levels of operating assets and liabilities.

For the three months ended March 31, 2024, Net cash provided by investing activities was $0.1 million, of which $11.0 thousand was used to purchase Property and equipment, $0.1 million was provided by the Disposal of property and equipment For the three months ended March 31, 2023, Net cash used in investing activities was $0.2 million, of which $0.1 million was used to purchase Property and equipment and $0.1 million was used on the deposit of farmland.

For the three months ended March 31, 2024, Net cash used in financing activities was $2.8 million, consisting of repayments of various other notes payable of $4.3 million and proceeds from notes payable of $1.5 million.

For the three months ended March 31, 2023, Net cash used in financing activities was $34.0 thousand, consisting of repayments of various other notes payable of $34.0 thousand.

Critical Accounting Policies and Estimates

Our accounting policies are more fully described in Note 2 – Significant accounting policies to our consolidated financial statements included as part of this Annual Report on Form 10-K.

As disclosed in Note 2, the preparation of financial statements in conformity with U.S.

GAAP requires management to make substantial judgment or estimation in their application that may significantly affect reported amounts in the consolidated financial statements and accompanying notes.

Actual results could differ significantly from those estimates.

We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments.

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.

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;

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;

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”):

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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.

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.

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

In November 2023, the FASB issued ASU 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280).

The standard requires incremental disclosures related to reportable segments, including disaggregated expense information and the title and position of the company's chief operating decision maker ("CODM"), as identified for purposes of segment determination.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Entities must adopt the changes to the segment reporting guidance on a retrospective basis.

Early adoption is permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial statements.

There is a degree of seasonality in the growing cycles, procurement and transportation of crops.

The farming industry in general historically experiences seasonal fluctuations in revenues and net income.

Typically, the Company has lower sales and net income during the non-harvest seasons and higher sales and net income during the harvest season and as such, must have sufficient working capital to fund its operations at a reduced level.

The failure to generate or obtain sufficient working capital during the winter may have a material adverse effect on the Company.

Off-Balance Sheet Arrangements

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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