Sadot Group Inc. 10-Q

Item 1. Legal Proceedings From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. We record legal costs associated with loss contingencies as incurred and have accrued for all probable and estimable settlements. Cropit Litigation On March 21, 2025, Cropit Farming Limited ("Cropit") commenced proceedings against our subsidiary, Sadot LLC in the Commercial Registry of the High Court of Zambia seeking rescission of certain joint venture agreements, return of assets, and damages of approximately $6.7 million USD. Sadot LLC has denied all allegations and filed counterclaims seeking declaratory relief, specific performance, injunctive relief, and damages including punitive damages of approximately 0.2 million Zambian Kwacha ($7.6 thousand USD as of September 30, 2025). Following unsuccessful mediation, Sadot LLC filed for injunctive relief in August 2025 alleging Cropit's material breaches of the 2023 Joint Venture Agreement, including misappropriation of approximately 5.0 million Zambian Kwacha ($0.2 million USD as of September 30, 2025), in company funds, denial of access to farms and financial records, and failure to transfer five parcels of farmland as contractually required. Sadot LLC also intends to pursue arbitration under ICC rules. Management believes Sadot LLC has reasonably favorable prospects of success and intends to vigorously defend the claims whilst pursuing counterclaims. No material liability has been recorded as a loss is neither probable nor reasonably estimable at this time. Lombard Litigation On November 7, 2024, Lombard Trading International Corp. filed an Amended Complaint against Sadot Group Inc. and Sadot Latam LLC in Florida state court (Case No.: 2024-020971-CA-01) alleging unjust enrichment, conversion, fraud, conspiracy and civil theft related to a commodities transaction, seeking damages of $7.4 million. The Company denies all allegations, has not received the goods or the Bills of Lading contractually required for completion of the transaction, and intends to vigorously defend the claims. On August 1, 2025, the court dismissed Lombard's third motion in its entirety. A hearing on the Company's motion to dismiss has been scheduled. No contingent liability has been recorded as of September 30, 2025. Zen-Noh America Holdings Corp Litigation Zen-Noh America Holdings Corp. ("Zen-Noh") has commenced Grain and Feed Trade Association ("GAFTA") arbitration proceedings against both Sadot Latam LLC and Sadot Group Inc. The Company believes the proceedings against Sadot Group Inc. have been brought wrongly as it is neither a party to the contract nor acted on it in any capacity. Sadot Latam LLC's defense is assessed as having reasonable prospects of success based on Trans Trade RK SA v State Food and Grain Corporation of Ukraine [2025] EWHC 1803 (Comm), which provides that a seller's right to payment only arises upon proper tender of conforming documents. As conforming documents (including original bills of lading) were never properly tendered, this may lead to a claim by Sadot against Zen-Noh for amounts paid. The parties are exchanging submissions with an award expected in April or May 2026. Management intends to vigorously defend the claims. No contingent liability has been recorded as of September 30, 2025. Star Fund Litigation Star Fund LLC ("Star Fund") claims $2.9 million against Sadot Group Inc., Sadot Latam LLC, and Lombard Trading International Corp., alleging Sadot Group Inc. guaranteed Sadot Latam LLC's obligations under a March 2025 factoring agreement. Star Fund advanced approximately $2.5 million against an invoice for a wheat shipment that allegedly failed when the wheat was diverted and Lombard refused payment. Star Fund's case relies solely on an October 2023 board resolution authorizing management to guarantee subsidiary debt up to $10 million with certain specified lenders. Star Fund was not mentioned in the resolution. No actual guaranty document exists, and Sadot Group Inc. was not party to the factoring agreement, promissory note, or underlying invoice. The Company denies all allegations and intends to vigorously defend, including challenging jurisdiction and seeking dismissal on grounds that no guaranty exists. Management believes Sadot Group Inc. has reasonable prospects of success. No contingent liability has been recorded as of September 30, 2025. 69 Table of Contents In the normal course of business, the Company may be involved in other legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management and its legal counsel intend to defend the matters vigorously and cannot determine at this time whether they will result in a material adverse effect on the financial statements. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements after consulting legal counsel. Item 1.A. Risk Factors In addition to the Risk Factors set forth below, see Item 7 ("Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Affect Future Results and Financial Condition") of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 11, 2025. We face significant operational challenges in our global agri-foods operations, which have resulted in a significant curtailing of our operations and could materially adversely affect our business, financial condition, results of operations, and future prospects. Our business involves farming, commodity trading, and shipping of food and feed products, such as soybean meal, wheat, and corn, via dry bulk cargo ships across global markets. We have recently encountered substantial operational issues that have severely impacted our ability to conduct these activities effectively. These challenges include, but are not limited to, disruptions in our supply chain, such as delays in sourcing raw materials, logistical bottlenecks in shipping and transportation, and inefficiencies in our farming operations due to adverse weather conditions, labor shortages, or equipment failures. Additionally, geopolitical tensions, trade restrictions, fluctuating commodity prices, and increased competition in the agri-foods sector have compounded these issues, leading to halted or suspended trading activities and an inability to fulfill contracts or secure new ones. As a result of these operational difficulties, we have had to curtail a significant portion of our operations, which has strained our liquidity, increased our reliance on external financing, and heightened the risk of default under our existing obligations. If we are unable to resolve these operational challenges in a timely manner—through measures such as restructuring our supply chain, diversifying our sourcing strategies, or investing in improved infrastructure—our business may continue to suffer prolonged periods of inactivity. This could lead to further erosion of our market position, loss of key customers and partners, regulatory scrutiny, or even insolvency. Moreover, our dependence on global markets exposes us to ongoing risks from external factors, including volatile commodity prices, changes in international trade policies, environmental regulations, and disruptions from events like pandemics, natural disasters, or political instability in key regions where we operate or source materials. There can be no assurance that we will successfully overcome these operational issues or resume revenue-generating activities. Failure to do so could result in a material adverse effect on our financial condition, stock price, and ability to continue as a going concern, potentially leading to delisting from Nasdaq or other exchanges, reduced access to capital, and diminished investor confidence. We will need additional capital to fund our operations, which, if obtained, could result in substantial dilution or significant debt service obligations. We may not be able to obtain additional capital on commercially reasonable terms, which could adversely affect our liquidity and financial position. In order to continue operating, we may need to obtain additional financing, either through borrowings, private placements, public offerings, or some type of business combination, such as a merger, or buyout, and there can be no assurance that we will be successful in such pursuits. We may be unable to acquire the additional funding necessary to continue operating. Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company. We require significant capital in relation to our Sadot operations, including continuing access to credit markets, to operate our current business and fund our growth strategy. Our working capital requirements, including margin requirements on open positions on futures exchanges, are directly affected by the price of agricultural commodities, which may fluctuate significantly and change quickly. Moreover, the expansion of our business and pursuit of acquisitions or other business opportunities may require significant amounts of capital. Access to credit markets and pricing of our capital is dependent upon maintaining sufficient credit ratings from credit rating agencies. Sufficient credit ratings allow us to access cost 70 Table of Contents competitive tier one commercial paper markets. If we are unable to maintain sufficiently high credit ratings, access to these commercial paper and other debt markets and costs of borrowings could be adversely affected. If we are unable to generate sufficient cash flow or maintain access to adequate external financing, including as a result of significant disruptions in the global credit markets, it could restrict our current operations and our growth opportunities. We manage this risk with constant monitoring of credit/liquidity metrics, cash forecasting, and routine communications with credit rating agencies regarding risk management practices. If we need to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities could dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional funds on favorable terms could have a material adverse effect on our liquidity and financial condition. Our indebtedness could negatively affect our financial condition, decrease our liquidity and impair our ability to operate the business. If cash on hand is insufficient to pay our obligations or margin calls as they come due at a time when we are unable to draw on our credit facility, it could have an adverse effect on our ability to conduct our business. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is dependent on various factors. These factors include general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Certain of our long-term borrowings include provisions that require minimum levels of working capital and equity and impose limitations on additional debt. Our ability to satisfy these provisions can be affected by events beyond our control, such as the demand for and the fluctuating price of commodities. Noncompliance with these provisions could result in default and acceleration of long-term debt payments. We are subject to significant pending litigation that, if resolved unfavorably, could result in substantial monetary damages exceeding our current financial resources and potentially lead to bankruptcy. We are involved in multiple material legal proceedings with aggregate claimed damages that would exceed our cash availability (excluding interest, punitive damages, and counterclaim-related exposures). These include a lawsuit in Zambia seeking rescission of agreements and damages, and an arbitration in London for alleged non-delivery and breach of contract. Although we believe we have meritorious defenses and have asserted substantial counterclaims, litigation outcomes are inherently uncertain. An adverse judgment or series of judgments in one or more of these matters could require payments that exceed our available cash, insurance coverage, and access to capital, which could materially impair our liquidity, force us to seek additional financing on unfavorable terms, or result in insolvency or bankruptcy proceedings.