MUSCLE MAKER(GRIL) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Sadot Group Inc, highlighting the company's transformation and reclassification of discontinued operations Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets, showing changes in assets, liabilities, and equity due to the company's strategic transformation Metric | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | Change ($'000) | Change (%) | | :-------------------------------- | :----------------------- | :------------------------ | :------------- | :--------- | | ASSETS | | | | | | Cash | 1,940 | 1,786 | 154 | 8.6% | | Accounts receivable, net | 47,751 | 18,014 | 29,737 | 165.1% | | Inventory | 271 | 717 | (446) | -62.2% | | Assets held for sale | 4,915 | 5,196 | (281) | -5.4% | | Other current assets | 16,925 | 126,966 | (110,041) | -86.7% | | Total current assets | 71,802 | 152,679 | (80,877) | -53.0% | | Property and equipment, net | 11,793 | 11,820 | (27) | -0.2% | | Other non-current assets | 149 | 155 | (6) | -3.9% | | Total assets | 83,744 | 164,654 | (80,910) | -49.1% | | LIABILITIES AND EQUITY | | | | | | Accounts payable and accrued expenses | 36,682 | 28,019 | 8,663 | 30.9% | | Notes payable, current, net | 10,911 | 7,390 | 3,521 | 47.6% | | Deferred revenue, current | 74 | 2,251 | (2,177) | -96.7% | | Liabilities held for sale | 2,128 | 2,333 | (205) | -8.8% | | Other current liabilities | 139 | 92,177 | (92,038) | -99.8% | | Total current liabilities | 49,934 | 132,170 | (82,236) | -62.2% | | Other non-current liabilities | 105 | 111 | (6) | -5.4% | | Total liabilities | 50,039 | 132,281 | (82,242) | -62.2% | | Total stockholders' equity | 33,705 | 32,373 | 1,332 | 4.1% | | Total liabilities and stockholders' equity | 83,744 | 164,654 | (80,910) | -49.1% | - Total assets decreased by 49.1% from $164.65 million at December 31, 2024, to $83.74 million at March 31, 2025, primarily due to a significant decrease in 'Other current assets' (down 86.7%) and 'Total current assets' (down 53.0%)[11] - Accounts receivable, net, saw a substantial increase of 165.1%, rising from $18.01 million to $47.75 million[11] - Total liabilities decreased by 62.2%, from $132.28 million to $50.04 million, largely driven by a 99.8% reduction in 'Other current liabilities' and a 96.7% decrease in 'Deferred revenue, current'[11] - Total stockholders' equity increased by 4.1% from $32.37 million to $33.71 million[11] Condensed Consolidated Statements of Operations and Other Comprehensive Income / (Loss) This section presents the unaudited condensed consolidated statements of operations, highlighting revenue, gross profit, and net income/loss for continuing and discontinued operations Metric | Metric | Three Months Ended March 31, 2025 ($'000) | Three Months Ended March 31, 2024 ($'000) | Change ($'000) | Change (%) | | :------------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :------------- | :--------- | | Commodity sales | 132,168 | 106,507 | 25,661 | 24.1% | | Cost of goods sold | (126,156) | (103,697) | (22,459) | 21.7% | | Gross profit | 6,012 | 2,810 | 3,202 | 114.0% | | Income from operations | 1,476 | 530 | 946 | 178.5% | | Net income for continuing operations | 713 | 777 | (64) | -8.2% | | Income / (loss) for discontinued operations, net | 107 | (1,090) | 1,197 | -109.8% | | Net income / (loss) | 820 | (313) | 1,133 | -362.0% | | Net income / (loss) attributable to Sadot Group Inc. | 938 | (265) | 1,203 | -454.0% | | Basic EPS (continuing operations) | 0.16 | 0.20 | (0.04) | -20.0% | | Diluted EPS (continuing operations) | 0.16 | 0.20 | (0.04) | -20.0% | | Basic EPS (discontinued operations) | 0.02 | (0.26) | 0.28 | -107.7% | | Diluted EPS (discontinued operations) | 0.02 | (0.26) | 0.28 | -107.7% | | Basic EPS (total) | 0.18 | (0.06) | 0.24 | -400.0% | | Diluted EPS (total) | 0.18 | (0.06) | 0.24 | -400.0% | - Commodity sales increased by 24.1% to $132.17 million in Q1 2025 from $106.51 million in Q1 2024[12] - Gross profit more than doubled, increasing by 114.0% to $6.01 million in Q1 2025 from $2.81 million in Q1 2024[12] - The company swung from a net loss of $0.31 million in Q1 2024 to a net income of $0.82 million in Q1 2025, a significant improvement of 362.0%[12] - Net income attributable to Sadot Group Inc. improved from a loss of $0.27 million in Q1 2024 to an income of $0.94 million in Q1 2025[12] - Income from discontinued operations significantly improved from a loss of $1.09 million in Q1 2024 to an income of $0.11 million in Q1 2025[12] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in stockholders' equity, including common stock, additional paid-in capital, accumulated deficit, and non-controlling interest Total Stockholders' Equity | Metric | Balance at Dec 31, 2024 ($'000) | Changes Q1 2025 ($'000) | Balance at Mar 31, 2025 ($'000) | | :-------------------------------- | :----------------------------- | :---------------------- | :----------------------------- | | Common Stock (Amount) | 1 | — | 1 | | Additional Paid-in Capital | 112,406 | 598 | 113,004 | | Accumulated Deficit | (83,187) | 938 | (82,249) | | Accumulated Other Comprehensive Income / (Loss) | (27) | (86) | (113) | | Total Sadot Group Inc. Shareholders' Equity | 29,193 | 1,450 | 30,643 | | Non-controlling Interest | 3,180 | (118) | 3,062 | | Total Stockholders' Equity | 32,373 | 1,332 | 33,705 | - Total stockholders' equity increased by $1.33 million, from $32.37 million at December 31, 2024, to $33.71 million at March 31, 2025[19] - The accumulated deficit improved by $0.94 million, moving from $(83.19) million to $(82.25) million, primarily due to net income[19] - Additional paid-in capital increased by $0.60 million, reflecting common stock issued as compensation for services and stock-based compensation[19] Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities Cash Flow Activity | Cash Flow Activity | Three Months Ended March 31, 2025 ($'000) | Three Months Ended March 31, 2024 ($'000) | Change ($'000) | | :------------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :------------- | | Net cash provided by / (used in) operating activities | (2,950) | 2,507 | (5,457) | | Net cash provided by operating activities - discontinued operations | 8 | 104 | (96) | | Net cash provided by investing activities | — | 29 | (29) | | Net cash provided by investing activities - discontinued operations | — | 29 | (29) | | Net cash provided by / (used in) financing activities | 3,114 | (2,761) | 5,875 | | Net cash used in financing activities - discontinued operations | (20) | (36) | 16 | | Net Increase (Decrease) in Cash | 154 | (140) | 294 | | Cash – beginning of period | 1,786 | 1,354 | 432 | | Cash – end of period | 1,940 | 1,214 | 726 | - Net cash used in operating activities from continuing operations was $3.0 million in Q1 2025, a decrease from $2.5 million provided in Q1 2024[22][287] - Net cash provided by financing activities from continuing operations significantly improved, moving from a use of $2.76 million in Q1 2024 to a provision of $3.11 million in Q1 2025, driven by new notes payable[22][289] - The company experienced a net increase in cash of $0.15 million in Q1 2025, compared to a net decrease of $0.14 million in Q1 2024[22] Notes to the Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes accompanying the financial statements, offering further explanations on accounting policies, specific accounts, and significant events Note 1. Business Organization and Nature of Operations This note describes Sadot Group Inc.'s transformation from a restaurant business to a global Agri-food supply chain organization and its current operational focus - Sadot Group Inc. transformed from a U.S.-centric restaurant business into a global Agri-food commodity supply chain organization in late 2022[28] - As of March 31, 2025, the company operates primarily through Sadot Agri-Foods, a global company engaged in farming, commodity trading, and shipping, with operations in multiple countries including Zambia (5,000-acre farm) and a deposit on farmland in Indonesia[29][30] - The former Sadot Restaurant Group, LLC (Sadot Food Services) segment, including Pokémoto and Muscle Maker Grill, was identified as held for sale and reported as discontinued operations[31] - Sadot Group launched Sadot South Korea on March 26, 2025, as a strategic expansion into Northeast Asia[33] Liquidity and Working Capital Summary | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :---------------------- | :----------------------- | :------------------------ | | Cash balance | 1,940 | 1,786 | | Working capital surplus | 21,868 | 20,509 | | Accumulated deficit | (82,249) | (83,187) | | Net income / (loss) (Q1) | 820 | (313) | | Net cash used in operations (Q1) | (2,950) | 2,507 | - The company's working capital increased to $21.9 million as of March 31, 2025, from $20.5 million at December 31, 2024, with a current ratio of 1.44 (up from 1.16)[34][39] - Despite a working capital surplus, the company is experiencing delays in converting receivables into cash, which may impact short-term liquidity, and utilizes a factoring arrangement for eligible receivables[37] Note 2. Significant Accounting Policies This note outlines the key accounting principles and policies applied in preparing the financial statements, including reclassifications and revenue recognition - The financial statements are prepared in accordance with GAAP for interim financial information and include adjustments for normal recurring items[40] - The company reclassified fair value gains from 'Other income' to 'Cost of goods sold' during Q1 2025 to better reflect the economic link to inventory procurement and sales, aligning with competitors. This reclassification had no impact on net income[44] Effect of Reclassification on Q1 2024 Income Statement | Metric | As Previously Reported ($'000) | Reclassification ($'000) | As Reclassified ($'000) | Change (%) | | :-------------------------- | :----------------------------- | :----------------------- | :---------------------- | :--------- | | Cost of goods sold | (106,945) | 3,248 | (103,697) | (3.0)% | | Gross profit / (loss) | (438) | 3,248 | 2,810 | 741.6% | | Gain on fair value remeasurement | 3,259 | (3,259) | — | (100.0)% | | Loss on hedge contracts | (11) | 11 | — | (100.0)% | | Net Income | (313) | — | (313) | — % | - Accounts receivable increased significantly to $47.8 million at March 31, 2025, from $18.0 million at December 31, 2024, with $13.4 million planned for assignment to a third party in exchange for assets other than cash[51][52] - The company's factoring arrangement, under which $3.8 million of notes payable are secured by $4.1 million in pledged accounts receivable, is accounted for as a secured borrowing due to retained risk of nonpayment[54][55][57] - Commodity sales revenue for Sadot Agri-Foods increased to $132.2 million in Q1 2025 from $106.5 million in Q1 2024[73] - Stock-based expenses increased to $1.4 million in Q1 2025 from $0.8 million in Q1 2024, primarily due to consulting fees for Aggia and vesting of restricted stock[77] - The company maintains a 0% effective tax rate for Q1 2025 due to the utilization of net operating loss carryforwards, which are subject to a full valuation allowance[151][152] - The Sadot Food Services segment was reclassified as discontinued operations in Q4 2024, following the sale or pending sale of all restaurant operations, marking a strategic shift[101] Note 3. Assets Held For Sale This note details the classification of the Sadot Food Services segment as assets held for sale, reflecting the company's strategic divestiture of its restaurant operations - The Sadot Food Services segment was classified as held for sale in Q1 2024, and by Q4 2024, all corporate-owned restaurants were closed, with a sale pending for the franchise business[108][109] - This reclassification to 'held for sale' and subsequent 'discontinued operations' signifies a strategic shift, eliminating one of the company's two business segments[109] Sadot Food Services Assets and Liabilities Held for Sale | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :-------------------------------- | :----------------------- | :------------------------ | | Assets held for sale | 4,915 | 5,196 | | Liabilities held for sale | 2,128 | 2,333 | | Net Income / (Loss) Before Income Tax (Q1) | 107 | (1,090) | - SuperFit Foods, a concept within Sadot Food Services, was sold in August 2024 for $0.2 million[112] Note 4. Discontinued Operations This note provides financial information for the Sadot Food Services segment, which has been reclassified as discontinued operations following the company's strategic shift - The Sadot Food Services segment was reclassified as discontinued operations in Q4 2024, reflecting a strategic shift to focus on the global food supply chain[114][115] Discontinued Operations Financial Performance | Metric | Three Months Ended March 31, 2025 ($'000) | Three Months Ended March 31, 2024 ($'000) | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Revenues | 394 | 1,429 | | Gross profit | 394 | 98 | | Income / (loss) from discontinued operations | 112 | (828) | | Income / (loss) from discontinued operations before income tax | 107 | (1,090) | - Revenues from discontinued operations decreased from $1.43 million in Q1 2024 to $0.39 million in Q1 2025[116] - The segment's performance improved significantly, moving from a loss of $1.09 million before income tax in Q1 2024 to an income of $0.11 million in Q1 2025[116] Note 5. Allowance for Credit Losses on Accounts Receivable This note details the changes in the allowance for credit losses on accounts receivable, primarily due to adjustments related to Sadot Agri-Foods Allowance for Credit Losses on Accounts Receivable Activity | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :-------------------------------- | :----------------------- | :------------------------ | | Balance at beginning of period | 105 | 173 | | Adjustments related to Sadot agri-foods | 164 | 28 | | Transferred to assets held for sale | — | (150) | | Balance at end of period | 269 | 105 | - The allowance for credit losses on accounts receivable increased to $0.27 million at March 31, 2025, from $0.11 million at December 31, 2024, primarily due to adjustments related to Sadot Agri-Foods[117] Note 6. Other Current Assets This note provides a breakdown of other current assets, highlighting significant changes due to derivative assets and a new deposit on acquisition Other Current Assets Breakdown | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :---------------------- | :----------------------- | :------------------------ | | Prepaid expenses | 1,877 | 1,911 | | Other receivables | 80 | 82 | | Derivative assets, current | — | 93,520 | | Derivative contracts | — | 18,602 | | Notes receivable, current | 6,279 | 6,999 | | Deposit on farmland | 5,852 | 5,852 | | Deposit on acquisition | 2,837 | — | | Total Other Current Assets | 16,925 | 126,966 | - Total other current assets decreased significantly to $16.93 million at March 31, 2025, from $126.97 million at December 31, 2024, primarily due to the absence of derivative assets and contracts[119] - A new deposit on acquisition of $2.84 million was recorded at March 31, 2025, related to a potential strategic transaction[119] Note 7. Other Non-Current Assets This note details the components of other non-current assets, which remained relatively stable during the reporting period Other Non-Current Assets Breakdown | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :---------------------- | :----------------------- | :------------------------ | | Security deposits | 22 | 23 | | Right to use assets | 127 | 132 | | Total Other Non-Current Assets | 149 | 155 | - Other non-current assets remained relatively stable, decreasing slightly from $0.16 million at December 31, 2024, to $0.15 million at March 31, 2025[120] Note 8. Property and Equipment, Net This note presents the net property and equipment, detailing gross amounts, accumulated depreciation, and changes in depreciation expense Property and Equipment, Net | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :-------------------------- | :----------------------- | :------------------------ | | Property and equipment, gross | 12,230 | 12,230 | | Less: accumulated depreciation | (437) | (410) | | Property and equipment, net | 11,793 | 11,820 | - Net property and equipment remained stable at $11.79 million as of March 31, 2025, a slight decrease from $11.82 million at December 31, 2024[121] - Depreciation expense decreased significantly to $27.0 thousand in Q1 2025 from $0.2 million in Q1 2024, mainly due to farm-related assets being fully depreciated in 2024[124] Note 9. Goodwill and Other Intangible Assets, Net This note explains the reclassification of intangible assets to 'Assets held for sale' and the impairment of goodwill, resulting in no amortization expense - All intangible assets (trademarks, franchisee agreements, proprietary recipes) were moved to 'Assets held for sale' in 2024, resulting in no amortization expense for Q1 2025[125][126] - Goodwill, which was $1.798 million at December 31, 2023, was fully impaired by March 31, 2024, and subsequently transferred to 'Assets held for sale' as of March 31, 2025[127] Note 10. Accounts Payables and Accrued Expenses This note provides a breakdown of accounts payables and accrued expenses, detailing the increase driven by commodity payables and other accrued expenses Accounts Payables and Accrued Expenses Breakdown | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :------------------------------ | :----------------------- | :------------------------ | | Accounts payable | 3,365 | 2,187 | | Accrued payroll and bonuses | 812 | 690 | | Accrued expenses | 3,032 | 51 | | Accrued interest expenses | 2 | 7 | | Accrued professional fees | 157 | 249 | | Accounts payable commodities | 29,312 | 24,833 | | Sales taxes payable | 2 | 2 | | Total | 36,682 | 28,019 | - Accounts payables and accrued expenses increased by 30.9% to $36.68 million at March 31, 2025, from $28.02 million at December 31, 2024[129] - The increase was primarily driven by a $4.48 million rise in 'Accounts payable commodities' and a $2.98 million increase in 'Accrued expenses'[129] Note 11. Notes Payable This note details the company's notes payable, including new loans, repayments, factoring arrangements, and applicable interest rates and maturities - Total notes payable, net, increased to $10.91 million at March 31, 2025, from $7.39 million at December 31, 2024[138] - The company received $4.58 million in new loans and repaid $1.47 million in Q1 2025[137] - Approximately $3.8 million of notes payable relates to a factoring arrangement, secured by $4.1 million in pledged accounts receivable[136] - Notes payable carry interest rates ranging from 3.75% to 39.00% per annum, with all maturities due between April 1, 2025, and March 31, 2026[138][139] Note 12. Leases This note outlines the company's lease costs, right-of-use assets, and operating lease liabilities, reflecting changes due to the divestiture of restaurant operations - Total lease cost was $14.0 thousand for Q1 2025, recorded in Cost of goods sold[142] - Right-of-use assets and operating lease liabilities decreased due to the refranchising, selling, and closure of all corporate-owned restaurant locations by March 31, 2025[142] Lease Liabilities and Terms | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :-------------------------------- | :----------------------- | :------------------------ | | Total lease assets | 127 | 132 | | Total lease liabilities | 129 | 272 | | Weighted-average remaining lease term | 4.03 years | N/A | | Weighted-average discount rate | 18.0% | N/A | Note 13. Deferred Revenue This note details the significant decrease in deferred revenue, primarily from commodity forward sales contracts and prepayments - Deferred revenue, primarily from commodity forward sales contracts and prepayments, decreased significantly to $0.07 million at March 31, 2025, from $2.25 million at December 31, 2024[145] Note 14. Other Current Liabilities This note provides a breakdown of other current liabilities, highlighting a substantial decrease due to the absence of a significant derivative liability Other Current Liabilities Breakdown | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :-------------------------- | :----------------------- | :------------------------ | | Derivative contracts | 115 | 60 | | Operating lease liability, current | 24 | 23 | | Derivative liability, current | — | 92,094 | | Total | 139 | 92,177 | - Total other current liabilities decreased substantially to $0.14 million at March 31, 2025, from $92.18 million at December 31, 2024, primarily due to the absence of a significant derivative liability[146] Note 15. Other Non-Current Liabilities This note details the components of other non-current liabilities, which remained stable during the reporting period - Other non-current liabilities, consisting solely of operating lease liability, non-current, remained stable at $0.11 million at March 31, 2025, compared to $0.11 million at December 31, 2024[147] Note 16. Income Taxes This note explains the company's 0% effective tax rate due to net operating loss carryforwards and the maintenance of a full valuation allowance against deferred tax assets - The company recorded no income tax expense for Q1 2025, resulting in a 0% effective tax rate, primarily due to the utilization of net operating loss carryforwards[151][152] - A full valuation allowance is maintained against deferred tax assets, as the company has not concluded that it is more likely than not that these assets will be realized[152] Note 17. Commitments and Contingencies This note describes significant commitments and contingencies, including settled forward sale contracts, related party consulting fees, and ongoing legal proceedings - The company settled two forward sale contracts for soybeans in March 2025, realizing gains of $10.5 million and $11.1 million, respectively, with a total current quarter impact of $3.0 million[155][156] - Consulting fees to Aggia, a related party, are calculated at 40% of Sadot Agri-Foods' net income and are paid in common stock, with $0.8 million reimbursed for operating costs in Q1 2025[162][163] - Sadot LLC is involved in legal proceedings in Zambia with Cropit Farming Limited, denying allegations of invalid agreements and asserting counterclaims for damages and specific performance[165][167][168] - The company is also defending against a $7.4 million claim from Lombard Trading International Corp. related to an alleged commodities transaction, denying the allegations[172] - Sadot Group regained compliance with Nasdaq's minimum bid price requirement in November 2024 after a 1-for-10 reverse stock split effective October 18, 2024[177][178] Note 18. Reportable Operating Segments This note presents the financial performance of the company's reportable segments, Sadot Food Services and Sadot Agri-Foods, highlighting their contributions to overall results - The company's reportable segments are Sadot Food Services (discontinued operations) and Sadot Agri-Foods (continuing operations), with the CEO acting as the Chief Operating Decision Maker (CODM)[181] Segment Results of Operations (Q1 2025) | Metric | Sadot Food Service ($'000) | Sadot Agri-Foods ($'000) | Corporate Adj. ($'000) | Total Segments ($'000) | | :---------------------------------------- | :------------------------- | :----------------------- | :--------------------- | :--------------------- | | Commodity sales | — | 132,168 | — | 132,168 | | Gross profit | — | 6,012 | — | 6,012 | | Income / (loss) from operations | — | 4,201 | (2,725) | 1,476 | | Net income / (loss) for continuing operations | — | 3,447 | (2,734) | 713 | | Income for discontinued operations, net | 107 | — | — | 107 | | Net income / (loss) attributable to Sadot Group Inc. | 107 | 3,565 | (2,734) | 938 | | Total assets | 4,915 | 77,001 | 1,828 | 83,744 | Segment Results of Operations (Q1 2024) | Metric | Sadot Food Service ($'000) | Sadot Agri-Foods ($'000) | Corporate Adj. ($'000) | Total Segments ($'000) | | :---------------------------------------- | :------------------------- | :----------------------- | :--------------------- | :--------------------- | | Commodity sales | — | 106,507 | — | 106,507 | | Gross profit | — | 2,810 | — | 2,810 | | Income / (loss) from operations | — | 1,988 | (1,458) | 530 | | Net income / (loss) for continuing operations | — | 1,581 | (804) | 777 | | Loss for discontinued operations, net | (1,090) | — | — | (1,090) | | Net income / (loss) attributable to Sadot Group Inc. | (1,090) | 1,629 | (804) | (265) | | Total assets | 6,950 | 142,673 | 904 | 150,527 | - Sadot Agri-Foods generated $132.17 million in commodity sales and $3.45 million in net income for continuing operations in Q1 2025, significantly contributing to the company's overall performance[182] Note 19. Fair Value Measurement This note details the fair value measurements of financial assets and liabilities, categorizing them by level and showing changes over the reporting period Fair Value of Financial Liabilities (March 31, 2025) | Metric | Level 1 ($'000) | Level 2 ($'000) | Level 3 ($'000) | Total ($'000) | | :------------------ | :-------------- | :-------------- | :-------------- | :------------ | | Derivative contracts | — | 115 | — | 115 | Fair Value of Financial Assets and Liabilities (December 31, 2024) | Metric | Level 1 ($'000) | Level 2 ($'000) | Level 3 ($'000) | Total ($'000) | | :------------------ | :-------------- | :-------------- | :-------------- | :------------ | | Financial assets: | | | | | | Derivative asset | — | 93,520 | — | 93,520 | | Derivative contracts | — | 18,602 | — | 18,602 | | Total assets | — | 112,122 | — | 112,122 | | Financial liabilities: | | | | | | Derivative liability | — | 92,094 | — | 92,094 | | Derivative contracts | — | 60 | — | 60 | | Total liabilities | — | 92,154 | — | 92,154 | - As of March 31, 2025, the company's financial liabilities measured at fair value consisted solely of derivative contracts totaling $0.12 million, classified as Level 2[187] - There were no transfers between fair value levels during Q1 2025[189] Note 20. Financial Instruments This note describes the company's use of commodity futures contracts for hedging and the realized gains/losses on derivative instruments - The company uses commodity futures contracts to hedge exposure to volatile price fluctuations in food and feed commodities, designating them as fair value hedges[193][194] - The primary risk in hedging activities stems from exchanges for commodity hedges or customer defaults, which could lead to significant losses[195] Realized Gain / (Loss) on Derivative Instruments | Derivative Type | Location of Gain / (Loss) Recognized | Three Months Ended March 31, 2025 ($'000) | Three Months Ended March 31, 2024 ($'000) | | :-------------------------------- | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | | Designated as fair value hedges | Cost of goods sold | (136) | (11) | | Not designated as hedges | Cost of goods sold | 3,028 | 3,259 | - Realized gains from derivative instruments not designated as hedges were $3.03 million in Q1 2025, compared to $3.26 million in Q1 2024, recognized in Cost of goods sold[202] Note 21. Equity This note details the company's equity incentive plans, common stock issuances, restricted share awards, and stock-based compensation expenses - The company has three equity incentive plans (2021, 2023, 2024 Plans) under which stock options and restricted stock are granted to officers, directors, employees, and consultants[203][204][205] - Common stock issuances in Q1 2024 and Q1 2025 included compensation to board members, consultants, and conversions of notes payable[206][207][208][209][210][211][309][310][311][312][313][314][315] - Restricted Share Awards (RSAs) to Aggia vest based on Sadot Agri-Foods' net income, with 79,342 shares vested in Q1 2025[212][214] Restricted Share Awards Activity | Metric | Unvested at Dec 31, 2024 | Granted Q1 2025 | Forfeited Q1 2025 | Vested Q1 2025 | Unvested at Mar 31, 2025 | | :------------------------ | :----------------------- | :-------------- | :---------------- | :------------- | :----------------------- | | Total RSAs | 640,329 | 157,604 | (2,942) | (153,280) | 641,711 | - Stock-based compensation expense increased to $1.4 million in Q1 2025 from $0.8 million in Q1 2024, including $1.0 million for stock-based consulting expenses paid to a related party[223][226] Note 22. Related Party Transactions This note outlines transactions with related parties, including Aggia LLC FC, detailing stock-based consulting expenses, reimbursements, and loans - Aggia LLC FC, a related party, owned 11.2% of the company's common stock as of March 31, 2025[230] - Stock-based consulting expense of $1.0 million was recorded for Aggia in Q1 2025 (up from $0.6 million in Q1 2024) for advisory services to Sadot Agri-Foods[230] - The company reimbursed Aggia $0.8 million for Sadot Agri-Foods' operating costs in Q1 2025 (down from $1.1 million in Q1 2024)[231] - A loan of $0.6 million from a related party, received in September 2024, was extended until July 18, 2025[232] - A board member, who is 50% owner of the non-controlling interest in Sadot South Korea, received 17,037 shares of stock as compensation for services in Q1 2025[233] Note 23. Subsequent Events This note describes significant events occurring after the balance sheet date, including new agreements, loan extensions, and debt-to-equity conversions - Effective April 1, 2025, Sadot Canada entered a management services agreement with Big Sky Milling, providing management services and access to its facility for transloading and toll processing[237] - The service agreement with Buenaventura for Sadot Latam operations was terminated on April 30, 2025[238] - Two loans, including one to a related party, secured by the sale of Sadot Food Services, were extended from April 10, 2025, to July 18, 2025, for an additional $1.0 million[239] - The company entered a new merchant cash advance for $1.9 million on April 24, 2025, and another for $0.5 million on May 9, 2025[239][243] - Several notes payable were exchanged for common stock in April and May 2025, totaling approximately $0.235 million in debt exchanged for 159,474 shares[240][241][242][244] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Sadot Group Inc.'s financial condition and results of operations, detailing its transformation and analyzing key financial metrics Overview This section provides an overview of Sadot Group Inc.'s strategic transformation from a restaurant business to a global Agri-Foods supply chain organization - Sadot Group Inc. transformed from a U.S.-centric restaurant business to a global Agri-Foods supply-chain organization in late 2022[249] - As of March 31, 2025, the company operates primarily through Sadot Agri-Foods, engaged in farming, commodity trading, and shipping, while Sadot Food Services (restaurant segment) is classified as held for sale and discontinued operations[249][250][251] Key Financial Definitions This section defines key financial metrics and accounting treatments relevant to understanding the company's financial performance, including revenue and cost of goods sold - Revenues are primarily derived from Commodity sales, which increased to $132.17 million in Q1 2025 from $106.51 million in Q1 2024[253][254] - Cost of goods sold includes commodity costs, labor, rent, and other operating expenses[255] - The company reclassified fair value gains from 'Other income' to 'Cost of goods sold' in Q1 2025 to better reflect their economic link to inventory, without impacting net income[256] - Stock-based expenses, including consulting fees to Aggia and compensation to employees/directors, increased to $1.43 million in Q1 2025 from $0.80 million in Q1 2024[258][259] - EBITDA, a non-GAAP measure, is defined as Net loss adjusted for depreciation, amortization, interest, and income taxes, used to evaluate recurring profitability[264] Reconciliations of EBITDA and Other Non-GAAP Measures This section provides reconciliations of EBITDA and other non-GAAP measures to their most directly comparable GAAP financial measures, highlighting operational profitability Metric | Metric | Three Months Ended March 31, 2025 ($'000) | Three Months Ended March 31, 2024 ($'000) | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income / (loss) | 820 | (313) | | Depreciation and amortization expenses | 27 | 91 | | Interest (income) / expense, net | 1,541 | 228 | | Income tax expense | — | 1 | | EBITDA | 2,388 | 7 | | EBITDA attributable to Sadot Group Inc. | 2,506 | 55 | | Net income / (loss) margin attributable to Sadot Group Inc. | 0.6% | (0.3)% | | EBITDA margin attributable to Sadot Group Inc. | 1.9% | 0.1% | - EBITDA significantly increased to $2.39 million in Q1 2025 from $7.0 thousand in Q1 2024, reflecting improved operational profitability[266] - EBITDA attributable to Sadot Group Inc. rose to $2.51 million in Q1 2025 from $55.0 thousand in Q1 2024[266] - The EBITDA margin attributable to Sadot Group Inc. improved to 1.9% in Q1 2025 from 0.1% in Q1 2024[266] Unaudited Condensed Consolidated Results of Operations - Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024 This section analyzes the unaudited condensed consolidated results of operations for the three months ended March 31, 2025, compared to the prior year, detailing revenue, gross profit, and expense changes Consolidated Results of Operations (Q1 2025 vs. Q1 2024) | Metric | 2025 ($'000) | 2024 ($'000) | Variance ($'000) | Variance (%) | | :---------------------------------------- | :----------- | :----------- | :--------------- | :----------- | | Commodity sales | 132,168 | 106,507 | 25,661 | 24.1% | | Cost of goods sold | (126,156) | (103,697) | (22,459) | 21.7% | | Gross profit | 6,012 | 2,810 | 3,202 | 114.0% | | Depreciation and amortization expenses | (27) | (91) | 64 | (70.3)% | | Stock-based expenses | (1,428) | (796) | (632) | 79.4% | | Sales, general and administrative expenses | (3,081) | (1,393) | (1,688) | 121.2% | | Income from operations | 1,476 | 530 | 946 | 178.5% | | Interest expense, net | (1,541) | (228) | (1,313) | 575.9% | | Change in fair value of stock-based compensation | 778 | 476 | 302 | 63.4% | | Net income / (loss) attributable to Sadot Group Inc. | 938 | (265) | 1,203 | 454.0% | - Commodity sales increased by $25.7 million (24.1%) due to expansion into new markets not operating in 2024[272] - Gross profit increased by $3.2 million (114.0%), driven by higher commodity sales partially offset by increased cost of goods sold[271] - Sales, general and administrative expenses increased by $1.7 million (121.2%) due to consulting fees for Latin America, Brazil, Canada, and South Korea markets, and increased normal operating activities[276] - Net income attributable to Sadot Group Inc. improved significantly by $1.2 million, moving from a loss of $0.27 million in Q1 2024 to an income of $0.94 million in Q1 2025[267] Liquidity and Capital Resources This section discusses the company's liquidity position, working capital, cash flows, and capital resources, including potential needs for additional funding Working Capital and Current Ratio | Metric | March 31, 2025 ($'000) | December 31, 2024 ($'000) | | :---------------------- | :----------------------- | :------------------------ | | Working capital | 21,868 | 20,509 | | Current ratio | 1.44 | 1.16 | - Working capital increased by $1.4 million to $21.9 million, and the current ratio improved to 1.44 at March 31, 2025, primarily due to increased accounts receivable and decreased other current liabilities[281] - Despite sufficient working capital, the company faces delays in converting receivables to cash, actively managing collections and factoring utilization to address short-term liquidity[283][284] - Net cash used in operating activities from continuing operations was $3.0 million in Q1 2025, compared to $2.5 million provided in Q1 2024[287] - Net cash provided by financing activities from continuing operations was $3.1 million in Q1 2025, driven by $4.6 million in new notes payable, partially offset by $1.5 million in repayments[289] - The company may need to raise additional capital through borrowings, private placements, or public offerings, which could result in dilution or increased debt service obligations[285][286] Critical Accounting Policies and Estimates This section highlights the critical accounting policies and estimates that require significant management judgment and can materially affect the reported financial amounts - The preparation of financial statements requires significant management judgment and estimates, which can materially affect reported amounts[290] Recently Issued Accounting Pronouncements This section discusses the impact of recently issued accounting pronouncements on the company's financial statements and disclosures - ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) were adopted on December 31, 2024, with no material impact on the financial statements[291][292][293] - ASU 2024-03 (Expense Disaggregation Disclosures) is effective for fiscal years beginning after December 15, 2026, and the company is currently evaluating its impact[294] Seasonality This section describes the seasonal fluctuations inherent in the farming industry and their impact on the company's sales and net income - The farming industry experiences seasonal fluctuations, with lower sales and net income during non-harvest seasons and higher during harvest seasons, requiring sufficient working capital to fund operations at reduced levels[295] Off-Balance Sheet Arrangements This section confirms that the company has no off-balance sheet arrangements that would materially affect its financial condition or results of operations - The company has no off-balance sheet arrangements that have or are reasonably likely to have a material effect on its financial condition or results of operations[296] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company has no material quantitative or qualitative disclosures about market risk to report - The company has no material quantitative or qualitative disclosures about market risk[297] Item 4. Controls and Procedures This section details the company's evaluation of its disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures as evaluated by its principal executive and financial officers - As of March 31, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective in timely recording, processing, summarizing, and reporting required information[298] Changes in Internal Control over Financial Reporting This section states that there were no material changes in internal control over financial reporting during the reporting period - There were no changes in internal control over financial reporting during the three months ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[299] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section outlines the legal proceedings involving Sadot Group Inc, including lawsuits in Zambia and Florida, with management asserting strong defenses - Cropit Farming Limited commenced legal proceedings against Sadot LLC in Zambia on March 21, 2025, alleging invalid agreements and seeking $6.7 million USD in damages[302] - Sadot LLC denies the allegations, has asserted substantial counterclaims, and plans to seek arbitration[303][304] - Lombard Trading International Corp. filed an Amended Complaint on November 7, 2024, against the company and Sadot Latam, LLC, seeking $7.4 million in damages related to a commodities transaction, which the company denies[307] - Management believes the company has strong defensible positions in these legal matters and does not expect a material adverse effect on its financial position or results of operations[305] Item 1A. Risk Factors This section refers to the risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - Risk factors are incorporated by reference from the company's Annual Report on Form 10-K for the year ended December 31, 2024[308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sales of equity securities, primarily common stock issuances for compensation and conversion of notes payable - In Q1 2024, the company issued 10,564 shares of common stock to board members as compensation and 284,139 shares for the conversion of notes payable[309][310][311][312][313] - In Q1 2024, 7,950 shares were issued to a consultant for services rendered, and 50,094 shares were vested to Aggia as consulting fees[314] - In Q1 2025, 34,074 shares were issued to consultants for services rendered, and 79,342 shares were vested to Aggia as consulting fees[314][315] - All listed securities issuances are exempt from registration requirements under Rule 4(a)(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D[315] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - There were no defaults upon senior securities during the reporting period[316] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[317] Item 5. Other Information This section reports on recent changes in the company's Board of Directors and executive leadership, including appointments, resignations, and a passing - Claudio Torres was appointed Vice Chairman of the Board of Directors on March 25, 2025[318] - Kevin Mohan and Mark McKinney resigned from the Board and its committees on May 8, 2025[319] - Marvin Yeo, a Board member, unexpectedly passed away on April 27, 2025[320] - David Hanna was appointed Interim Chief Executive Officer, effective June 2, 2025, succeeding Catia Jorge who resigned for personal reasons[321] - Mr. Hanna will receive an annual base salary of $300,000 (USD) plus an additional $25,000 (USD) monthly for the Interim CEO role[322] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, equity plans, and key agreements - The exhibits include corporate governance documents such as Articles of Incorporation and Bylaws[323] - Equity incentive plans (2021, 2023, 2024 Plans) and forms of warrants are listed[323][324] - Key agreements, including the Services Agreement with Aggia LLC FC and the Standby Equity Purchase Agreement with YA II PN, Ltd., are included[325][326] - Certifications from the Chief Executive Officer and Chief Financial Officer, pursuant to Sarbanes-Oxley Act, are also part of the exhibits[326] SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the quarterly report - The report is signed by Catia Jorge, Chief Executive Officer, and Jennifer Black, Chief Financial Officer, on May 14, 2025[331]