Sadot Group, Inc. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; comparisons are to FY2022. This is an annual report, not a standalone fourth-quarter report. Sadot Group is transitioning from a U.S.-focused restaurant company to a global agri-foods business. Its two reported segments are Sadot Agri-Foods and Sadot Food Services.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $726.7 million | $161.7 million |
| Gross profit | $9.9 million (1.4% margin) | $4.4 million (2.7% margin) |
| Operating loss | $9.8 million | $8.1 million |
| Net loss | $8.0 million; $7.8 million attributable to Sadot Group | $8.0 million |
| Adjusted EBITDA | $(0.1) million consolidated; $0.1 million attributable to Sadot Group | $(2.0) million |
| Cash from operations | $(13.4) million | $(0.2) million |
| Cash at year-end | $1.4 million | $9.9 million |
| Working capital / current ratio | $8.3 million / 1.08 | $4.0 million / 1.61 |
Commodity sales were $717.5 million, up 376.5%, mainly reflecting a full year of Sadot Agri-Foods operations. They represented 98.8% of FY2023 revenue. Company restaurant sales fell 21.8% to $8.1 million as locations were franchised or closed; franchise royalties and fees rose 43.2% to $1.0 million. Cost of goods sold was $716.8 million. Revenue expanded sharply, but gross margin declined as commodity trading became the dominant business.
FY2023 investing cash outflow was $3.5 million, including $7.5 million of property and equipment purchases, partly offset by $3.7 million invested by the non-controlling partner. Financing provided $8.3 million, including $11.9 million of note proceeds and $2.2 million from warrant exercises, less $5.7 million of note repayments.
At December 31, 2023, notes payable totaled approximately $7.2 million, including $6.5 million current and $0.6 million non-current. Total liabilities were $153.8 million. Cash was low relative to current liabilities of $104.6 million; reported working capital and liquidity are materially affected by large contract-related asset and liability balances.
Material changes and unusual items
- The company changed its name from Muscle Maker, Inc. to Sadot Group, Inc. in July 2023 and continued its strategic pivot toward global commodity trading, farming and shipping.
- Sadot acquired a 70% interest in a Zambian farming joint venture holding approximately 5,000 acres; the farm acquisition closed in August 2023.
- Restaurant restructuring resulted in $0.8 million of intangible-asset impairment and $0.8 million of goodwill impairment. Management intends to close underperforming restaurants, franchise remaining locations where possible, and pursue alternatives for the restaurant segment.
- Stock-based expenses were $6.2 million, including $5.4 million in related-party consulting expense associated with Aggia. The consulting arrangement was amended effective April 1, 2023; fees are based on 40% of Sadot Agri-Foods net income, subject to the agreement’s share and other provisions.
- The company recorded a $1.5 million gain on fair-value remeasurement and a $1.3 million gain related to fair value of stock-based compensation, partly offset by $1.0 million of warrant modification expense and $0.5 million of net interest expense. These items affect interpretation of the reported net loss and adjusted EBITDA.
- FY2023 balance-sheet contract assets were about $93.5 million in total, while contract liabilities were about $92.1 million. The filing describes major forward commodity and carbon-offset contracts; verify their terms, valuation, timing of settlement and cash-flow implications.
Outlook, risks and contingencies
No quantified revenue, earnings or cash-flow guidance is provided. Management’s stated strategy is to expand the agri-foods supply chain, including trading, shipping and farming, while reducing exposure to corporate-operated restaurants. The company expects significant capital needs and warns it may require further equity or debt financing; the filing does not assure that financing will be available on acceptable terms.
- Yorkville financing and dilution: The SEPA provides for up to $25 million of equity purchases subject to conditions and share limits. The company received $4.0 million in convertible-note advances; the notes bear 6% interest, potentially increasing to 18% on default, and mature in 2024. Trigger provisions can require monthly $0.5 million payments plus an 8% premium and interest. Subsequent note conversions and share issuances are disclosed in the filing.
- Liquidity and working capital: Operating cash use was $13.4 million and year-end cash was $1.4 million. Receivables, contract assets, commodity payables and contract liabilities are substantial; their collectability, settlement timing and counterparties are important to assess.
- Concentration and related-party dependence: The largest commodity supplier accounted for 88% of FY2023 commodity purchases. Aggia, a significant shareholder, provides important operating and consulting services; the company states that termination could disrupt agri-food operations.
- Commodity and international risks: Earnings and working capital may be affected by commodity-price volatility, weather and crop yields, foreign exchange, country and counterparty risk, transport disruption, trade rules, and political events.
- Restaurant transition: More than 80% of restaurants were franchised at year-end, and the company reported six company-operated locations in its strategy discussion. Franchisee performance, restaurant closures or divestiture execution may affect royalties and cash flow.
- Listing risk: Nasdaq notified the company in November 2023 that its bid price had been below $1.00 for 30 consecutive business days, giving it until May 6, 2024 to regain compliance. The filing states there is no assurance of compliance or continued listing.
- Other matters: The company reports a $0.1 million accrued lease judgment and says ordinary-course legal matters are not expected to have a material financial-statement impact. It reports no off-balance-sheet arrangements material to investors.
Investor facts to verify
- Cash conversion and working-capital quality: confirm aging and subsequent collection of the $52.9 million in receivables, and reconcile the approximately $93.5 million of contract assets with the $92.1 million of contract liabilities.
- Commodity trading economics: verify sustainable gross margins, counterparty exposure, supplier concentration, and the cash and risk implications of the forward soybean and carbon-offset contracts.
- Financing and dilution: check current Yorkville note balances, trigger-payment exposure, available SEPA capacity and share limits, and shares issued or issuable after year-end. Shares outstanding were 40.5 million at year-end and 51.8 million as of March 20, 2024.
- Aggia relationship: review the related-party service terms, 40% income-based compensation, share vesting and repurchase provisions, and operational continuity arrangements.
- Execution of the restaurant strategy and Nasdaq status: confirm any restaurant sale, closure or franchise progress and whether the bid-price deficiency was cured by the stated deadline.
The independent auditor gave an unqualified opinion on the GAAP financial statements. The auditor was not engaged to audit internal control effectiveness; management concluded internal controls were effective as of December 31, 2023.