Sadot Group Inc

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition of Sadot Group, Inc. (“Sadot Group”), together with its subsidiaries (collectively, the “Company”) as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Annual Report on Form 10-K following Item 16. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to Sadot Group. “Muscle Maker Grill”, “SuperFit Foods” and “Pokemoto” refers to the names under which our corporate and franchised restaurants do business depending on the concept. This Annual Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Annual Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,”“forecast,” “model,” “proposal,” “should,” “may,”“intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Factors That May Affect Future Results and Financial Condition” in this Item 7 for a discussion of some of the uncertainties, risks and assumptions associated with these statements.

OVERVIEW

Sadot Group Inc. (f/k/a Muscle Maker, Inc.) is our parent company and is headquartered in Ft. Worth, Texas. 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 December 31, 2023, Sadot Group consisted of two distinct operating units.

1. Sadot LLC (“Sadot Agri-Foods”): Sadot Group’s largest operating unit is a global agri-commodities company engaged in farming, 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 joint venture, 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.

2. Sadot Restaurant Group ("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.

Through our subsidiaries, we operate within the global food-supply chain, in an effort to integrate capabilities and create a sustainable and innovative company, that enhances the social, environmental and financial value to our Company.

Key Financial Definitions

We review a number of financial and operating metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Governmental and other economic factors affecting our operations may vary.

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

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

Revenues

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, food and beverage cost, rent and other operating expenses.

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.

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.

Depreciation and Amortization Expenses

Depreciation and amortization expenses primarily consist of the depreciation of property and equipment and amortization of intangible assets.

Franchise Advertising 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 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 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 include all expenses that are paid with stock. This includes stock-based consulting fees due to Aggia and other consultants, stock compensation paid to the 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 years ended December 31, 2023 and 2022, $6.2 million and $3.7 million, respectively, are recorded as Stock-based expenses in the accompanying 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, 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. A certain portion of these expenses are related to the preparation of an initial stock offering and subsequent capital raises and should be considered one-time expenses.

Other (Expense) / Income

Other (expense) / income listed below the Loss from operations in the accompanying Consolidated Statements of Operations and Other Comprehensive Loss consists of Gain of fair value remeasurement, Gain in fair value of stock-based compensation, Warrant modification expense, Interest expense, net, Other income and Gain on debt extinguishment. 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. Warrant modification expense consists of the expense incurred and the issuance of new warrants.

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 $0.2 million for the year ended December 31, 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

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP measures. We define EBITDA as Net loss, adjusted for depreciation, amortization, interest income / (expense), and income taxes. We define Adjusted EBITDA as Net loss, adjusted for depreciation, amortization, net interest (income) expense, income taxes, impairment expenses, stock-based consulting expense, 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 Consolidated Statement of Operations and Other Comprehensive Loss and the associated Notes to the 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.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, have certain limitations, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported under U.S. GAAP. We caution investors that amounts presented in accordance with our definitions of any of the Non-GAAP Measures may not be comparable to similar measures disclosed by other issuers, because some issuers calculate certain of the Non-GAAP Measures differently or not at all, limiting their usefulness as direct comparative measures.

Reconciliations of EBITDA, Adjusted EBITDA and Other Non-GAAP Measures

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 years ended December 31, 2023 and 2022:

Consolidated Results of Operations - Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

The following table represents selected items in our Consolidated Statements of Operations for the years ended December 31, 2023 and 2022, respectively:

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

Gross Profit

Our gross profit totaled $9.9 million for the year ended December 31, 2023, compared to $4.4 million for the year ended December 31, 2022. The $5.5 million increase is primarily attributed to an increase in Commodity sales as a direct result of a full years worth of operations of Sadot Agri-Foods.

We generated Commodity sales of $717.5 million for the year ended December 31, 2023, compared to $150.6 million for the year ended December 31, 2022. The $566.9 million increase or 376.5% is attributable to the formation of Sadot Agri-Foods in November 2022 and a full year's worth of sales generated from physical food related commodities in 2023.

We generated Company restaurant sales, net of discounts, of $8.1 million for the year ended December 31, 2023, compared to $10.3 million for the year ended December 31, 2022. This represented an decrease of $2.2 million, or 21.8%, which is mainly attributable to conversion of a number of corporate restaurant locations to franchises, thus converting total revenue of a corporate owned location to 2% - 6% royalty revenue of a franchise location, and the closures of certain unprofitable corporate restaurant locations.

Franchise royalties and fees for the years ended December 31, 2023 and 2022 totaled $1.0 million compared to $0.7 million, respectively. This represents an increase of $0.3 million, or 43.2%. which is primarily due to the sales and opening of new Pokemoto franchises and converting corporate owned and operated locations into franchise owned locations.

Franchise advertising fund contributions for the years ended December 31, 2023 and 2022 totaled $0.1 million compared to $0.1 million, respectively. In accordance with Topic 606, 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 9.9%, is a direct result of the decrease in Muscle Maker Grill franchises and the national advertising services to benefit the brand as a whole.

Other revenues for the years ended December 31, 2023 and 2022 totaled $13.0 thousand and $5.0 thousand, respectively. Other revenues consisted of gift card breakage recognized.

Cost of goods sold for the years ended December 31, 2023 and 2022 totaled totaled $716.8 million and $157.3 million, respectively. The $559.4 million change was primarily due to a full years worth of operations of Sadot Agri-Foods.

Impairment of Intangible Assets

Impairment of intangible assets for the years ended December 31, 2023, and 2022 totaled $0.8 million and $0.3 million, respectively. On August 4, 2023, the Company announced its intention to reduce restaurant operating expenses by closing underperforming units while refranchising (selling) most of the remaining company-owned units. Due to the structural change of the Company's operations and the closing or marketing for sale of the Company owned stores an impairment testing of the Company’s intangible assets was performed and an impairment of$0.8 million was recognized.

Impairment of Goodwill

We had Impairment of goodwill for the year ended December 31, 2023 of $0.8 million. For the year ended December 31, 2022 there was no Impairment of goodwill. On August 4, 2023, the Company announced its intention to reduce restaurant operating expenses by closing underperforming units while refranchising (selling) most of the remaining company-owned units. Due to the structural change of the Company's operations and the closing or marketing for sale of the Company owned stores an impairment testing of the Company’s goodwill was performed and an impairment of $0.8 million. was recognized.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for the years ended December 31, 2023 and 2022 totaled $1.8 million and $2.0 million, respectively. The $0.2 million decrease is mainly attributed to closing underperforming units while refranchising (selling) most of the remaining company-owned unit and the disposal of the corresponding assets partially offset by the asset purchase of the farmland and corresponding farming equipment.

Franchise Advertising Fund Expenses

Franchise advertising fund expenses for the years ended December 31, 2023 totaled $0.1 million compared to $0.1 million for the year ended December 31, 2022. The $8.0 thousand or 9.9% decrease is mainly attributed to the decrease in Muscle Maker Grill national advertising services to benefit the brand.

Pre-opening Expenses

Pre-opening expenses for the years ended December 31, 2023 and 2022, totaled $0.4 million and $0.1 million, respectively. The increase in pre-opening expense resulted from expenses incurred at the farm in Zambia from the time that we signed the paper work for the purchase of the farm assets and when the purchase was finalized by the Zambian government.

Post-Closing Expenses

Post-closing expenses for the year ended December 31, 2023 totaled $0.2 million compared to $0.2 million for the year ended December 31, 2022. The increase in Post-closing expenses resulted from expenses incurred after the closing of underperforming or refranchising Company-owned stores.

Stock-Based Expenses

Stock-based consulting expenses for the year ended December 31, 2023, totaled $6.2 million compared to $3.7 million for the year ended December 31, 2022. The primary increase in Stock-based consulting expenses is the result of consulting fees due to Aggia for Sadot Agri-Foods operations. Based on the service agreement with Aggia, the consulting fees are calculated at approximately 40% of the Net income generated by the Sadot Agri-Foods business segment. The increase is also the result in an increase in stock-based compensation paid to consultant, board members and employees.

Sales, General and Administrative Expenses

Sales, general and administrative expenses for the years ended December 31, 2023 and 2022 totaled $9.4 million and $6.0 million, respectively. The $3.4 million increase was primarily attributable to an increase in investor relations fees resulting from building brand awareness and changing the corporate name, an increase in professional and consulting fees as a result of the expansion of our business and acquisitions, and an increase in employee salaries and benefits due to an increase in personal to support the new business lines.

Other Income

Other income for the years ended December 31, 2023 and 2022 totaled $1.7 million and $0.2 million, respectively. The other income was primarily attributable to an increase of $1.5 million in the gain on the fair value remeasurement as a result of the mark to market adjustment of derivatives, an increase of $1.3 million in the Change in fair value of stock-based compensation due to the difference in the stock price at the time of the stock issuance and agreed upon price to Aggia, an increase of $0.3 million in Other income, an increase of $1.0 million in warrant modification expense, a $0.5 million increase in Interest expense, net , partially offset by a decrease of $0.1 million on the Gain on debt extinguishment.

The following table represents selected items in our Consolidated Statements of Operations for the year ended December 31, 2023, by our operating segments:

The following table represents selected items in our Consolidated Statements of Operations for the year ended December 31, 2022, by our operating segments:

Liquidity and Capital Resources

Working Capital

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

(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

Availability of Additional Funds

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 December 31, 2023, current ratio, which equals Total current assets divided by Total current liabilities, was 1.08, a decrease of 0.53, compared to current ratio of 1.61 at December 31, 2022. The decrease in current ratio was primarily due to an increase in Accounts payable and accrued expenses as well as an increase in Other current liabilities which was primarily driven by increased Deferred revenue, partially offset by the increase in Accounts receivable as well as Other current assets. At December 31, 2023, working capital, which equals Total current assets less Total current liabilities, was $8.3 million an increase of $4.2 million, compared to working capital of $4.0 million at December 31, 2022. The increase in working capital was primarily due to an increase in Accounts receivable, which was primarily driven by increased Commodity sales, the prepaid forward on carbon offset, partially offset by an increase in Accounts payable 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. 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.

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.

Sources and Uses of Cash for the Years Ended December 31, 2023 and December 31, 2022

For the years ended December 31, 2023 and 2022, we used Net cash of $13.4 million and $0.2 million, respectively, in operations. Our Net cash used for the year ended December 31, 2023, was primarily attributable to our Net loss of $8.1 million, adjusted for net non-cash expense in the aggregate amount of $9.5 million offset by $14.9 million of Net cash used in changes in the levels of operating assets and liabilities. Our Net cash used for the year ended December 31, 2022, was primarily attributable to our Net loss of $7.9 million, adjusted for net non-cash expenses in the aggregate amount of $6.2 million, partially offset by $1.6 million of Net cash used in changes in the levels of operating assets and liabilities.

For the year ended December 31, 2023, Net cash used in investing activities was $3.5 million, of which, $7.5 million was used to purchase Property and equipment, partially offset by $0.4 million, which was generated on the Disposal of property and equipment and by investment from non-controlling interest of $3.7 million. For the year ended December 31, 2022, Net cash used in investing activities was $5.4 million, of which $4.9 million was used on a deposit to purchase farmland, $0.6 million was used to purchase Property and equipment, partially offset by $0.1 million collected from loans to franchisees.

For the year ended December 31, 2023, Net cash provided by financing activities was $8.3 million, consisting of proceeds from notes payable of $11.9 million, proceeds from exercise of warrants of $2.2 million, partially offset by the repayments of notes payable of $5.7 million. For the year ended December 31, 2022, Net cash used in financing activities was $0.2 million, consisting of repayments of notes payable of $0.2 million.

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 (“ASU”) 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. ASU No. 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; and

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; ASU No. 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 accumulated deficit 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”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers”, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03. The guidance in the ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used. The standard also establishes additional disclosures related to credit risks. 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 Consolidated Financial Statements and related disclosures.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity. Among other changes, ASU 2020-06 removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share and updates the disclosure requirements in ASC 470-20, making them easier to understand for financial statement preparers and improving the decision-usefulness and relevance of the information for financial statement users. The Company early adopted the new guidance from January 1, 2023, noting no material impact.

In April 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”) to clarify the accounting by issuers for modifications or exchanges of equity-classified warrants. The new ASU is effective for all entities in fiscal years starting after December 15, 2021. Early adoption is permitted. The Company adopted the new guidance from January 1, 2023, noting no material impact.

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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.