Sadot Group Inc.

Thank you, Operator, and welcome everyone to Sadat Group Inc.' 's third quarter 2023 earnings call and webcast. Before we get started, we would like to state that this call may include forward-looking statements pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. To the extent that the information presented on this call discusses financial projections, information, or expectations about the business plans, results of operations, products, or markets, or otherwise makes statements about future events, such statements may be forward-looking. Such forward-looking statements can be identified by the use of the words such as should, may, intends, anticipates, believes, estimates, projects, forecasts, expects, plans and proposes. Although management believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the heading risk factors and elsewhere in documents that Sadat Group Inc. files from time to time with the SEC. Forward-looking statements speak only as of the date of the document in which they are contained, and Sadat Group Inc. does not undertake any duty to update any forward-looking statements except as may be required by law. For this call, all numbers disclosed have been rounded to the closest 100,000 and percentages have been rounded to the closest percent. On this call, we will refer to Sadat Group Inc. as Sadat Group or the company. With me on the call today are Sadat Group's Chief Executive Officer Michael Roper and Chief Financial Officer Jennifer Black. We will also have other members of the management team available during the Q&A session. Michael and Jennifer will be presenting prepared remarks related to Sadat Group Inc's financials file on November 14, 2023, and those documents may be found on the company's website, Newswire feeds, and on the SEC's website linked from Sadat Group's website at www.sadatgroupinc.com in the upper navigation link labeled Investors. At this point, I would like to turn the call over to Sadat Group Inc's CEO, Michael Roper. Michael.

Thanks, Frank. Good morning, everyone, and thank you for joining us today. We'll be reporting the results of our third quarter ending September 30th, 2023. But before diving into the Q3 results and key highlights, I'd like to acknowledge that the past quarter has been another important period for Sadat Group Inc. It's worth noting that in the third quarter on July 26th, 2023, we officially marked a significant milestone with the announcement of our corporate name change from MuscleMaker Inc. to Sadat Group Inc. This name change reflects our strategic evolution into a global player in the food supply chain sector. Our shares of common stock began trading on NASDAQ under the ticker symbol SDOT. That's Sam David Ocean Tom, SDOT, on July 27th, 2023. And we are excited about this new chapter in our journey. Our transformation and strategic pivot over the past year has been rapid. We have evolved from a U.S.-centric restaurant business into a truly global food supply chain organization. We've strategically segmented the parent company, Sadat Group Inc., into three operating divisions to capitalize on the opportunities presented by the global food market. These three operating divisions include, number one, Sadat Agri Foods, number two, Sadat Farm Operations, and number three, Sadat Food Service Operations, which is in an optimization process, which we'll elaborate on later in this call. To begin, I'd like to give a brief overview of each of these three main business divisions. Our first and largest division is Sadat Agri Foods. This division is our global agri-commodity trading group and serves as the company's largest revenue and net income generator since inception. Its global operations include the origination and trading of food and feed products such as soybean meal, wheat, corn, and carbon offsets. This division helps supply food and feed products to various regions of the world and is a strategic component in helping to address food security issues. Our second business division is Sadat Farm Operations. We officially began our farming operations in Q3 on our approximately 5,000-acre farm in Zambia. This facility cultivates highly sought-after and valuable commodities, including soybean, wheat, and corn, in addition to tending to high-value avocado and mango tree crops. We expect Sadat's farming operations to eventually provide additional leverage to our trading business while aligning with our strategic objective to create positive impact on the local communities and address the increasing global food security challenges. Our third business division is Sadat Food Service Operations, which operates our three legacy restaurant concepts. This unit encompasses over 48 fast casual restaurants across the United States, including two international locations. We also have franchise agreements sold for over 50 locations that are yet to be opened. Over the past quarter, this division has been undergoing a transformation and optimization in which we started closing underperforming restaurant locations and converted locations from corporate operated to franchise locations in order to position the division for potential strategic alternatives in the future. Let me now discuss some specific Q3 highlights. I'm pleased to announce that Stock Group Inc. achieved top line revenue of $182.2 million for Q3 2023, a significant increase compared to $2.8 million for Q3 2022. This announcement marks the accomplishment of 11 consecutive months since inception, above $45 million in monthly revenue for the company. These revenue numbers are led by our largest operating division, Sadat AgriFoods. Specifically, our Sadat AgriFoods division added $179.5 million in revenue and $2.3 million in operating income in the third quarter as it continues to consistently perform. In assessing our overall company-wide performance, it's important to note that the company encountered a series of one-time type of charges, which were realized this quarter, with a significant portion linked to the previously announced restructuring of our legacy restaurant brands, our corporate name change to Sadat Group Inc., and overall financing strategies. While these charges did impact this quarter's bottom line, they were one-time charges essential for helping to fortify our long-term financial strength and growth opportunities for the company. Overall, for the third quarter, we reported a net loss of approximately 5.3M in contrast to the net loss of approximately 1.9M in the previous year ending September 30, 2022. As previously mentioned, there were a number of one-time charges that significantly impacted our Q3 results. While these charges necessitated short-term financial adjustments, they are essential steps towards our long-term objectives. What is important to understand is the Sadat Agri Foods Division, which is our main revenue and net income generator, continued to perform generating $2.3 million in operating income. This division, along with the Sadat Farm Operations Division, is the strategic direction and future of the company. We will continue to optimize and or seek to divest the Sadat Food Service Operations Division moving forward. A better way, in our opinion, to view our quarter operationally is reflected in our adjusted EBITDA, which reported a loss of $841,000 for Q3 compared to a $1.4 million loss for the same period last year. By executing on these corporate strategic initiatives, we believe our adjusted EBITDA performance demonstrates that, operationally, we're on track and moving closer to achieving our financial targets. In fact, our 2023 year to date adjusted EBITDA stands at a positive $2.8 million profit, a remarkable turnaround from the negative $4.1 million loss in 2022. This significant improvement highlights our commitment to strengthening our financial position through our expansion into different areas of the global food supply chain. While some tough strategic decisions were made this past quarter that have in the short term impacted our financial results, we recognize their necessity to potentially provide long term benefits for the overall strength of the company and our valued stakeholders. We remain dedicated to executing our strategic vision and harnessing the opportunities the global food market offers. We eagerly anticipate building upon this momentum as we move ahead. Now I'd like to turn the call over to our CFO, Jennifer Black, to review the financial performance of the company for the third quarter of 2023. Jennifer?

Thanks, Mike, and thank you to everyone joining us here today. Before I begin, I would like to note that our financial results for the quarter ended September 30, 2023, on Form 10Q, were filed with the SEC yesterday, November 14, along with the press release that same day. With that, I'd like to give an overview of the financials for the third quarter of 2023. As Mike mentioned in his opening comments, our Q3 2023 company-wide revenues increased significantly, totaling $182.2 million compared to $2.8 million for Q3 of 2022. This revenue was generated by our three business segments or divisions. We use these terms interchangeably. Our first business segment is Sadat AgriFoods. Of the 182.2 million revenue increase, 179.4 million was primarily due to sales revenue from our Sadat AgriFoods division, which completed 27 transactions in Q3. The average revenue per transaction was 6.6 million, with an average cost of goods sold per transaction of 6.5 million. These 27 transactions were completed across 16 different countries. This business segment, which is the largest revenue-generating division of the company today, generated approximately $2.3 million in operating income for Q3. Our second business segment is Sadat Farm Operations. In Q3, we officially completed the acquisition of our Zambia farming assets of roughly 5,000 acres of farmland. We are pleased to report that as part of our farming operations in Zambia, we achieved our first successful harvest of premium grade winter wheat this past quarter, generating revenue exceeding $500,000. This farm currently has both corn and soybeans planted, and we expect these crops to be harvested throughout April and May of 2024. Our third business segment is Sadat Food Services Operations. In Q3, this division generated total revenue of 2.2 million. This consisted of 1.9 million from company-owned and operated locations and 245,000 in royalties and fees collected from both Muscle Maker Grill and Pokemoto franchise locations. Revenue from company-owned and operated locations decreased due to our continued optimization, restructuring, and closing of our underperforming and non-profitable Muscle Maker Grill restaurant locations while also executing our strategy to sell and convert corporate Pokemoto locations over to franchisees. Franchise royalty and fee revenue increased by 44% compared to the same period in 2022, as the company continues to focus its restaurant business unit strategy on the franchising the Pokemoto concept. Because of our optimization and restructuring of our restaurant brands, This resulted in several one-time charges, which we incurred in Q3 that totaled over $2 million in one-time expenses. The majority of these one-time expenses were incurred from taking impairment charges against Goodwill and Intangible Assets of $1.6 million. The company incurred approximately $1.1 million in stock-based expenses in Q3 of 2023. These expenses are primarily the result of the vesting of common stock shares issued to IKEA as consulting fees the Sadat AgriFoods and Sadat Farm Operations net income performance. Let me turn to the overall financial picture of Sadat Group. As of September 30, 2023, we had a cash balance of $2.4 million and a working capital surplus of $9 million. The cash decrease in the third quarter of 2023 was due primarily to cash used in operations of $2.3 million. Our total assets increased in the third quarter by $18.3 million. to 90.7 million as of September 30, 2023, even with the impairment of the goodwill and intangible assets of 1.6 million as a direct result of optimizing our food service business segment. The increase in total assets is primarily due to 13.7 million increase in accounts receivable net, 6.4 million in prepaid forward on carbon offsets, and 11.7 million increase on property and equipment net. of which $8.8 million was moved from the deposit on the Zambia farmland upon completion of the farm acquisition. It is important to remember that we continue to grow our overall revenue, increase our working capital surplus, and build our balance sheet, all while making significant strategic changes in the company. With that, I'd like to turn the call back over to Michael Roper.

Thanks for that financial overview, Jennifer. Now, allow me to provide an update on our primary revenue generating division, Sadat AgriFoods. This month marks the one-year anniversary of our agreement with Agya and the new direction and strategic pivot the company has adopted. Despite all the challenges of venturing into a new global business, we are extremely pleased with the continued performance of the Sadat AgriFoods division. We are also pleased to announce a significant milestone for Sedat AgriFoods this past quarter, the purchase of our first carbon offset, which we will receive carbon credits to use or trade in the future. This accomplishment not only aligns with our commitment to sustainability, but also marks a strategic expansion of our business into the evolving market of carbon credit trading. by actively participating in this environmentally conscious sector so that agri-foods continues to demonstrate its versatility and responsiveness to emerging opportunities entering the carbon credit markets now will allow us to establish ourselves in this relatively new and growing market the credits can be used in the future to lower our carbon footprint as we move toward being carbon neutral or bundled with our commodity trades making the standalone trades carbon neutral In general, trades that include carbon credits could increase our revenue or pricing by 10% or above. The company is very active in finding ways in our business to enhance margins throughout our different verticals. We believe this direction will set us apart and allow us to potentially profit through implementing zero carbon practices and products. Additionally, Sadat AgriFoods is in advanced discussions about establishing a trading office and new subsidiary in Brazil. The goal in opening an office in Brazil would be to open up new agri-commodity trading opportunities originally in South America, aligning perfectly with our growing presence in the global agri-commodity trade market. Furthermore, we are working on potential opportunities in Indonesia, revolving around the country's food security initiatives. More on these potential opportunities as they advance further in discussions. With a solid balance sheet and a proven track record in trading, we are actively exploring trade financing options. To date, the majority of our agro-commodity trades have been completed without trade financing in place. While we have been able to produce the reported results, we believe we can improve our overall revenues and margins by implementing various types of trade finance options. This trade financing, in our opinion, will potentially enable the company to complete more trades within our current trade areas, potentially open up more trade opportunities in new markets, potentially improve operating margins, and potentially allow the company to deploy current capital resources for other growth opportunities. As a matter of fact, I'd like to announce that just last week, our Sadat LATAM subsidiary has obtained its first trade finance line and will be implementing this facility for their current trades in Q4. This became available near our one-year anniversary, a milestone that should expand the scope and size of our finance options, and we anticipate further lines being established in the near term. Turning to our Sadat Farm Operations Division in Zambia, in October 2023, we initiated our second crop planting, encompassing approximately 540 hectares of maize and around 314 hectares of soybeans. This strategic step reaffirms our commitment to diversify and strengthen our footprint in a critical global agricultural sector and expand to meet the growing needs of global food security. Moreover, we are actively engaged in a collaborative pilot program with local farmers in Zambia in which Sadat is negotiating and bridging the financial and operational gap between small farm owners and large input providers such as seeds and fertilizers. In addition, Sadat is assisting these farmers with improved farming practices and eventually the sale of their products. The pilot program is expected to begin with up to 170 local small farmers and expand this model over time to additional small farm farmers, which covers over 3 million hectares in Zambia today. The acquisition of the farm has substantiated our presence in Zambia and, as a result, has allowed us to be in advanced discussions with the local government authorities to participate in their food security initiatives. As we progress with the execution of this program, we anticipate that it will have a positive impact on the livelihoods of participating farmers, enhance the company's regional presence, and potentially create an additional revenue stream. This reflects our unwavering dedication to ESG and the enhancement of the local communities in which we operate. Shifting our focus to food service operations, including our legacy restaurant brands, we anticipate that operational adjustments will continue as we condition transition to a primarily franchise only model focused around our Pokemon restaurant concept. This transition, while expected to create some additional financial charges, is a strategic move that we believe will ultimately strengthen our position by continuing to reduce corporate overhead expenses while improving the bottom line. Additionally, to streamline our sodat food operations and maximize efficiency, we are executing a two-phase plan. First, closing or selling corporate locations of franchisees to reduce operational and corporate overhead, and simultaneously seeking buyers for each brand. This strategy will enable us to concentrate on the downstream supply chain operations, including farms, trades, shipping, and more, aligning with our broader corporate objectives. In summary, our strategic decisions over the past year, and specifically this quarter, have laid a strong foundation for potential future growth. While we take pride in our accomplishments, we believe the real excitement lies in our future, and we look forward to sharing information and developments with our valued stakeholders as we reach key milestones. With that, let's open the call to questions.

Thank you, Mike. And now please allow us a few moments while we open the lines to selected analysts for questions. Please note for the Q&A portion of this call, we will have Sadat's Chairman of the Board, Kevin Mohan, and Sadat LLC's Managing Member and Sadat Group Board Member, Benjamin Patel, joining Michael Roper and Jennifer Black. Before we go on to take questions from analysts, I'd like to turn the mic over to Michael Roper to address some questions which we've received from our stakeholders.

Thanks, Alexa. I appreciate it. So these are some questions that we received as we talked to investors, as we talked to banks, as we talked to shareholders, whatever it might be. And so we thought it was important to address some of these as a whole to make sure that everyone hears the same answers to these things. So I have three questions that we're going to bring up. So the first question is, on the last earnings call, the company communicated they were optimizing the restaurant segment. Can you provide more details on the status of this effort? So, yeah, so here, as previously communicated, the company is fully engaged in the restructuring process surrounding each of our legacy restaurant concepts. This restructuring consists of re-franchising company-owned units and closing underperforming locations while growing the Pokemoto concept through franchising. We are continuing this restructuring effort with a goal of reducing annualized restaurant operating expenses and overhead while increasing franchise royalty revenue. So since we started this effort, which was back in Q2, we've successfully closed three underperforming locations and we've re-franchised three Pokemoto locations And we also have another Pokemoto location that should be converting over to a franchise location in the next 30 days. So basically over the last 90 days to 120 days, we have closed or sold six locations and one more that's pending here. So making a lot of progress in a very short period of time. These efforts actually leave the company with a total of eight company owned and operated locations. So we're getting close to our goal of being a franchisor focused on the Pokemoto locations. We currently have 47 total restaurant locations open today, plus we have over 50 Pokemoto franchise agreements that have been sold and not opened yet. Of those 50 sold locations, seven of them are currently under construction so as we continue to open locations we sell more locations you know basically your buffer is at around 50 a little over 50 locations today we continue to open locations through construction etc in parallel to these efforts we are actively examining opportunities to potentially divest this segment in order to free up capital and focus our attention on the core supply chain business So we are restructuring the restaurant side of the equation, positioning ourselves to be able to potentially divest this into the future. So the next question, question number two, says looking over the past year with a strategic pivot focusing on the global food supply chain, there's been a lot of moves the company has made at a very rapid pace. Can you summarize what is Sadat's overall vision? All right. So before before I get too deep into that, I want to just kind of give you some a few of the macroeconomic factors that are driving the market as a whole. Right. This is the global look at these things. Right. So let's first start with population growth. As you have population growth, there's an increased demand in food, obviously. Right. As you have diminishing farmland, they have decreasing supply. So I have increasing demands and decreasing supplies. That leads to global food security issues. OK, we want to be providing agri commodities into these distressed regions to help with the global food security issues that are out there and ultimately impact an ESG, which basically means we're going to be implementing sustainable practices in regions where it can actually make a difference. Right. So that's kind of the global look at things, you know, where it's at. But at the end of the day, Sadat is a relatively new company. We have a wealth of experience, though, and that's working to distinguish ourselves in an industry that's populated with some of the largest companies in the world. Sonata is utilizing its agility and experience to build a diversified and sustainable global supply chain by leveraging opportunities in developing locations, innovative products and practices to potentially realize immense growth opportunities. Again, think of the overall food supply chain and how large that actually is. We are building a global agri-food supply chain company that spans from trading, farms, shipping, warehousing, and eventually to processing and distribution. Our growth strategy involves diversifying into additional verticals of the food supply chain in a way that will complement our existing operations. which in turn has the potential to affect revenue and operating results. We believe the decisions and moves the company has made throughout the last year have all been concentrated on building a sustainable global food supply chain business that is well diversified and aligned with the growing demand for food security. We will continue to be opportunistic when strategic options present themselves in support of our overall vision. So the last question that I want to kind of bring up and cover, the question is what does Sadat management see the company looking like in 12 to 18 months? So overall, we believe the company's undergone a remarkable transformation. We have elevating our annual revenue from roughly $10 million a year when we were a restaurant-focused business to over $555 million in revenue year-to-date through Q3 2023 alone. So in three quarters, we've done $555 million revenue. from doing 10 million annually when we were focused on restaurants, a huge difference. Over the next 12 to 18 months, we envision a sustainable growth in our global presence by diversifying into additional segments of the supply chain. We plan to do this in a way that will complement our existing operations, as well as the potential to affect the top and bottom lines in a meaningful way. We're involved in several negotiations to partner with additional farms, dry bulk shipping vessels, ESG and impact projects, carbon credit trading and utilization, food security contracts, and others. We have a lot going on and a lot of opportunity that's out there. These are all part of a holistic plan to generate value through diversification and forward-looking practices. So those are the three questions that we wanted to make sure we covered. So Alexa, I think it's time to open it up to the various analysts and investors for some questions they may have.

Thanks, Mike. We'll take our first question from Remy Smith with Alliance Global Partners.

Hi, Remy. Hi, good morning. This is Remy Smith on for Aaron Gray. So my first question is just in terms of your adjusted EBITDA. I just want to clarify the one-time charges you encountered in Q3, they were not added back to your reported loss of $842,000. And if that's the case, I think you might have touched on the opening marks. You just quantify what those one-time charges amounted for in the quarter.

I'm going to turn that over to Jennifer to address that.

Absolutely. So some of the one-time charges that are in the adjusted EBITDA and the 10-Q we filed are the impairment of goodwill of about $828,000, impairment of intangible assets of $811,000, and then some items that are not backed out of there but are one-time would be the one-time hit of when you're closing down a restaurant of the write-off of what's left of those restaurants and getting out of those leases and stuff like that. Those make up an additional amount that is not taken out of the adjusted EBITDA. Does that answer your question?

Yes, it does. It's helpful. Thank you. And then on my second question, more regards to the gross margins for the agri-food business. We saw gross margins at 1.6% this quarter, which means under pressure. So could you speak to, I guess, the broader market and what you're seeing there as margins have fallen in the past three quarters of the agri-food business? And then do you feel gross margins are, I guess, starting to stabilize kind of at this level of 1.6% and then potential expansion?

Yeah, so I'll start a little bit and then I will turn it over to Benjamin to add to some of that as well. You know, margins that are out there, as we've talked about in the past, there's a lot of things that influence margins, right? It can be the type of trade you do. It can be the geographies you're in, the product, whatever it might be, right? There's a lot of different areas that are out there that can cause differences in margins. As we get more sophisticated in And I don't know if that's the right word or not, but get more, I guess, diversified and vertically integrated is probably a better way of viewing it. You know, that should improve some of our margins as we move forward. And that's what we've been kind of, you know, planning and working against to do that. So when you have your own farm, for example, you're able to provide your own input items. You have better margins on your thing, on your margins for your trades, just as an example, right? I'm being a little over simplistic there, but yeah. Those are things that all drive the impact on the margins. Benjamin, did you have anything you wanted to add to that?

Thank you, Michael. I think the key word you touched upon, the diversification, is the most important part of this because as you see, as to now, we're involved mainly in trading and we began our involvement in farming, but this is all part of a supply chain that we're building. And being in the supply chain business is owning and controlling the various verticals, be it the farming, the trading, eventually shipping, distribution, storage, et cetera. And all of those contribute both to diversify the operation geographically, product-wise, financially, and all of them are also adding and expected to increase the gross margin as we go along and evolve into these different verticals.

Perfect.

Any other questions for me? That's really helpful. Yeah. Just one last question on my end. It kind of segues in talking about this, the dot farm. So I know it's all, it was only a small revenue, um, contributor for the quarter. Well, can you, I guess, provide us some margin expectations, especially with the bigger harvest coming up and how we should think about utilizing that verticalization?

Yeah. So when we think of the farm, you know, our planned margins, and again, there's a bunch of things that can influence these things, right? But our planned margins are, you know, are much larger than what you have in the, in the trade, you know, vertical for sure. Right. And those can range as high as up to, you know, 25 to 35%. That's in there. I do know. I have the actual number. Do you have the actual number of how many metric tons and all that are planted or acres? Yes. We'll look that up real quick. But, you know, so we generated about $500,000 on the winter wheat. The planting that we have now is much larger than we had before. And it's corn and soy that's in there. And let's find it.

I have it right here. Okay. We planted 540 hectares of maize and 314 hectares of soybeans compared to... the winter wheat that we did.

Yeah. So those crops are much larger than what the winter wheat was. And, you know, we anticipate the revenue coming from those to be, you know, much larger as well. Okay. Benjamin, did you have something? You came off mute.

No. Yeah. I only wanted to add that, as I said before, the way to look at this is, again, Each one of these is a standalone vertical, but they all combine together to the supply chain. So the farm has the crop and we'll have the revenues coming out of that crops and the different crops throughout the year. But again, this farm also gives us a lot of advantages as far as the holistic supply chain in the form of our ability to trade around these products throughout the year, our ability to create a local hub for other farmers to use our farm as kind of an aggregate place where a lot of these small farmers can aggregate their products and we can trade and sell those as well. And another important part here is all of the ESG and impact that is revolving around this farm. In an area in Zambia, the Mekushi region where we acquired the farm, there's a lot of adjacent farms that are owned by small farm owners. that are marginalized and have very limited ability to farm their land. We're creating programs in which we can help them receive all the inputs, be it the seeds, the fertilizers, everything they need to farm, and therefore enhancing the local population we're involved in. So apart from the product itself, which Jennifer and Michael touched upon, again, this combines into the, the whole supply chain and eventually increasing this farm and other farms potentially will allow us to further deepen our commitment both in the area and improve the margins for the overall consolidated company.

Perfect. Thanks, Benjamin. Remy, any other questions?

No, that's it. It's very helpful, especially with all the initiatives you guys have in place. Perfect.

All right. Thanks, Remy. I appreciate it.

Thank you, everyone. We will go ahead and take the next question from Tom Kerr with Zax. Tom?

Good morning, guys. Can you hear me? Good morning, Tom. Yep, we can hear you. Just a quick follow-up on the margin profile for the Agri-Food subsidiary that was just discussed. I mean, that was a 1.1% net margin. Can you give a time frame? next year where we can hit those goals of 3%? I'm assuming you're still thinking this is a 3% net margin business that improves over time. Any color on the timeframe for that?

Yeah, look, we know that, you know, We have ways to improve the margins, right? I guess is the way to look at it. We're implementing those ways. Do I have an exact date or quarter when I think it's going to get higher? I don't really have that because there's too many factors or whatever that are involved in there, right? I just think the best way to think of it is we are implementing things to try to improve those margins as best as we can.

Yeah, this is Kevin. So as we get more vertically integrated, Tom, I think the way to look at this is that the margins overall are going to improve, you know, with with every piece of the vertical integration process that we add to. And so, you know, I know that I don't know if it was our last call. I think it was the Aaron Gray, the AGP analyst that had asked us, he said, looking at your numbers, it looked like you guys. So your margins were in line with your competitors without being vertically integrated. You know, can you speak to that? And I think my answer was pretty short and sweet. And that was, look, there's going to be a lot of different opportunities and a lot of different ways that we're going to enhance margin. And sometimes, you know, you get better opportunities than others, right? So in the last time, we were less vertically integrated, but we had a higher margin. We started the vertical integration process. You saw a little drop in the margin, but we expect that to improve. So I think that's the short answer.

All right, thanks. And on the restaurant restructuring, I forget if you mentioned this, but will you be owning any corporate owned restaurants? Because I think at one time you said you might own one of each, but what's the end game for that?

Yep. Our strategy there is really in a perfect world, we wouldn't have any corporately owned and operated locations that would be focusing on the franchise side of the equation, right? As we kind of build that and position that in a way that, you know, if an opportunity arises, we might be able to divest it in a much better way than it would happen today, right? Because it'd be more attractive just in general. But there are a couple locations that we own on a military base. We own a few of those. We're not 100% positive yet if we can actually convert those over to franchise locations. And so in that case, we might have to still own one or two locations if that would be about it. I mean, our goal is not to have the corporate locations.

And on the store-level profitability for Pokemon after a certain time frame, I'm assuming it's a reasonably decent margin business, right? It's a store-level?

Yes. You've got good margins at store-level just as a whole. But I think the better way to look at it is as we become a franchisor, Right. And into those areas. So franchisee, just kind of the general way that it works is they pay a royalty. Right. And they pay a royalty of, you know, our franchise calls for six percent on their net sales and or the gross sales. Right. So there there are that's kind of what feeds in. So if you have a location that's doing seven hundred thousand dollars a year in sales, we'd be generating forty thousand dollars a year in royalties without a lot of corporate overhead attached to it. So it's usually a pretty good, profitable type of business to be in.

And I'd like to add to that, Thomas, Kevin. So as you optimize, as Mike likes to say, the restaurant side of the business, it allows for sort of a seamless integration into companies that primarily focus on the restaurant space. And so I think that's a key element for investors to understand as we go through this optimization process.

Got it. All right, one more quick financial one. The 2.4 million in corporate SG&A, What was in that? I think I saw a general comment in the queue, or is that a normalized number, or was there something in that?

Okay, Jennifer, you got that one? Yes. So there is honestly a lot of different items in there. Sorry, I'm looking at the number right now. I want to make sure I'm looking at the right one.

You look at the segments, 2.479. just seemed a little high.

Okay. So a lot of those, you have professional fees, legal fees. There's a lot of, you know, expenses in there that relate to doing a corporate name change and doing that conversion into raising funds and doing financing that are, most of those are one-time expenses that hit because of those transactions we had in Q3. Okay.

Any comment on what a normalized number is for that corporate SGA?

I think we'll be able to tell a little bit more now that we're entering into these new verticals. Hopefully our professional fees and legal fees will start to normalize and we will be able to give you what it will be in the future. But right now, since we are growing so much, we have a lot of those expenses related to growth that should not be recurring.

Yep, that makes sense. It did seem a little high. Okay, that's all I got for today. Okay. Well, thanks, Tom. Thanks, Remy.

Alexa.

Thank you, everyone. That concludes our Q&A portion of the call. Mr. Roper, any final comments?

Yeah, look, just just a conclusion, I would like to express, you know, the gratitude and thanks to our shareholders and stakeholders for their support, you know, as we go through this pivot. Right. I mean, there's a lot of things that are happening. There's a lot of of change that's out there. And I know it can be a little confusing sometimes. It's like, you know, here's something new that's going to continue to have a lot of new stuff. Right. As we keep growing this business. I just want to thank everybody for their patience in there. At the end of the day, I do want to, you know, thank our team. I think we have an exceptional team. You know, what we've achieved so far is really, you know, kind of remarkable in our opinion, my opinion. And, you know, I just want to thank the thing, you know, just as a whole. And so that's about it, I guess, right? We're just excited about what we're building here and we're moving forward and a lot of great things are happening.

Wonderful. Thank you, Sadat Group. Thank you, analysts. That concludes our call.

Awesome. Thanks.