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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2022

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission file number: 000-56160

AMERGENT HOSPITALITY GROUP INC.

Delaware		84-4842958
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification Number)

7529 Red Oak Lane
Charlotte, NC		28226
(Address of Principal Executive Offices)		(Zip Code)

(704) 366-5122

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered under Section 12(g) of the Act: Common Stock

Securities registered under Section 12(g) of the Act: None

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or has for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $2,032,411, based upon the closing price on that date of the common stock of the registrant $0.148. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its common stock are deemed to be affiliates of the registrant.

The number of shares outstanding of the registrant’s $0.0001 par value common stock as of June 14, 2023, was 16,833,666 shares.

TABLE OF CONTENTS

	Page No.

PART I	4

Item 1. Business	4

Item 1A. Risk Factors	9

Item 1B. Unresolved Staff Comments	26

Item 2. Properties	26

Item 3. Legal Proceedings	26

Item 4. Mine Safety Disclosures	26

PART II	27

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27

Item 6. [RESERVED]	27

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 7A. Quantitative and Qualitative Disclosures About Market Risk	38

Item 8. Financial Statements and Supplementary Data	39

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72

Item 9A. Controls and Procedures	72

Item 9B. Other Information	73

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	73

PART III	74

Item 10. Directors, Executive Officers and Corporate Governance	74

Item 11. Executive Compensation	77

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81

Item 13. Certain Relationships and Related Transactions, and Director Independence	83

Item 14. Principal Accountant Fees and Services	84

PART IV	85

Item 15. Exhibits, Financial Statement Schedules	85

Item 16. Form 10-K Summary	85

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (the “Report”) contains forward-looking statements. These forward-looking statements are identified by terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” and “will” and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies. There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

	●	We have a history of operating losses. Our estimates regarding the sufficiency of our cash resources and capital requirements and needs for additional financing raises substantial doubt about our ability to continue as a going concern.

	●	We require additional financing to support our working capital and execute our operating plans for fiscal 2023, which may not be available or may be costly and dilutive;

	●	Disruption within our supply chain could have an adverse effect on our business, financial condition and results of operations.

	●	We are in arrears on rent due on several of our leases as a result of the COVID-19 pandemic and the economic hardship from rising inflation. We have pending litigation related to one store which is permanently closed. The outcome of this litigation could result in the permanent closure of additional restaurant locations as well as the possibility of the Company being required to pay interest and damages, modify certain leases on unfavorable terms and could result in material impairments to the Company’s assets.

	●	Various subsidiaries are delinquent in payment of an aggregate of approximately $2.1 million of payroll taxes and failure to remit these payments promptly or through settlements could have a material adverse effect on our business, financial condition and results of operations.

	●	We may have to repay the $10.0 million of grant proceeds received from the Restaurant Revitalization Fund.


	●	We have identified a material weakness in our internal control and procedures and internal control over financial reporting.

	●	We have been delinquent in our SEC reporting obligations, which may continue to have an adverse effect on the liquidity and trading prices of our common stock and could lead to the disqualification of our common stock for quotation on the OTC Markets Group, Inc.

We undertake no obligation to update or revise the forward-looking statements included in this Report, whether as a result of new information, future events or otherwise, after the date of this Report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

Unless otherwise noted, references in this Report to the “Registrant,” “Company,” “Amergent,” “Spin-Off Entity,” “we,” “our” or “us” means Amergent Hospitality Group Inc., a Delaware corporation and our subsidiaries.

PART I

ITEM 1. BUSINESS

BACKGROUND- MERGER AND SPIN-OFF

Amergent Hospitality Group Inc. was incorporated on February 18, 2020 as a wholly owned subsidiary of Chanticleer Holdings Inc., a Delaware corporation (“Chanticleer”), for the purpose of conducting the business of Chanticleer and its subsidiaries after completion of the spin-off of Amergent to the shareholders of Chanticleer (Spin-Off”). The Spin-Off transaction was completed on April 1, 2020 in connection with Chanticleer’s completion of its merger transaction (the “Merger”) with Sonnet BioTherapeutics, Inc. (“Sonnet”).

GOING CONCERN QUALIFICATION

Our financial statements as of and for the years ended December 31, 2022 and 2021 were prepared under the assumption that we will continue as a going concern for the next 12 months from the date of issuance of these financial statements. As of December 31, 2022, our cash balance was $0.4 million, our working capital deficiency was $16.3 million, and we had significant near-term commitments and contractual obligations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company believes that its current level of cash and cash equivalents are not sufficient to fund its operations for the next 12 months.

To alleviate these conditions, management is evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions. As we seek additional sources of financing, there can be no assurance that such financing will be available to us on favorable terms or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry.

BUSINESS

Amergent is in the business of owning, operating and franchising fast casual dining concepts.

As of December 31, 2022, we operated and franchised a system-wide total of 34 fast casual restaurants of which 23 are company-owned and included in our consolidated financial statements, and 11 are owned and operated by franchisees under franchise agreements.

American Burger Company (“ABC”) was a fast-casual dining chain consisting of locations in North Carolina and New York, known for its diverse menu featuring fresh salads, customized burgers, milk shakes, sandwiches, and beer and wine. As of December 31, 2022, all locations are closed.

The Burger Joint (“BGR”) consists of five company-owned locations in the United States and seven franchisee-operated locations in the United States.

Little Big Burger (“LBB”) consists of 14 company-owned locations in the Portland, Oregon and Charlotte, North Carolina areas. One location was temporarily closed until it re-opened at the end of June 2022 due to lack of available employees. Of the company-owned restaurants, 10 of those locations are operated under partnership agreements with investors we have determined we are the primary beneficiary as we control the management and operations of the stores, and the partner supplies the capital to open the store in exchange for a non-controlling interest.

We acquired Pie Squared Holdings LLC (“PIE” or “Pie Squared Holdings”) on August 30, 2021. Pie Squared Holdings, directly and through its four wholly owned subsidiaries, owns, operates and franchises pizza restaurants operating under the tradename PizzaRev. At December 31, 2022, the company had one company owned location and four franchised locations.

Our Jantzen Beach, Oregon location was a former Hooters of America location. This location is now home to our Jaybee’s Chicken Place, serving a selection of fast casual chicken. Next door to Jaybee’s is The Nest and The Roost, offering video gaming, pool tables and drinks. These locations opened on October 8, 2022.

Through the use of partnerships, the Company partners with private investors who contribute all or substantially all of the capital required to open a restaurant in return for an ownership interest in the LLC and an economic interest in the net income of the restaurant location. The Company manages the operations of the restaurant in return for a management fee and an economic interest in the net income of the restaurant location. While terms may vary by LLC, the investor generally contributes between $0.3 million and $0.4 million per location and is entitled to 80% of the net income of the LLC until such time as the investor recoups the initial investment and the investor return on net income changes from 80% to 50%. The Company contributes the intellectual property and management related to operating a Little Big Burger, manages the construction, opening and ongoing operations of the store in return for a 5% management fee and 20% of net income until such time as the investor recoups the initial investment and the Company return on net income changes from 20% to 50%.

Additionally, we utilize franchise agreements to allow third parties to franchise a restaurant and, thus, are able to utilize the intellectual property, trademark, and trade dress in return for a franchise fee. The franchise agreement provides the franchisee with a designated territory or marketing area for an initial term of 10 years, with four successive five-year renewals. An upfront fee of $40,000 is required along with a $5,000 renewal fee and continuing fees based on a percent of revenues. We recognize the upfront fee allocated to each restaurant as revenue on a straight-line basis over the restaurant’s license term, which generally begins upon the signing of the contract for area development agreements and upon the signing of a store lease for franchise agreements. The payments for these upfront fees are generally received upon contract execution. Continuing fees, which are based upon a percentage of franchisee revenues (typically 5.5%) and are not subject to any constraints, are recognized on the accrual basis as those sales occur. The payments for these continuing fees are generally made on a weekly basis.

Franchises must be operated in strict compliance with our operations manual, which prescribes staffing requirements, minimum months, days and hours of operation, techniques and processes for service, length and method of training personnel, working capital and inventory requirements, accounting system and other operational standards. We provide up to five days of on-site training at no charge to franchisee. Additional on-site training may be requested by franchisee and will be provided at a daily rate of $500. We have the right to approve the property lease for each new franchise. We maintain image control and may direct a franchise to remodel. We provide specifications for equipment, safety and security, subject to additional location regulations. Franchisees must utilize designated, approved suppliers or obtain pre-approval of any new supplier. Franchisees have certain prescribed marketing requirements, and we may require franchisee to contribute a percentage of net sales to a regional brand development fund. Further, we may require certain of franchisee’s personnel to attend an annual conference or all franchisee’s personnel to attend refresher training, at franchisee’s sole expense.

Franchisees have sole control over the day-to-day operations of the franchise. The franchisee is responsible for the hiring and termination of its personnel and compliance with applicable laws. The franchisee must sell wine and beer at the store and may opt to sell other alcoholic beverages. The franchisee is responsible for obtaining all required business licenses, including liquor licenses and to carry required insurance.

Any improvements or new concepts developed by a franchisee (such as improvements to proprietary recipes, equipment, merchandise or software) belong to us. Our franchise agreement contains confidentiality and non-disclosure covenants, and a franchisee must require its personnel to execute confidentiality and non-disclosure agreements.

We hold a minority investment in corporate owned Hooters. However, we do not currently intend to open additional Hooters restaurants.

Restaurant Geographic Locations

We currently operate BGR, LBB and Jaybee’s restaurants in the United States. ABC was located North Carolina and New York. BGR operates company restaurants in the mid-Atlantic region of the United States, as well as franchise locations across the US. LBB operates in Oregon and North Carolina. Jaybee’s is located in Portland, Oregon. We operate gaming machines in Portland, Oregon under license from the Oregon Lottery Commission at The Nest. We no longer operate any Company owned PIE restaurants in California but continue with franchise locations in the western United States.

Competition

The restaurant industry is extremely competitive. We compete with other restaurants on the taste, quality and price of our food offerings. Additionally, we compete with other restaurants on service, ambience, location and overall customer experience. We believe that we compete primarily with local and regional sports bars and national casual dining and quick casual establishments, and to a lesser extent with quick service restaurants in general. Many of our competitors are well-established national, regional or local chains and many have greater financial and marketing resources than we do. We also compete with other restaurant and retail establishments for site locations and restaurant employees.

Information Systems and Security

We continue to focus on providing our operators intuitive, secure technology that is tailored to our business so they can provide hospitality to our guests and our team members in a productive and efficient manner.

Our information is processed, transmitted, and stored in a secure environment using enterprise grade technologies in order to protect both our data and the physical computing assets. While we believe that our internal policies, systems and procedures for cybersecurity are thorough, the risk of a cybersecurity event cannot be eliminated.

Proprietary Rights

We have trademarks and tradenames associated with American Burger, BGR, Little Big Burger, Jaybee’s Chicken Palace and PizzaRev. We believe that the trademarks, service marks and other proprietary rights that we use in our restaurants have significant value and are important to our brand-building efforts and the marketing of our restaurant concepts. Although we believe that we have sufficient rights to our trademarks and service marks, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand. Any such litigation may be costly and divert resources from our business. Moreover, if we are unable to successfully defend against such claims, we may be prevented from using our trademarks or service marks in the future and may be liable for damages.

Government Regulations

We are subject to various federal, state and local laws, rules and regulations that affect our business. Regulations relating to opening and closing of restaurant dining rooms or outdoor patios, business hours, sanitation practices, alcohol sales, guest spacing within dining rooms and other social distancing practices, and employment and safety-related laws involving contact tracing, exclusions and paid sick leave have materially affected the way we operate our business and serve our guests and have adversely impacted our cost structure and resulting profitability of our restaurants.

Licensing

Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include alcoholic beverage control, labor/equal employment, building, land use, health, safety and fire agencies, and environmental regulations in the state or municipality in which the restaurant is located. We believe that we are in compliance with all relevant laws, rules and regulations in all material respects. Difficulties obtaining or maintaining the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area or could adversely affect the operation of an existing restaurant.

Alcoholic beverage control regulations require each of our restaurants to apply to a federal and state authority and, in certain locations, municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause by such authority at any time. Alcoholic beverage control regulations impact numerous aspects of the daily operations of our restaurants, including the minimum age of patrons and team members, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages.

Dram Shop Statutes

We are subject to “dram-shop” statutes in California and other states in which we operate. Those statutes generally provide a person who has been injured by an intoxicated person the right to recover damages from an establishment that has wrongfully served alcoholic beverages to such person. We carry liquor liability coverage, as part of our existing comprehensive general liability insurance, which we believe is consistent with the coverage carried by other entities in the restaurant industry and would help protect us from exposure created by possible claims. Even though we carry liquor liability insurance, a judgment against us under a dram-shop statute in excess of our liability coverage could have a materially adverse effect on us. Regardless of whether any claims against us are valid or whether we are liable, claims may also be expensive to defend and may divert management’s time and our financial resources away from our operations. We may also be adversely affected by publicity resulting from such claims.

Environmental regulation

Various laws concerning the handling, storage and disposal of hazardous materials and restaurant waste and the operation of restaurants in environmentally sensitive locations may impact aspects of our operations; however, we do not believe that compliance with applicable environmental regulations will have a material effect on our capital expenditures, financial condition, results of operations, or competitive position. Increased focus by U.S. authorities on environmental matters is likely to lead to new governmental initiatives, particularly in the area of climate change. While we cannot predict the precise nature of these initiatives, we expect that they may impact our business both directly and indirectly. There is a possibility that government initiatives, or actual or perceived effect of changes in weather patterns, climate or water resources could have a direct impact on the operations of our brands in ways that we cannot predict at this time.

Local regulation

Our locations are subject to licensing and regulation by a number of government authorities, which may include health, sanitation, safety, fire, building and other agencies in the countries, states or municipalities in which the restaurants are located. Opening sites in new areas could be delayed by license and approval processes or by more requirements of local government bodies with respect to zoning, land use and environmental factors. Our agreements with our franchisees require them to comply with all applicable federal, state and local laws and regulations.

Each restaurant requires appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and each restaurant requires food service licenses from local health authorities. Our licenses to sell alcoholic beverages may be suspended or revoked at any time for cause, including violation by us or our employees of any law or regulation pertaining to alcoholic beverage control. We are subject to various regulations by foreign governments related to the sale of food and alcoholic beverages and to health, sanitation and fire and safety standards. Compliance with these laws and regulations may lead to increased costs and operational complexity and may increase our exposure to governmental investigations or litigation.

Franchise Regulations

We must comply with regulations adopted by the Federal Trade Commission (the “FTC”) and with several state and foreign laws that regulate the offer and sale of franchises. The FTC’s Trade Regulation Rule on Franchising (“FTC Rule”) and certain state and foreign laws require that we furnish prospective franchisees with a franchise disclosure document containing information prescribed by the FTC Rule and applicable state and foreign laws and regulations. We register the disclosure document in domestic and foreign jurisdictions that require registration for the sale of franchises. Our domestic franchise disclosure document complies with FTC Rule and various state disclosure requirements, and our international disclosure documents comply with applicable requirements.

We also must comply with state and foreign laws that regulate some substantive aspects of the franchisor-franchisee relationship. These laws may limit a franchisor’s ability to: terminate or not renew a franchise without good cause; interfere with the right of free association among franchisees; disapprove the transfer of a franchise; discriminate among franchisees regarding charges, royalties and other fees; and place new stores near existing franchises. Bills intended to regulate certain aspects of franchise relationships have been introduced into the United States Congress on several occasions during the last decade, but none have been enacted.

Employment Regulations

Many of our employees are paid at rates which are influenced by changes in the federal and state wage regulations. Accordingly, changes in the wage regulations could increase our labor costs. The work conditions at our facilities are regulated by the Occupational Safety and Health Administration and are subject to periodic inspections by this agency. In addition, the enactment of recent legislation and resulting new government regulation relating to healthcare benefits may result in additional cost increases and other effects in the future.

Various federal and state labor laws, along with rules and regulations, govern our relationship with our team members, including such matters as minimum wage, overtime, tip credits, health insurance, working conditions, safety and work eligibility requirements. Significant additional governmental mandates, such as an increased minimum wage, a change in the laws governing exempt team members, an increase in paid time off or leaves of absence, mandates on health benefits and insurance or increased tax reporting and payment requirements for team members who receive gratuities, could negatively impact our restaurants’ profitability. We are also subject to the regulations of the Immigration and Customs Enforcement (“ICE”) branch of the United States Department of Homeland Security. In addition, some states in which we operate have adopted immigration employment protection laws. Even if we operate our restaurants in strict compliance with ICE and state requirements, some of our team members may not meet federal work eligibility requirements, despite our efforts and without our knowledge, which could lead to a disruption in our work force. Additionally, our suppliers may also be affected by various federal and state labor laws which could result in supply disruptions for our various goods and services or higher costs for goods and services supplied to us.

In addition, we and our U.S. franchisees are subject to the Patient Protection and Affordable Care Act.

Gaming Regulations

We are also subject to regulations in Oregon where we operate gaming machines. Gaming operations are generally highly regulated and conducted under the permission and oversight of the state or local gaming commission, lottery or other government agencies.

Other Regulations

Our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related state statutes. The ADA prohibits discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related state laws, when constructing new restaurants or undertaking significant remodeling of existing restaurants, we must make them readily accessible to disabled persons. We must also make reasonable accommodations for the employment of disabled persons.

We are subject to a variety of information security, privacy and consumer protection laws at the federal, state and local level. Failure to comply with these laws and regulations could subject us to financial and other penalties.

We are subject to food safety regulations, including supervision by the U.S. Food and Drug Administration, which governs the manufacture, labeling, packaging and safety of food. In addition, we are or may become subject to legislation or regulation seeking to tax and/or regulate high-fat, high-calorie and high-sodium foods. Certain states and municipalities have approved menu labeling legislation that requires restaurant chains to provide caloric information on menu boards, and menu labeling legislation has also been adopted on the U.S. federal level.

Seasonality

The sales of our restaurants may peak at various times throughout the year due to certain promotional events, weather and holiday related events. For example, our domestic fast casual restaurants tend to peak in the Spring, Summer and Fall months when the weather is milder. Severe weather including hurricanes, tornados, thunderstorms, snow and ice storms, prolonged extreme temperatures and similar conditions may impact restaurant sales volumes in some of the markets where we operate. Quarterly results also may be affected by the timing of the opening of new stores and the closing of existing stores. For these reasons, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Employees

As of December 31, 2022, we had 319 employees in the United States. We employ additional people on a part-time basis as needed.

Working Capital Practices

Historically, we have financed our operations through public and private sales of common stock, issuance of preferred and common stock, convertible debt instruments, term loans, related party loans and advances and credit lines from financial institutions, and cash generated from operations. On March 27, 2020, Congress passed The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which included the Paycheck Protection Program (“PPP”) for small businesses. On April 27, 2020, Amergent received a PPP loan in the amount of $2.1 million. On February 25, 2021, the Company received a second PPP loan of $2.0 million. On November 15, 2022 and December 16, 2022, the Company received notice from the SBA that the first and second PPP loans, respectively, had been fully forgiven with accrued interest.

As of December 31, 2022, our cash balance was $0.4 million, of which none was restricted, our working capital deficiency was $16.3 million and we had significant near-term commitments and contractual obligations. The level of additional cash needed to fund operations and our ability to conduct business for the next 12 months will be influenced primarily by the following factors:

	●	our ability to access the capital and debt markets to satisfy current obligations and operate the business;
	●	our ability to qualify for and access financial stimulus programs available through federal and state government programs;
	●	our ability to refinance or otherwise extend maturities of current debt obligations;
	●	our ability to manage our operating expenses and maintain gross margins;
	●	popularity of and demand for our fast-casual dining concepts; and
	●	general economic conditions and changes in consumer discretionary income.

We have typically funded our operating costs, acquisition activities, working capital requirements and capital expenditures with proceeds from the issuances of our common stock and other financing arrangements, including convertible debt, lines of credit, notes payable, capital leases, government stimulus funds and other forms of external financing.

As we execute our business plan over the next 12 months, we intend to carefully monitor the impact of our working capital needs and cash balances relative to the availability of cost-effective debt and equity financing. In the event that capital is not available, we may then have to scale back or freeze our operations plans, sell assets on less than favorable terms, reduce expenses, and/or curtail future acquisition plans to manage our liquidity and capital resources.

Our current operating losses combined with our working capital deficit raise substantial doubt about our ability to continue as a going concern.

Employee Retention Credit

The Employee Retention Credit (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is a refundable tax credit which encouraged businesses to keep employees on the payroll during the COVID-19 pandemic. Although the program ended on January 1, 2022, the Company performed an analysis during the current period and determined that it was eligible for additional credits related to 2021 wages. As of each of December 31, 2022 and December 31, 2021, approximately $0.8 million of ERC is included in accounts and other receivables in the consolidated balance sheets. The Company recognized $0.7 million and $2.5 million for the years ended December 31, 2022 and 2021, respectively, of ERC as a contra-expense included in employee retention credit and other grant income in the consolidated statements of operations.

In addition to the ERC, the Company received credits under other government/government agency programs of approximately $128,000 for the year ended December 31, 2021, of which approximately $84,000 were recorded as an offset to restaurant operating expenses and $44,000 as other income, respectively, in the consolidated statements of operations.

Restaurant Revitalization Fund

The American Rescue Plan Act established the Restaurant Revitalization Fund (“RRF”) to provide funding to help restaurants and other eligible businesses keep their doors open. This program provided restaurants with funding equal to their pandemic-related revenue loss up to $10.0 million per business and no more than $5.0 million per physical location. Recipients are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023. In 2021 and prior to its acquisition by the Company in August 2021, Pie Squared Holdings received a grant under the U.S. Small Business Administration’s (“U.S. SBA”) RRF for approximately $10.0 million. The proceeds received were mainly used to repay existing debt and to also pay operating expenses. The unused funds received under the RRF at closing of the acquisition were $2.0 million, and these funds were placed into escrow for the benefit of the Company for working capital to be used solely in the operations of the acquired business. Restricted cash and a deferred grant income liability were recorded for the unused proceeds from the RRF, and grant income is being recognized as the Company expends the funds on eligible costs incurred under the RRF post acquisition. As of December 31, 2022 and 2021, the Company had restricted cash of nil and $1.7 million, respectively, related to the unused proceeds from the RRF. The Company recognized $1.5 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively, related to the RRF as a contra-expense included in employee retention credit and other grant income and in the consolidated statements of operations. As of December 31, 2022, all RRF funds were utilized.

Available Information

We maintain a website at the following address: www.amergenthg.com. The information on our website is not incorporated by reference in this report. We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the Securities and Exchange Commission (“SEC”) in accordance with the Securities Exchange Act of 1934, as amended (“Exchange Act”). These include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. In addition, we routinely post on the “Investors” page of our website news releases, announcements and other statements about our business and results of operations, some of which may contain information that may be deemed material to investors. Therefore, we encourage investors to monitor the “Investors” page of our website and review the information we post on that page. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at the following address: http://www.sec.gov.

ITEM 1A: RISK FACTORS

The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligations to update any such forward-looking statements.

Summary of Material Risk Factors

	●	We have a history of operating losses. Our estimates regarding the sufficiency of our cash resources and capital requirements and needs for additional financing raises substantial doubt about our ability to continue as a going concern.

	●	We require additional financing to support our working capital and execute our operating plans for fiscal 2023, which may not be available or may be costly and dilutive;

	●	Disruption within our supply chain could have an adverse effect on our business, financial condition and results of operations.

	●	We are in arrears on rent due on several of our leases as a result of the COVID-19 pandemic. We have pending litigation related to one store which is permanently closed. The outcome of this litigation could result in the permanent closure of additional restaurant locations as well as the possibility of the Company being required to pay interest and damages, modify certain leases on unfavorable terms and could result in material impairments to the Company’s assets.

	●	Various subsidiaries are delinquent in payment of an aggregate of approximately $2.1 million of payroll taxes and failure to remit these payments promptly or through settlements could have a material adverse effect on our business, financial condition and results of operations.

	●	We may have to repay the $10.0 million of grant proceeds received from the Restaurant Revitalization Fund.

	●	We have identified a material weakness in our internal control and procedures and internal control over financial reporting.

	●	We have been delinquent in our SEC reporting obligations, which has had an adverse effect on the liquidity and trading prices of our common stock and could lead to the disqualification of our common stock for quotation on the OTC Markets Group, Inc.

RISKS RELATED TO DELINQUENT PAYROLL TAXES

Various subsidiaries of the Company are delinquent in payment of payroll taxes to taxing authorities prior to the current year when previous management was in place, and a failure to remit these payments promptly or through settlements could have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2022 and 2021, approximately $2.1 million and $2.0 million, respectively, of employee and employer taxes (including estimated penalties and interest) has been accrued but not remitted in years prior to 2019 to certain taxing authorities by certain subsidiaries of the Company for cash compensation paid. As a result, these subsidiaries of the Company are liable for such payroll taxes. These various subsidiaries of the Company have received warnings and demands from the taxing authorities and management is prioritizing and working with the taxing authorities to make these payments in order to avoid further penalties and interest. Failure to remit these payments promptly could result in increased penalty fees and have a material adverse effect on our business, financial condition and results of operations. Interest and penalties on the remaining liability are accruing at approximately $10,000 per month.

RISKS RELATED TO RESTAURANT REVITALIZATION FUND

We may have to repay the $10.0 million of grant proceeds received from the Restaurant Revitalization Fund.

If it is determined that Pie Squared Holdings obtained the grant improperly or the disbursement of such grant monies were not for “eligible uses” then we would be responsible for the ramifications of such actions, including repayment of the approximately $10.0 million of grant monies, among other items. An assessment of the sellers’ indemnification agreement signed under the acquisition agreement would also need to be considered.

In 2021, and prior to the acquisition, Pie Squared Holdings received a grant under the U.S. Small Business Administration’s (“SBA”) RRF for approximately $10.0 million. The proceeds received were mainly used to repay existing debt and to also pay operating expenses. The unused funds received under the RRF at closing of $2.0 million were placed into escrow for the benefit of the Company for working capital to be used solely in the operations of the acquired business. The Company will periodically submit to the escrow agent the planned uses of these funds, and the sellers have the right to review the planned uses to determine whether, in the sellers’ opinion, the planned uses meet the criteria of “eligible uses” under the RRF. If determined to not meet such criteria, then the escrow agent will not distribute that portion of the request.

As the Company acquired all the outstanding membership interests in Pie Squared Holdings, the Company assumed all the rights and obligations of Pie Squared Holdings that arose from transactions of Pie Squared Holdings prior to the sale event, both stated rights and obligations as well as those that are contingent. As noted above, Pie Squared Holdings applied for and received an approximately $10.0 million grant from the U.S. SBA under the RRF and used approximately $8.0 million to repay existing debt of Pie Squared Holdings and to fund some of its operating expenses. Under the RRF there is a requirement that the grant monies be for “eligible uses.” The Company, through the structure of the acquisition, is now responsible that the grant proceeds were, in fact, properly obtained and disbursed for “eligible uses.” If it is determined that Pie Squared Holdings obtained the grant improperly or the disbursement of such grant monies were not “eligible uses” then the Company would be responsible for the ramifications of such actions, including repayment of the approximately $10.0 million of grant monies, among other items. Management completed its analysis of this contingency and concluded that, at this time, a liability does not need to be recorded for this contingency. In connection with the acquisition, the Company obtained an indemnification from the sellers which is inclusive of any matters related to the RRF. As such, an assessment of the sellers’ indemnification agreement signed under the acquisition agreement was also considered in the Company’s analysis.

RISKS RELATED TO IMPACT OF THE COVID-19 PANDEMIC

Defaults and closures under restaurant leases that resulted from the COVID-19 pandemic could result in material impairments to the Company’s assets.

If an existing or future restaurant is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to pay increased occupancy costs or to close restaurants in desirable locations. These potential increased occupancy costs and closed restaurants could have a material adverse effect on our business, financial condition and results of operations.

During 2021 the Company was in arrears on rent due on several of its leases as a result of the COVID-19 pandemic. As a result, the Company has pending litigation related to one store location which is permanently closed. The outcome of this litigation could result in the permanent closure of additional restaurant locations as well as the possibility of the Company being required to pay interest and damages, modify certain leases on unfavorable terms and could result in material impairments to the Company’s assets.

We are not contractually obligated to guarantee leasing arrangements between franchisees and their landlords.

The COVID-19 pandemic has materially disrupted and may continue to disrupt our business, operations, financial condition and results of operations.

Federal, state and local government responses to the COVID-19 pandemic have disrupted our industry and have had a material adverse effect on our business. During fiscal 2020 and 2021, state and local governments imposed a variety of restrictions on people and businesses, and public health authorities offered regular guidance on health and safety, which have caused and may continue to cause consumers to avoid or limit gatherings in public places or social interactions.

As of the date of this report, all of our restaurants are able to open their dining rooms and few capacity restrictions or other COVID-19 restrictions remain in place; however, it is possible that future increases in cases or further localized or widespread outbreaks of COVID-19 could require us to again reduce our capacity or suspend our in-restaurant dining operations. The COVID-19 pandemic and these responses have affected and may continue to adversely affect our guest traffic, sales and operating costs, and we cannot predict whether an increase in cases or localized or widespread outbreaks will occur and whether future government responses thereto may impact us. In addition, future increases in cases or further localized or widespread outbreaks of COVID-19 pandemic could negatively impact our suppliers, and we could face shortages of food items or other supplies at our restaurants, and our operations and sales could be adversely impacted by such supply interruptions.

RISKS RELATED TO MATERIAL WEAKNESS IN OUR INTERNAL CONTROL AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

We have identified a material weakness in our internal control and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2022 and we concluded there was a material weakness in the design of our internal control over financial reporting.

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Other than the material weakness and remediation activities discussed below, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Material Weakness in Internal Control over Financial Reporting

Material Weaknesses. A material weakness is a control deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified the following deficiencies:

●	As of December 31, 2022, due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity level management review controls. Accordingly, management has determined that this control deficiency constitutes a material weakness.

●	As of December 31, 2022, we had not established a formal written policy for the approval, identification, and authorization of new vendors entered into the approved vendor listing.

●	As of December 31, 2022, we had not established a formal review, on a test basis, of our third-party accounting provider’s coding of transactions and reconciliations of key accounts.

●	As of December 31, 2022, we had not established an automated software program to account for our operating lease schedule liabilities but were relying on a manual computation of the Company’s operating lease schedule.

Management determined that the deficiency could potentially result in a material misstatement of the consolidated financial statements in a future annual or interim period that would not be prevented or detected. Therefore, the deficiency constitutes a material weakness in internal control.

Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2022, based on the criteria established in the 2013 integrated framework as prescribed by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

The Company is committed to remediating its material weaknesses as promptly as possible. Even effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock and we could fail to meet our financial reporting obligations.

RISKS RELATED TO CLIMATE CHANGE

Water scarcity and poor quality could negatively impact our costs and capacity.

Water is a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, increasing demand for food and other consumer and industrial products whose manufacturing processes require water, increasing pollution and emerging awareness of potential contaminants, poor management, lack of physical or financial access to water, sociopolitical tensions due to lack of public infrastructure in certain areas of the world and the effects of climate change. As the demand for water continues to increase around the world, and as water becomes scarcer and the quality of available water deteriorates, we may incur higher costs, which could adversely affect our profitability.

Increased demand for food products and decreased agricultural productivity may negatively affect our business.

Decreased agricultural productivity in certain regions of the world as a result of changing weather patterns; increased agricultural regulations; and other factors have in the past, and may in the future, limit the availability and/or increase the cost of such agricultural commodities and could impact the food security of communities around the world.

Adverse weather conditions could reduce the demand for our products.

The sales of our products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or rainy weather during the summer months may have a temporary effect on the demand for our products and contribute to lower sales, which could have an adverse effect on our results of operations for such periods.

Any adverse weather conditions, seasonal fluctuations, natural disasters and environmental matters, including the effects of climate change, may adversely affect our results of operations.

The occurrence of natural disasters, such as fires, hurricanes, freezing weather or earthquakes may unfavorably affect our operations and financial performance. Any of the foregoing events may result in physical damage, temporary or permanent closure, lack of an adequate work force, or temporary or long-term disruption in the supply of food, beverages, electric, water, sewer and waste disposal services necessary for our restaurants or to operate.

In addition, there has been increasing focus by the United States and overseas governmental authorities and investors on other environmental matters, such as climate change, which may increase the frequency and severity of weather-related events and conditions, such as drought and forest fires. This increased focus on climate change and efforts to reduce greenhouse gas emissions, waste, and water consumption may lead to new initiatives directed at regulating a yet to be specified array of environmental matters. Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in the cost of raw materials, taxes, transportation and utilities, which could affect our results of operations and necessitate future investments in facilities and equipment.

We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including hurricanes and other natural disasters, back up and off-site locations for recovery of electronic and other forms of data and information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that may have a material adverse effect on our financial condition, results of operation and exposure to administrative and other legal claims.

RISKS RELATED TO OUR OPERATING LOSSES

We have not been profitable to date and operating losses could continue.

We have incurred operating losses and generated negative cash flows since our inception and have financed our operations principally through equity investments and borrowings. Future profitability is difficult to predict with certainty. Failure to achieve profitability could materially and adversely affect the value of our Company and our ability to effect additional financings. The success of the business depends on our ability to increase revenues to offset expenses. If our revenues fall short of projections or we are unable to reduce operating expenses, our business, financial condition and operating results will be materially adversely affected.

Our consolidated financial statements have been prepared assuming a going concern.

Our consolidated financial statements as of and for the fiscal years ended December 31, 2022 and 2021 were prepared under the assumption that we will continue as a going concern for the next 12 months from the date of issuance of these consolidated financial statements. Our independent registered public accounting firm has issued a report related to our annual consolidated financial statements that includes an explanatory paragraph referring to our losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, re-negotiate or extend existing indebtedness, obtain further operating efficiencies, reduce expenditures and ultimately, create profitable operations. We may not be able to refinance or extend our debt or obtain additional capital on reasonable terms. Our consolidated financial statements do not include adjustments that would result from the outcome of this uncertainty.

We may not be able to extend or repay our indebtedness owed to our secured lenders, which would have a material adverse effect on our financial condition and ability to continue as a going concern.

If we are unable to service or repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to raise the necessary amount of capital to service these obligations. Upon a default, our secured lenders would have the right to exercise their rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business, and we would likely be forced to seek bankruptcy protection.

Our various loan agreements contain financial and non-financial covenants and provisions providing for cross-default. The evaluation of compliance with these provisions is subject to interpretation and the exercise of judgment.

We require additional financing to support our working capital and execute our operating plans for 2023, which may not be available or may be costly and dilutive.

We require additional financing to support our working capital needs and fund our operating plans for fiscal 2023. To alleviate these conditions, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from financial institutions. As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor.

RISKS RELATED TO OUR DEBT FINANCING ARRANGEMENTS AND SIGNIFICANT SHAREHOLDERS

We have debt financing arrangements that could have a material adverse effect on our financial health and our ability to obtain financing in the future and may impair our ability to react quickly to changes in our business.

Our exposure to debt financing could limit our ability to satisfy our obligations, limit our ability to operate our business and impair our competitive position. For example, it could:

●	require us to dedicate significant future cash flows to the repayment of debt, reducing the availability of cash to fund working capital, capital expenditures or other general corporate purposes;

●	limit our flexibility in planning for, or reacting to, changes in our business and industry; and

●	limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants contained in our debt agreements.

We may also incur additional indebtedness in the future, which could materially increase the impact of these risks on our financial condition and results of operations. Failure to successfully recapitalize the business could have a material adverse effect on our business, financial condition and results of operations.

Our 10% Secured Convertible Debenture in favor of Oz Rey, LLC (“Oz Rey”) contains financial and other covenants that, if breached, could trigger default.

Pursuant to our 10% Secured Convertible Debenture (“10% Debenture”) dated April 1, 2020 in favor of Oz Rey, we are required to:

	●	maintain a positive EBITDA;

	●	timely file all reports required by Section 12(g) or Section 15(d) of the Exchange Act;

	●	maintain positive net earnings;

	●	maintain a minimum market capitalization (based upon the number of shares of common stock outstanding and a 30-day VWAP) of at least $5,500,000; and

	●	use commercially reasonable efforts to list the common stock on a Nasdaq Stock Market exchange.

In March 2022, Oz Rey, LLC agreed to subordinate payment of its 10% Debenture to newly issued 8% Senior Unsecured Convertible Debentures (“8% Debentures”). The Company may issue up to $3.0 million of 8% Debentures. As of the date hereof, the Company issued $1.3 million in 8% Debentures.

Any breach that is not waived by Oz Rey could trigger default of the 10% Debenture and our 8% Debentures.

Oz Rey has provided a waiver of certain financial covenants through December 31, 2023.

RISKS RELATED TO OUR BUSINESS MODEL

We do not have full operational control over the franchisee-operated restaurants.

We are and will be dependent on our franchisees to maintain quality, service and cleanliness standards, and their failure to do so could materially affect our brands and harm our future growth. Our franchisees have flexibility in their operations, including the ability to set prices for our products in their restaurants, hire employees and select certain service providers. In addition, it is possible that some franchisees may not operate their restaurants in accordance with our quality, service and cleanliness, health or product standards. Although we intend to take corrective measures if franchisees fail to maintain high quality service and cleanliness standards, we may not be able to identify and rectify problems with sufficient speed and, as a result, our image and operating results may be negatively affected.

Any prior acquisitions, as well as future acquisitions, may have unanticipated consequences that could harm our business and our financial condition.

Any acquisition that we pursue, whether successfully completed or not, involves risks, including:

	●	material adverse effects on our operating results, particularly in the fiscal quarters immediately following the acquisition as the acquired restaurants are integrated into our operations;

	●	risks associated with entering into markets or conducting operations where we have no or limited prior experience;

	●	problems retaining key personnel;

	●	potential impairment of tangible and intangible assets and goodwill acquired in the acquisition;

	●	potential unknown liabilities;

	●	difficulties of integration and failure to realize anticipated synergies; and

	●	disruption of our ongoing business, including diversion of management’s attention from other business concerns.

Future acquisitions of restaurants or other businesses, which may be accomplished through a cash purchase transaction, the issuance of our equity securities or a combination of both, could result in potentially dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other intangible assets, any of which could harm our business and financial condition.

We are subject to the risks associated with leasing space subject to long-term non-cancelable leases.

We lease all the real property, and we expect the new restaurants we open in the future will also be leased. We are obligated under non-cancelable leases for our restaurants and our corporate headquarters. Our restaurant leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, although we generally do not expect to pay significant contingent rent on these properties based on the thresholds in those leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases.

As of December 31, 2022, there were 18 restaurants that the Company had abandoned and maintained its operating lease liabilities as the Company had not negotiated the termination of the underlying leases with its landlord. Such liabilities amount to approximately $6.8 million at December 31, 2022 and are reflected as current operating lease liabilities on the consolidated balance sheet included in this report.

We are not contractually obligated to guarantee leasing arrangements between franchisees and their landlords.

We may not attain our target development goals and aggressive development could cannibalize existing sales.

Our growth strategy depends in large part on our ability to open new stores (either directly or through franchisees or joint venture partners). The successful development of new units will depend in large part on our ability and the ability of our franchisees to open new restaurants and to operate these restaurants on a profitable basis. We cannot guarantee that we, or our franchisees or joint venture partners, will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, there is no assurance that any new restaurant will produce operating results like those of our existing restaurants. Other risks that could impact our ability to increase our ability to open new stores include prevailing economic conditions and our, or our franchisees’ and joint venture partners’, ability to obtain suitable restaurant locations, obtain required permits and approvals in a timely manner and hire and train qualified personnel.

Our franchisees and joint venture partners also frequently depend upon financing from banks and other financial institutions in order to construct and open new restaurants. If it becomes more difficult or expensive for them to obtain financing to develop new restaurants, our planned growth could slow, and our future revenue and cash flows could be adversely impacted.

In addition, the new restaurants could impact the sales of our existing restaurants nearby. It is not our intention to open new restaurants that materially cannibalize the sales of our existing restaurants. However, as with most growing retail and restaurant operations, there can be no assurance that sales cannibalization will not occur or become more significant in the future as we increase our presence in existing markets over time.

RISKS RELATED TO SPIN-OFF TRANSACTION

Our potential indemnification obligations pursuant to the Indemnification Agreement could materially adversely affect us.

Under the Indemnification Agreement, which will expire on March 25, 2026, we have an obligation to indemnify Sonnet for liabilities associated with our business and the assets and liabilities distributed to us or our subsidiaries in connection with the Spin-Off. We have obtained a Tail Policy with policy limits in the amount of $3.0 million to cover such liabilities; however, if we have to indemnify Sonnet for unanticipated liabilities in excess of this amount, the cost of such indemnification obligations may have a material and adverse effect on our financial performance.

GENERAL RISKS RELATED TO OUR BUSINESS

We may not be able to adequately protect our intellectual property, which could harm the value of our brand and have a material adverse effect on our business, financial condition and results of operations.

Our intellectual property is material to the conduct of our business. Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, tradenames and other proprietary intellectual property, including our name and logos and the unique ambience of our restaurants. While it is our policy to protect and defend vigorously our rights to our intellectual property, we cannot predict whether steps taken by us to protect our intellectual property rights will be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, or otherwise similar to, our restaurant concept. It may be difficult for us to prevent others from copying elements of our concept and any litigation to enforce our rights will likely be costly and may not be successful. Although we believe that we have sufficient rights to all our trademarks and service marks, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand. Any such litigation may be costly and could divert resources from our business. Moreover, if we are unable to successfully defend against such claims, we may be prevented from using our trademarks or service marks in the future and may be liable for damages, which in turn could have a material adverse effect on our business, financial condition and results of operations.

In addition, we license certain of our proprietary intellectual property, including our name and logos, to third parties. For example, we grant our franchisees and licensees a right to use certain of our trademarks in connection with their operation of the applicable restaurant. If a franchisee or other licensee fails to maintain the quality of the restaurant operations associated with the licensed trademarks, our rights to, and the value of, our trademarks could potentially be harmed. Negative publicity relating to the franchisee or licensee could also be incorrectly associated with us, which could harm our business. Failure to maintain, control and protect our trademarks and other proprietary intellectual property would likely have a material adverse effect on our business, financial condition and results of operations and on our ability to enter into new franchise agreements.

Litigation and unfavorable publicity could negatively affect our results of operations as well as our future business.

We are subject to potential for litigation and other customer complaints concerning our food safety, service and/or other operational factors. Guests may file formal litigation complaints that we are required to defend, whether we believe them to be true or not. Substantial, complex or extended litigation could have an adverse effect on our results of operations if we incur substantial defense costs and our management is distracted. Employees may also, from time to time, bring lawsuits against us regarding injury, discrimination, wage and hour, and other employment issues. Additionally, potential disputes could subject us to litigation alleging non-compliance with franchise, development, support service, or other agreements. Additionally, we are subject to the risk of litigation by our stockholders as a result of factors including, but not limited to, performance of our stock price.

In certain states we are subject to “dram shop” statutes, which generally allow a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some dram shop litigation against restaurant companies has resulted in significant judgments, including punitive damages. We carry liquor liability coverage as part of our existing comprehensive general liability insurance, but we cannot provide assurance that this insurance will be adequate in the event we are found liable in a dram shop case.

In recent years there has been an increase in the use of social media platforms and similar devices that allow individuals’ access to a broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate in its impact. A variety of risks are associated with the use of social media, including the improper disclosure of proprietary information, negative comments about our Company, exposure of personally identifiable information, fraud or outdated information. The inappropriate use of social media platforms by our guests, employees or other individuals could increase our costs, lead to litigation, or result in negative publicity that could damage our reputation, and create an adverse change in the business climate that impairs goodwill. If we are unable to respond quickly and effectively, we may suffer declines in guest traffic, which could materially affect our financial condition and results of operations.

Food safety and foodborne illness concerns could have an adverse effect on our business.

We cannot guarantee that our internal control and training will be fully effective in preventing all food safety issues at our restaurants, including any occurrences of foodborne illnesses such as salmonella, E. coli and hepatitis A. In addition, there is no guarantee that our franchise restaurants will maintain the high levels of internal control and training we require at our company-operated restaurants.

Furthermore, we and our franchisees rely on third-party vendors, making it difficult to monitor food safety compliance and increasing the risk that foodborne illness would affect multiple locations rather than a single restaurant. Some foodborne illness incidents could be caused by third-party vendors and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of foodborne illness in any of our restaurants or markets or related to food products we sell could negatively affect our restaurant revenue nationwide if highly publicized on national media outlets or through social media.

This risk exists even if it were later determined that the illness was wrongly attributed to us or one of our restaurants. Several other restaurant chains have experienced incidents related to foodborne illnesses that have had a material adverse effect on their operations. The occurrence of a similar incident at one or more of our restaurants, or negative publicity or public speculation about an incident, could have a material adverse effect on our business, financial condition and results of operations.

There are risks inherent in expansion of operations, including our ability to generate profits from new restaurants, find suitable sites and develop and construct locations in a timely and cost-effective way.

We cannot project with certainty the number of new restaurants we and our franchisees will open. Our failure to effectively develop locations in new territories would adversely affect our ability to execute our business plan by, among other things, reducing our revenues and profits and preventing us from realizing our strategy. Furthermore, we cannot assure you that our new restaurants will generate revenues or profit margins consistent with those currently operated by us.

The number of openings and the performance of new locations will depend on various factors, including:

	●	the availability of suitable sites for new locations;

	●	our ability to negotiate acceptable lease or purchase terms for new locations, obtain adequate financing, on favorable terms, requirement to construct, build-out and operate new locations and meet construction schedules, and hire and train and retain qualified restaurant managers and personnel;

	●	the management of construction and development costs of new restaurants at affordable levels;

	●	the establishment of brand awareness in new markets; and

	●	our ability to manage expansion.

Additionally, competition for suitable restaurant sites in target markets is intense. Restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy or operating costs than restaurants we open in existing markets, thereby affecting our overall profitability.

New markets may have competitive conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than our existing markets. We may need to make greater investments than we originally planned in advertising and promotional activity in new markets to build brand awareness. We may find it more difficult in new markets to hire, motivate and keep qualified employees who share our vision, passion and culture. We may also incur higher costs from entering new markets if, for example, we assign regional managers to manage comparatively fewer restaurants than in more developed markets.

We may not be able to successfully develop critical market presence for our brand in new geographical markets, as we may be unable to find and secure attractive locations, build name recognition or attract new customers. Inability to fully implement or failure to successfully execute our plans to enter new markets could have a material adverse effect on our business, financial condition and results of operations.

Not all of these factors are within our control or the control of our partners, and there can be no assurance that we will be able to accelerate our growth or that we will be able to manage the anticipated expansion of our operations effectively.

We operate in the highly competitive restaurant industry. If we are not able to compete effectively, it will have a material adverse effect on our business, financial condition and results of operations.

We face significant competition from restaurants in the fast-casual dining and traditional fast-food segments of the restaurant industry. These segments are highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location and the ambience and condition of each restaurant. Our competition includes a variety of locally owned restaurants and national and regional chains offering dine-in, carry-out, delivery and catering services. Many of our competitors have existed longer and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we do. Among our competitors are a number of multi-unit, multi-market, fast casual restaurant concepts, some of which are expanding nationally. As we expand, we will face competition from these restaurant concepts as well as new competitors that strive to compete with our market segments. These competitors may have, among other things, lower operating costs, better locations, better facilities, better management, more effective marketing and more efficient operations. Additionally, we face the risk that new or existing competitors will copy our business model, menu options, presentation or ambience, among other things.

Any inability to successfully compete with the restaurants in our markets and other restaurant segments will place downward pressure on our customer traffic and may prevent us from increasing or sustaining our revenue and profitability. Consumer tastes, nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently and effectively to those conditions. Several of our competitors compete by offering menu items that are specifically identified as low in carbohydrates, gluten-free or healthier for consumers. In addition, many of our traditional fast food restaurant competitors offer lower-priced menu options or meal packages or have loyalty programs. Our sales could decline due to changes in popular tastes, “fad” food regimens, such as low carbohydrate diets, and media attention on new restaurants. If we are unable to continue to compete effectively, our traffic, sales and restaurant contribution could decline which would have a material adverse effect on our business, financial condition and results of operations.

Our business could be adversely affected by declines in discretionary spending and may be affected by changes in consumer preferences.

Our success depends, in part, upon the popularity of our food products. Shifts in consumer preferences away from our restaurants or cuisine could harm our business. Also, our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in sales during economic downturns or during periods of uncertainty. A continuing decline in the amount of discretionary spending could have a material adverse effect on our sales, results of operations, and business and financial condition.

Increases in costs, including food, labor and energy prices, will adversely affect our results of operations.

Our profitability is dependent on our ability to anticipate and react to changes in our operating costs, including food, labor, occupancy (including utilities and energy), insurance and supply costs. Various factors beyond our control, including climatic changes and government regulations, may affect food costs. Specifically, our dependence on frequent, timely deliveries of fresh meat and produce subject us to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions which could adversely affect the availability and cost of any such items. In the past, we have been able to recover some of our higher operating costs through increased menu prices. There have been, and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit our ability to recover such cost increases in their entirety.

Our ability to maintain consistent price and quality throughout our restaurants depends in part upon our ability to acquire specified food products and supplies in sufficient quantities from third-party vendors, suppliers and distributors at a reasonable cost. We do not control the businesses of our vendors, suppliers and distributors, and our efforts to specify and monitor the standards under which they perform may not be successful. If any of our vendors or other suppliers are unable to fulfill their obligations to our standards, or if we are unable to find replacement providers in the event of a supply or service disruption, we could encounter supply shortages and incur higher costs to secure adequate supplies, which would have a material adverse effect on our business, financial condition and results of operations.

Furthermore, if our current vendors or other suppliers are unable to support our expansion into new markets, or if we are unable to find vendors to meet our supply specifications or service needs as we expand, we could likewise encounter supply shortages and incur higher costs to secure adequate supplies, which could have a material adverse effect on our business, financial condition and results of operations.

Changes in employment laws and minimum wage standards may adversely affect our business.

Labor is a primary component in the cost of operating our restaurants. If we face labor shortages or increased labor costs because of increased competition for employees, higher employee turnover rates, increases in the federal, state or local minimum wage or other employee benefits costs (including costs associated with health insurance coverage), our operating expenses could increase, and our growth could be negatively impacted.

In addition, our success depends in part upon our ability to attract, motivate and retain enough well-qualified restaurant operators and management personnel, as well as a sufficient number of other qualified employees, including customer service and kitchen staff, to keep pace with our expansion schedule. In addition, restaurants have traditionally experienced relatively high employee turnover rates. Although we have not yet experienced significant problems in recruiting or retaining employees, our ability to recruit and retain such individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could have a material adverse effect on our business, financial condition and results of operations.

Various federal and state employment laws govern the relationship with our employees and impact operating costs. These laws include employee classification as exempt or non-exempt for overtime and other purposes, minimum wage requirements, unemployment tax rates, workers’ compensation rates, immigration status and other wage and benefit requirements. Significant additional government-imposed increases in the following areas could have a material adverse effect on our business, financial condition and results of operations:

	●	Minimum wages;
	●	Mandatory health benefits;
	●	Vacation accruals;
	●	Paid leaves of absence, including paid sick leave; and
	●	Tax reporting.

We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. These factors could have a material adverse effect on our business, financial condition and results of operations.

We are subject to risks arising under federal and state labor laws.

We are subject to risks under federal and state labor laws, including disputes concerning whether and when a union can be organized, and once unionized, collective bargaining rights, various issues arising from union contracts, and matters relating to a labor strike. Labor laws are complex and differ vastly from state to state.

Our business and the growth of our Company are dependent on the skills and expertise of management and key personnel.

During the upcoming stages of our Company’s anticipated growth, we are entirely dependent upon the management skills and expertise of our management and key personnel. We do not have employment agreements with many of our executive officers. The loss of services of our executive officers could dramatically affect our business prospects. Certain of our employees are particularly valuable to us because:

	●	they have specialized knowledge about our company and operations;
	●	they have specialized skills that are important to our operations; or
	●	they would be particularly difficult to replace.

If the services of any key management personnel ceased to be available to us, our growth prospects or future operating results may be adversely impacted.

Our food service business, gaming revenues and the restaurant industry are subject to extensive government regulation.

We are subject to extensive federal, state and local government regulation, including regulations relating to public health, gambling, safety and zoning codes. We operate each of our locations in accordance with standards and procedures designed to comply with applicable codes and regulations. However, if we could not obtain or retain food or other licenses, it would adversely affect our operations. Although we have not experienced, and do not anticipate experiencing any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular location or group of restaurants.

Changing conditions in the global economy and financial markets may materially adversely affect our business, results of operations and ability to raise capital.

Our business and results of operations may be materially affected by conditions in the financial markets and the economy generally. The demand for our products could be adversely affected in an economic downturn and our revenues may decline under such circumstances. In addition, we may find it difficult, or we may not be able, to access the credit or equity markets, or we may experience higher funding costs in the event of adverse market conditions. Future instability in these markets could limit our ability to access the capital we require to fund and grow our business.

Changes to accounting rules or regulations may adversely affect the reporting of our results of operations.

Changes to existing accounting rules or regulations may impact the reporting of our future results of operations or cause the perception that we are more highly leveraged. Other new accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. For instance, new accounting rules require lessees to capitalize operating leases in their financial statements, which require us to record significant right of use assets and lease obligations on our balance sheet. This and other future changes to accounting rules or regulations could have a material adverse effect on the reporting of our business, financial condition and results of operations. In addition, many existing accounting standards require management to make subjective assumptions, such as those required for stock compensation, tax matters, franchise accounting, acquisitions, litigation, and asset impairment calculations. Changes in accounting standards or changes in underlying assumptions, estimates and judgments by our management could significantly change our reported or expected financial performance.

We may incur costs resulting from breaches of security of confidential consumer information related to our electronic processing of credit and debit card transactions.

Most of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information has been stolen. We may in the future become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents. In addition, most states have enacted legislation requiring notification of security breaches involving personal information, including credit and debit card information. Any such claim or proceeding could cause us to incur significant unplanned expenses, which could have a material adverse effect on our business, financial condition and results of operations. Further, adverse publicity resulting from these allegations may have a material adverse effect on our business and results of operations.

We rely heavily on information technology, and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.

We rely heavily on information systems, including point-of-sale processing in our restaurants, for management of our supply chain, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses and other disruptive problems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could result in delays in customer service and reduce efficiency in our operations. Remediation of such problems could result in significant, unplanned capital investments.

Negative publicity could reduce sales at some or all our restaurants.

We may, from time to time, be faced with negative publicity relating to food quality and integrity, the safety, sanitation and welfare of our restaurant facilities, customer complaints, labor issues, or litigation alleging illness or injury, health inspection scores, integrity of our or our suppliers’ food processing and other policies, practices and procedures, employee relationships and welfare or other matters at one or more of our restaurants. Negative publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held to be responsible. The risk of negative publicity is particularly great with respect to our franchised restaurants because we are limited in the manner in which we can regulate them, especially on a real-time basis and negative publicity from our franchised restaurants may also significantly impact company-operated restaurants. A similar risk exists with respect to food service businesses unrelated to us, if customers mistakenly associate such unrelated businesses with our operations. Employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create not only legal and financial liability but negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. These types of employee claims could also be asserted against us, on a co-employer theory, by employees of our franchisees. A significant increase in the number of these claims or an increase in the number of successful claims could materially adversely affect our business, financial condition, results of operations and cash flows.

The interests of our franchisees may conflict with ours or yours in the future and we could face liability from our franchisees or related to our relationship with our franchisees.

Franchisees, as independent business operators, may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under the franchise agreement and the terms and conditions of the franchisee/franchisor relationship or have interests adverse to ours. This may lead to disputes with our franchisees, and we expect such disputes to occur from time to time in the future as we continue to offer franchises. Such disputes may result in legal action against us. To the extent we have such disputes, the attention, time and financial resources of our management and our franchisees will be diverted from our restaurants, which could have a material adverse effect on our business, financial condition, results of operations and cash flows even if we have a successful outcome in the dispute.

In addition, various state and federal laws govern our relationship with our franchisees and our potential sale of a franchise. A franchisee and/or a government agency may bring legal action against us based on the franchisee/franchisor relationship that could result in the award of damages to franchisees and/or the imposition of fines or other penalties against us.

We are subject to a variety of laws, government regulation, and other legal requirements and any failure to comply with these laws and regulations or any new laws or regulations could have a material adverse effect on our operations.

Our business is subject to large number of federal and state laws and regulations, including those relating to:

	●	the serving alcoholic beverages;

	●	employment practices and working conditions, including, among others, minimum wage and other wage and benefit requirements, overtime pay, meal and rest breaks, predictive scheduling, paid leave requirements, work eligibility requirements, team member classification as exempt/non-exempt for overtime and other purposes, immigration status, workplace safety, discrimination, and harassment;

	●	public accommodations and safety conditions, including the Americans with Disabilities Act and similar state laws that give protections to individuals with disabilities in the context of employment, public accommodations, and other areas;

	●	environmental matters, such as emissions and air quality, water consumption, and the discharge, storage, handling, release, and disposal of hazardous or toxic substances;

	●	preparation, sale and labeling of food, including regulations of the Food and Drug Administration, including those relating to inspections and food recalls, menu labeling and nutritional content;

	●	data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information, and payment card industry standards and requirements;

	●	building and zoning requirements, including state and local licensing and regulation governing the design and operation of facilities and land use,

	●	health, sanitation, safety and fire standards; and

	●	public company compliance, disclosure and governance matters, including accounting regulations and SEC disclosure requirements;

Compliance with these laws and regulations, and future new laws or changes in these laws or regulations that impose additional requirements, can be costly. Failure to comply with the laws and regulatory requirements of federal, state and local authorities may result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with these laws and regulations can increase our exposure to litigation or governmental investigations or proceedings.

GENERAL RISKS RELATED TO OUR COMMON STOCK

We have been delinquent in our SEC reporting obligations, which may continue to have an adverse effect on the liquidity and trading prices of our common stock and could lead to the disqualification of our common stock for quotation on the OTC Markets Group, Inc. Our stock was removed from quotation on the OTCQB due to this delinquency and, based on the rules of the OTC Marketsm we do not expect to have our stock reinstated to the OTCQB once we become current in our filings with the SEC. Our Form 10-Q for the quarterly period ended March 31, 2023 currently remains delinquent.

Trading volume in our common stock is limited, which could increase price volatility for, and reduced liquidity of, our common stock.

Trading volume in our common stock is limited and an active trading market for our shares of common stock may never develop or be maintained. The absence of an active trading market could increase price volatility and reduces the liquidity of our common stock and as a result, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered.

Future financings could adversely affect common stock ownership interest and rights in comparison with those of other security holders.

Our board of directors has the power to issue additional shares of common or preferred stock up to the amounts authorized in our certificate of incorporation without stockholder approval, subject to restrictive covenants contained in our existing financing agreements. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we issue any additional common stock or securities convertible into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder. In addition, such stock issuances might result in a reduction of the book value of our common stock. Any increase of the number of authorized shares of common stock or preferred stock would require board and shareholder approval and subsequent amendment to our certificate of incorporation.

Through December 31, 2023, Amergent did not have an adequate amount of authorized common stock to cover shares issuable upon exercise of the warrants and conversion of the 10% convertible notes.

If and when a larger trading market for our common stock develops, the market price of our common stock is likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired them.

The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including, but not limited to:

	●	quarterly variations in our revenues and operating expenses;

	●	developments in the financial markets and worldwide or regional economies;

	●	announcements of innovations or new products, solutions or services by us or our competitors;

	●	announcements by the government relating to regulations that govern our industry;

	●	significant sales of our common stock or other securities in the open market;

	●	variations in interest rates;

	●	changes in the market valuations of other comparable companies; and

	●	changes in accounting principles.

In the past, stockholders have often instituted securities class action litigation after periods of volatility in the market price of a company’s securities. If a stockholder were to file any such class action suit against us, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business to respond to the litigation, which could harm our business.

Recent and future sales of securities by us in equity or debt financings could result in substantial dilution to our existing stockholders and have a material adverse effect on our earnings.

Recent and future sales of common stock or derivative securities by us in private placements or public offerings could result in substantial dilution to our existing stockholders. In addition, our business strategy may include expansion through internal growth by acquiring complementary businesses. In order to do so, or to finance the cost of our other activities, we may issue additional equity securities that could dilute our stockholders’ stock ownership. We may also assume additional debt and incur impairment losses related to goodwill and other tangible assets if we acquire another company and this could negatively impact our earnings and results of operations.

Were our common stock to be considered penny stock, and therefore subject to the penny stock rules, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock.

The U.S. Securities and Exchange Commission (the “SEC”) has adopted a number of rules to regulate “penny stock” that may restrict transactions involving shares of our common stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our securities have in the past constituted “penny stock” within the meaning of the rule. Were our common stock to again be considered “penny stock” and therefore become subject to the penny stock rules, the additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock, which could severely limit the market liquidity of such shares and impede their sale in the secondary market.

A U.S. broker-dealer selling a penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1.0 million or an annual income exceeding $0.2 million, or $0.3 million together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared in accordance with SEC standards relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks.

Stockholders should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities in the event our common stock were to again be considered a penny stock and therefore become subject to penny stock rules.

We do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our common stock.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. We do not pay dividends on our Series 2 Preferred. If dividends are declared on common stock, dividends are payable on our outstanding 10% debenture and all of our outstanding warrants to the same extent that the holders would have participated in the dividend if the holders held the number of shares of common stock acquirable upon complete conversion of the debenture and/ or exercise of the warrants (as applicable) without regard to any limitations on exercise thereof, immediately before the date of which a record is taken for such dividend. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our common stock.

The rights of the holders of common stock may be impaired by outstanding class of Series 2 Preferred and potential issuance of other class(es) of preferred stock in the future.

Our certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any new series of preferred stock, we may issue such shares in the future.

Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.

We are a Delaware corporation. Delaware law contains provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders, which could cause our stock price to decline. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.

Non-U.S. investors may have difficulty effecting service of process against us or enforcing judgments against us in courts of non-U.S. jurisdictions.

We are a company incorporated under the laws of the State of Delaware. All of our directors and officers reside in the United States. It may not be possible for non-U.S. investors to effect service of process within their own jurisdictions upon our company and our directors and officers. In addition, it may not be possible for non-U.S. investors to collect from our company, its directors and officers, judgments obtained in courts in such non-U.S. jurisdictions predicated on non-U.S. legislation.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Through our subsidiaries, we lease the land and buildings for 23 operating restaurant locations in the U.S. The terms for our leases vary from two to twenty years and have options to extend. We lease some of our restaurant facilities under “triple net” leases that require us to pay minimum rent, real estate taxes, maintenance costs and insurance premiums and, in some instances, percentage rent based on sales in excess of specified amounts. Our corporate employees work from home.

Our facilities are suitable and adequate for our business as it is presently conducted.

ITEM 3: LEGAL PROCEEDINGS

Various subsidiaries of Amergent are delinquent in payment of payroll taxes to taxing authorities. As of December 31, 2022, approximately $2.1 million of employee and employer taxes (including estimated penalties and interest) was accrued but not remitted in years prior to 2019 to certain taxing authorities by certain of these subsidiaries for cash compensation paid. As a result, these subsidiaries are liable for such payroll taxes. These subsidiaries have received warnings and demands from the taxing authorities and management is prioritizing and working with the taxing authorities to make these payments in order to avoid further penalties and interest. Failure to remit these payments promptly could result in increased penalty fees.

During 2022 and 2021, the Company was in arrears on rent due on several of its leases. As a result, the Company has pending litigation related to one store which is permanently closed. The outcome of this litigation could result in the permanent closure of additional restaurant locations as well as the possibility of the Company being required to pay interest and damages, modify certain leases on unfavorable terms and could result in material impairments to the Company’s assets.

During 2022, our LBB locations were notified by the Department of Labor (“DOL”) of an audit concerning tip pools at 15 of our LBB stores in and around Portland, OR metropolitan area. In January 2023, the DOL reported that its audit resulted in one significant finding, that the Company improperly permitted “supervisory” in-store employees to participate in the tip pool. DOL assessed a penalty of approximately $972,000 (equal to $486,000 in inappropriately paid tips multiplied by two pursuant to the statute’s liquidated damages provision). DOL offered to reduce that number in half to $486,000. The Company has fought back against the finding, asserting that the alleged supervisors did not have sufficient supervisory responsibility to be deemed a “supervisor” under the statute. Currently, settlement discussions are in progress. DOL has reduced its amount to just under $170,000. The Company has offered $25,000 to resolve the matter. It is difficult to predict at what amount the case may resolve. If it does not resolve, DOL can choose to file the case in litigation or send right-to-sue letters to each impacted employee and former employee. Currently, we do not believe it is likely that DOL will pursue litigation, having indicated that they would be discussing that option and opting not to pursue anything at this time. If the case were to proceed to settle, we expect it would do so between the $25,000 and $170,000 amounts currently on the table. The Company has recorded a charge of $25,000 as management believes this is the most likely outcome.

From time to time, the Company may be involved in other legal proceedings and claims that have arisen in the ordinary course of business are generally covered by insurance. As of December 31, 2022, the Company does not expect the amount of ultimate liability with respect to these matters to be material to the Company’s consolidated financial condition, results of operations or cash flows.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of December 31, 2022, we had 15,706,736 shares of our common stock issued and outstanding, respectively, and approximately 230 shareholders of record and approximately 2,500 shareholders. Amergent’s common stock is currently quoted on the Pink Open Market of the OTC Markets Group, Inc. under the symbol “AMHG.”

We currently have no expectation to pay cash dividends to holders of our common stock in the foreseeable future.

UNREGISTERED SALES OF EQUITY SECURITIES

None that have not previously been reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

EQUITY COMPENSATION PLANS

Pursuant to the SEC’s Regulation S-K Compliance and Disclosure Interpretation 106.01, the information required by this Item pursuant to Item 201(d) of Regulation S-K relating to securities authorized for issuance under the Corporation’s equity compensation plans is located in Item 12 of Part III of this Annual Report and is incorporated herein by reference.

ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, particularly those under “Risk Factors.”

Overview

The Burger Joint (“BGR”) consists of five company-owned locations in the United States and seven franchisee-operated locations in the United States.

Acquisition

On August 30, 2021, the Company purchased all of the outstanding membership interests in Pie Squared Holdings LLC (“Pie Squared Holdings”) pursuant to a Unit Purchase Agreement (“Purchase Agreement”). The purchase price is an 8% secured, convertible promissory note (“Note”) with a face value of $1.0 million and a fair value of $1.2 million at the acquisition date. Transaction costs of $0.2 million were incurred in connection with the acquisition and charged to general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2021.

Recent Developments

In March 2022, we commenced a private placement of up to $3.0 million of 8% senior unsecured convertible debentures (the “8% Convertible Debt”) and 3,000,000 common stock warrants. Pursuant to the Securities Purchase Agreement, we issued $1.35 million of 8% Convertible Debt and warrants to purchase the number of shares of our common stock equal to the principal amount of 8% Convertible Debt issued. The 8% Convertible Debt matures 18 months after issuance and is subject to acceleration in the event of customary events of default. Interest is payable quarterly in cash. The 8% Convertible Debt may be converted by the holders at any time at a fixed conversion price of $0.40 per share, and each warrant entitles the holder to purchase one share of common stock at an exercise price of $0.50 per share. Both the notes and the warrants include a beneficial ownership blocker of 4.99% and contain customary provisions preventing dilution and providing the holders rights in the event of fundamental transactions. Upon the earlier of the maturity date or the one-year anniversary of conversion of the 8% Convertible Debt, holders of 51% of the registrable securities may request the Company to file a registration statement for the securities. The warrants can be exercised on a cashless basis and expire five years from the issuance date. If the Company makes any distribution to the common stockholders, the holders of the warrants will be entitled to participate on an as-if-exercised basis.

In connection with the issuance of the 8% Convertible Debt, the maturity date of the existing 10% secured convertible debenture (“10% Convertible Debt”) was extended to April 1, 2024, and the holder of the existing 10% Convertible Debt agreed to subordinate payment of its 10% Convertible Debt to payment of the 8% Convertible Debt.

During the year ended December 31, 2022, the Company received related party advances in the aggregate of $0.6 million from an entity in which the Chief Financial Officer serves as an officer but has no ownership interest.

In January 2023, the Company entered into an asset purchase agreement with Boudreaux’s Cajun Kitchen, Inc. to acquire the Houston, Texas based brand and its four restaurant locations for an aggregate purchase price of $3.8 million. In March 2023, the transaction closed for cash consideration of $1.3 million and a convertible promissory note of $2.5 million. In connection with the transaction, the Company paid an affiliate of Oz Rey an aggregate fee of $0.3 million. The convertible promissory note accrues interest at a rate of 6.0% per annum and will mature two years from the date of closing, with $1.3 million of the principal balance of the note due and payable in July 2023. The note may be converted, at the option of the holder, into shares of common stock at a conversion price of $0.50 per share. The convertible promissory note may be prepaid in whole or in part at any time, without premium or penalty.

In February 2023, the Company closed a $2.5 million Series B convertible preferred stock (the “Series B Preferred”) and warrant financing with an affiliate of Oz Rey. The Company issued 125 shares of Series B Preferred and warrants to purchase up to 1,250,000 shares of common stock at a $0.0001 par value. The warrants have a term of 10 years and an initial exercise price of $1.00 per share of common stock, which is subject to adjustment for customary provisions such as stock splits, stock dividends and distributions.

The Series B Preferred is convertible into shares of common stock at the option of the investors at a conversion price of $0.50 per share and will accrue dividends in an amount equal to 12% on an annual basis, payable in cash or in shares of common stock based on 30-day volume-weighted average price of common stock on the trading market. The Company has the right to redeem the Series B Preferred subject to certain terms.

Recent Business Trends

Throughout 2022, we faced varying degrees of COVID-19 pandemic related pressures. In spite of this, our sales have continued to increase from when compared to the corresponding quarters in 2021. Our revenue for fiscal years 2022 and 2021 was $21.3 million and $20.7 million, respectively. This represents an annual increase in revenue of 3.1%.

Looking forward to 2023, we anticipate continued inflationary pressures on our restaurant cost of sales and restaurant operating expenses. We also face a tight and competitive labor market throughout all locations. Our management team has and will continue to innovatively approach these challenges.

Future Plans

The Company has three core restaurant groups: Boudreaux’s Cajun Restaurants, Little Big Burger, The Burger Joint, as well as a one-off gaming concept.

In March 2023, we finalized the purchase of Boudreaux’s Cajun Kitchen with four locations in Houston, Texas. We anticipate expanding this restaurant concept throughout the southern United States.

For the Little Big Burger concept, we do not anticipate opening new units in the near term.

We are actively pursuing the sale of additional The Burger Joint franchises and finding additional Company managed location opportunities.

The Company will continue looking for acquisition opportunities that will add value to our core concepts.

In 2022, the Company closed several underperforming stores. We believe that the remaining stores are cash flow positive at the store level. Our challenge remains the cost of being a public company. We plan to continue to find acquisition candidates and to add to our concepts so that, company-wide, we become cash flow positive.

COVID-19 Pandemic Update

Since at least March 2020, when it was first characterized as a global pandemic, COVID-19 dramatically impacted and continues to impact the global health and economic environments, including millions of confirmed cases and deaths, business slowdowns or shutdowns (including shutdowns or severe restrictions of capacity in our dining rooms at various points in time), labor shortfalls, supply chain challenges, regulatory challenges, inflationary pressures and market volatility. As a result, we began fiscal 2021 with significant limitations on our operations, which over the course of the fiscal year varied widely from time to time, state to state and city to city and negatively impacted our sales. Once COVID-19 vaccines were approved and moved into wider distribution in the United States in early to mid-2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses eased.

We may face future business disruptions and related risks resulting from the COVID-19 pandemic or from another pandemic, epidemic or infectious disease outbreak, or from broader macroeconomic trends, any of which could have a significant impact on our business. In addition, while all of our restaurants had open dining rooms as of December 31, 2022, we continue to experience staffing challenges, including higher wage inflation, overtime costs and other labor related costs. We also continue to experience inflationary pressures, which resulted in increased commodity prices and impacted our business and results of operations during the year ended December 31, 2022. We expect these pressures to continue during fiscal year 2023.

PPP Loan

On March 27, 2020, Congress passed The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which included the Paycheck Protection Program (“PPP”) for small businesses. On April 27, 2020, Amergent received a PPP loan of $2.1 million. Due to the Spin-Off and Merger, Amergent was not publicly traded at the time of the loan application or funding. The note bore interest at 1% per year, was due to mature in April 2022, and required monthly interest and principal payments of approximately $0.1 million beginning in November 2020 and through maturity. On February 25, 2021, the Company received a second PPP loan in the amount of $2.0 million. The note bore interest at 1% per year, was due to mature on February 25, 2026, and required monthly principal and interest payments of approximately $45,000 beginning June 25, 2022 through maturity. On November 15, 2022 and December 16, 2022, the Company received notice from the SBA that the first and second PPP loans, respectively, had been fully forgiven with accrued interest.

Employee Retention Credit

Restaurant Revitalization Fund

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2022 COMPARED TO THE YEAR ENDED DECEMBER 31, 2021

Our results of operations are summarized below:

	Year Ended December 31,
	2022						2021
(in thousands)	Amount			% of Revenue*			Amount			% of Revenue*			% Change
Revenue:
Restaurant sales, net	$	19,678			92.4	%	$	19,797			95.9	%		(0.6	)%
Gaming income, net		493			2.3	%		403			1.9	%		22.3	%
Franchise income		1,123			5.3	%		452			2.2	%		148.5	%
Total revenue		21,294						20,652
Expenses:
Restaurant cost of sales		6,377			32.4	%*		6,172			31.2	%*		3.3	%
Restaurant operating expenses		15,089			76.7	%*		13,262			67.0	%*		13.8	%
Restaurant pre-opening and closing expenses					—	%		8			—	%		(100.0	)%
General and administrative expenses		5,584			26.2	%		5,210			25.2	%		7.2	%
Asset impairment charges		3,208			15.1	%		1,456			7.1	%		120.3	%
Depreciation and amortization		693			3.3	%		1,047			5.1	%		(33.8	)%
Employee retention credit and other grant income		(2,208	)		(10.4	)%		(3,009	)		(14.6	)%		(26.6	)%
Total expenses		28,743						24,146
Operating loss		(7,449	)					(3,494	)
Other income (expense):
Interest expense		(886	)		(4.2	)%		(656	)		(3.2	)%		35.1	%
Change in fair value of derivative liabilities		—			—	%		119			0.6	%		(100.0	)%
Change in fair value of investment		(38	)		(0.2	)%		(244	)		(1.2	)%		(84.4	)%
Change in fair value of convertible promissory note		99			0.5	%		95			0.5	%		4.2	%
Gain on sale of subsidiary		—			—	%		58			0.3	%		(100.0	)%
Gain on extinguished/settled lease liabilities		256			1.2	%		412			2.0	%		(37.9	)%
Gain on extinguished trade payable		161			0.8	%		—			—	%		100.0	%
Gain on loan forgiveness		4,201			19.7	%		—			—	%		100.0	%
Other income		354			1.7	%		310			1.5	%		13.9	%
Total other income		4,147						94
Loss before income taxes		(3,303	)					(3,400	)
Income tax expense		(42	)		(0.2	)%		(118	)		(0.6	)%		(64.4	)%
Consolidated net loss	$	(3,346	)				$	(3,518	)

* Restaurant cost of sales and operating expenses percentages are based on restaurant sales, net. Other percentages are based on total revenue.

Revenue

Total revenue increased $0.6 million or 3.1% during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

	Year Ended December 31, 2022					Year Ended December 31, 2021
	Amount		% of Revenue			Amount		% of Revenue
(in thousands)
Restaurant sales, net	$	19,678		92.4	%	$	19,797		95.9	%
Gaming income, net		493		2.3	%		403		2.0	%
Franchise income		1,123		5.3	%		452		2.2	%
Total revenue	$	21,294		100.0	%	$	20,652		100.0	%

	●	Revenue from restaurant sales decreased $0.1 million or 0.6% for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to a net decrease of six company owned stores. As of December 31, 2022 and 2021, the Company had 20 and 29 company owned stores, respectively.

	●	Franchise income increased $0.7 million or 148.5% for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to $0.7 million of franchise income recognized in March 2022 as a result of the Company terminating its international Master Franchise Agreements as the requirements in the agreement had not been met and all international stores had been closed. The Master Franchisee notified the Company that it would not be reopening these stores. In addition, contract liabilities decreased $0.7 million as a result of the termination of the international Master Franchise Agreements.

Expenses

Restaurant cost of sales

Restaurant cost of sales increased $0.2 million or 3.3% for the year ended December 31, 2022, as compared to the year ended December 31, 2021. Restaurant cost of sales as a percentage of restaurant sales increased to 32.4% for the year ended December 31, 2022 compared to 31.2% for the year ended December 31, 2021 primarily due to rising food costs.

Restaurant operating expenses

Restaurant operating expenses increased $1.8 million or 13.8% for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to an overall increase in payroll cost with cost-of-living increases across the board for our employees.

General and administrative expense (“G&A”)

G&A expenses increased $0.4 million or 7.2% for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the net effect of (i) increase in salary and benefits of $0.7 million, primarily due to the addition of two senior management personnel and an increase in our employee headcount from December 31, 2021 to December 31, 2022 (ii) a decrease in audit, legal and other professional services of $0.4 million primarily due to a decrease in necessary legal and professional services in 2022 compared to 2021.

Significant components of G&A are summarized as follows:

	Year Ended December 31,
	2022		2021
(in thousands)
Audit, legal and other professional services	$	1,905	$	2,314
Salary and benefits		2,814		2,129
Advertising, insurance and other		752		672
Stockholder services and fees		44		31
Travel and entertainment		69		64
Total G&A expenses	$	5,584	$	5,210

Asset impairment charges

Asset impairment charges of an aggregate $3.2 million were recorded during the year ended December 31, 2022, which consisted of an impairment on (i) right-of-use asset of $1.8 million (ii) property and equipment of $0.8 million, (iii) trademark/tradenames of $0.3 million, and (iv) franchise rights of $0.3 million, primarily due to ongoing cash flow implications from the change in consumer dining habits in the aftermath of the COVID-19 pandemic.

Asset impairment charges of $1.5 million were recorded during the year ended December 31, 2021. During the year ended December 31, 2021, we recorded an impairment on trademark/tradenames of approximately $0.3 million, property and equipment of approximately $0.4 million and right-of-use asset of approximately $0.7 million primarily due to ongoing cash flow implications resulting from the COVID-19 pandemic.

Employee retention credit and other grant income

Employee Retention Credit (“ERC”). For the years ended December 31, 2022 and 2021, the Company recognized $0.7 million and $2.5 million, respectively, of ERC as a contra-expense included in employee retention credit and grant income in the consolidated statements of operations. Although the program ended on January 1, 2022, the Company performed an analysis during 2022 and determined that it was eligible for additional credits related to 2021 wages.

Restaurant Revitalization Fund (“RRF”). Pie Squared Holdings, which we acquired during August 2021, received a grant under the RRF and $2.0 million of unused funds at the closing of the acquisition were placed into escrow for our benefit. For the years ended December 31, 2022 and 2021, the Company recognized $1.5 million and $0.5 million, respectively, related to the RRF as a contra-expense included in employee retention credit and other grant income in the consolidated statements of operations. As of December 31, 2022, there was no remaining available for future recognition under the RRF.

For additional information, see Note 4 to the consolidated financial statements.

Other Income (Expense)

Interest expense

Interest expense was $0.9 million for the year ended December 31, 2022, compared to $0.7 million for the year ended December 31, 2021. This is consistent with the rising interest rates on new borrowings in 2022.

Change in fair value of derivative liabilities

There were no derivative liabilities recorded during the year ended December 31, 2022. During the year ended December 31, 2021, the change in fair value of derivative liabilities was a gain of $0.1 million related to the True-Up Payment derivative. Derivative liabilities were marked to market on a quarterly basis and fluctuations in value are reflective of the fair market value at the point in time at which the instruments were measured. The True-Up Payment derivative was settled in July 2021 with a cash payment of $0.1 million.

Change in fair value of investment

Our investment represents the fair value of the common stock of Sonnet held by the Company after its exercise of warrants received in connection with the Merger. We recognized a loss in fair value of $38,000 and $0.2 million during the years ended December 31, 2022 and 2021, respectively as a result of decreases in Sonnet’s common stock price.

Change in fair value of convertible promissory note

In August 2021, we issued an 8% secured, convertible promissory note as consideration for the acquisition of Pie Squared Holdings. We have elected to measure the convertible promissory note at fair value, with changes in fair value recognized in operations. We recognized a change in fair value of $0.1 million and $0.1 million during the years ended December 31, 2022 and 2021, respectively.

Gain on extinguished/settled lease liabilities

During the years ended December 31, 2022 and 2021, we recognized a gain on extinguished/settled lease liabilities of $0.3 million and $0.4 million. The gain recognized during the year ended December 31, 2022 was the result settlements of outstanding lease liabilities. The gain recognized during the year ended December 31, 2021 was due to the derecognition of operating lease liabilities resulting from our negotiation of the cancellation of our obligations under certain lease agreements resulting from the COVID-19 pandemic.

Gain on extinguished trade payable

During the year ended December 31, 2022, we recognized a gain on extinguished trade payable of $0.2 million due to the settlement of outstanding amounts with a supplier. There were no trade payable extinguishments during the year ended December 31, 2021.

Gain on loan forgiveness

During the year ended December 31, 2022, we recognized a gain on loan forgiveness of $4.2 million due to the forgiveness of the PPP loans, plus accrued interest. There was no loan forgiveness during the year ended December 31, 2021.

Other income (expense)

Other income increased $43,000 or 13.9% for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to (i) a gain of $0.1 million recognized as a result of franchise-related litigation settlement and (ii) a dividend received during 2022 from our investment in Hooters of America of approximately $0.1 million.

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2022 COMPARED TO THE YEAR ENDED DECEMBER 31, 2021

	Year Ended December 31,
	2022			2021
(in thousands)
Net cash flows used in operating activities	$	(3,711	)	$	(4,474	)
Net cash flows (used in) provided by investing activities		(315	)		2,978
Net cash flows provided by financing activities		2,083			1,902
Effect of exchange rate changes on cash		—			(16	)
Net (decrease) increase in cash and restricted cash	$	(1,943	)	$	390

Operating activities

Cash used in operating activities was primarily attributable to the net effect of (i) non-cash income of $4.2 million related to the gain recognized on the forgiveness of our PPP loans, (ii) a net loss of $3.3 million, (iii) asset impairment charges of $3.2 million, (iv) $2.0 million related to depreciation and amortization, (v) $0.3 million related to the gain on extinguished/settled lease liabilities and (vi) $0.2 million recognized for a gain on extinguished trade payable. The balance of the change in cash flows from operating activities was related to net movements in asset and liability accounts.

Cash used in operating activities was approximately $4.5 million for the year ended December 31, 2021. This use of cash was primarily driven by the net loss incurred of $3.5 million offset by non-cash charges to operations of $3.2 million. The non-cash charges in 2021 consist primarily of asset impairment charges of $1.5 million, depreciation and amortization of property and equipment, intangible assets and right-of-use assets totaling $2.0 million and amortization of debt discount of $0.2 million, offset by gain on extinguished lease liabilities of $0.4 million and gain on sale of subsidiary of $0.1 million. The balance of the change in cash flows from operating activities was related to net movements in asset and liability accounts.

Investing activities

Cash used in investing activities during the year ended December 31, 2022 was primarily attributable to outflows from the purchase of property and equipment.

Cash provided by investing activities during the year ended December 31, 2021 was primarily related to $2.0 million cash and restricted cash acquired in connection with the acquisition of Pie Squared Holdings, $0.6 million net proceeds from the sale of the UK subsidiary and $0.5 million proceeds from the sale of investments.

Financing activities

Cash provided by financing activities for the year ended December 31, 2022 was primarily attributable to proceeds of $1.4 million related to the issuance of 8% senior unsecured convertible debentures and proceeds of $1.1 million related to the issuance of notes payable, partially offset by $0.4 million in payments of long-term debt and notes payable.

Cash provided by financing activities for the year ended December 31, 2021 was primarily attributable to proceeds from the $2.0 million PPP loan.

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

	●	our ability to access the capital and debt markets to satisfy current obligations and operate the business;
	●	our ability to qualify for and access financial stimulus programs available through federal and state government programs;
	●	our ability to refinance or otherwise extend maturities of current debt obligations;
	●	our ability to manage our operating expenses and maintain gross margins;
	●	popularity of and demand for our fast-casual dining concepts; and
	●	general economic conditions and changes in consumer discretionary income.

Our current operating losses combined with our working capital deficit raise substantial doubt about our ability to continue as a going concern.

In addition, our business is subject to additional risks and uncertainties including, but not limited to, those described in Item 1A. “Risk Factors”.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

CRITICAL ACCOUNTING POLICIES

Our reported results of operations and financial position are dependent upon the application of certain accounting policies and estimates that require subjective or complex judgments. Such estimates are inherently uncertain and changes in such estimates could have a significant impact on reported results and balances for the periods presented as well as future periods. The following is a description of what we consider to be our most critical accounting policies.

Leases

We determine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office space. Our leases generally have remaining terms of 1-20 years and most include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years. If the estimate of our reasonably certain lease term was changed, our depreciation and rent expense could differ materially.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. As we have no committed credit facilities, secured or otherwise, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.

Estimated Lease Termination and Other Closing Costs

Once we have determined that a restaurant location is to be closed, we estimate the expected proceeds to be received from such disposal and impair the carrying value of the net assets of such locations to this estimate and report these net assets as assets held for sale. Our estimate of disposal proceeds is dependent upon multiple assumptions including our ability to identify a buyer as well as the general market for commercial real estate at the expected time of disposal. Actual results could significantly differ from these estimates, which could result in a significant impact to reported operations in future periods. Assets that have been impaired to their estimated disposal proceeds are maintained at the lower of this new carrying value or the most recently developed estimate of eventual proceeds.

Intangible Assets

Trademark/Tradenames

Certain of the Company’s trademark/tradenames have been classified as indefinite-lived intangible assets and are not amortized, but instead are reviewed for impairment at least annually or more frequently if indicators of impairment exist. Definite lived intangible assets are assessed for impairment using methods discussed below in the long-lived assets section. The Company’s indefinite-lived intangible assets are tested for impairment at least annually by estimating their fair value and comparing it to the asset’s carrying value. The Company estimates the fair value of indefinite-lived tradenames using the relief-from-royalty method, which requires assumptions related to projected sales from its annual long-range plan; assumed royalty rates that could be payable if the Company did not own the trademarks; and a discount rate.

Long-Lived Assets

Long-lived assets, such as property and equipment, operating lease assets, and purchased intangible assets subject to depreciation and amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Some of the events or changes in circumstances that would trigger an impairment test include, but are not limited to:

	●	significant under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash flows for two consecutive years);

	●	significant negative industry or economic trends;

	●	knowledge of transactions involving the sale of similar property at amounts below the Company’s carrying value; or

	●	the Company’s expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do not meet the criteria to be classified as “Held for Sale.”

If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Due to the continued impact of this pandemic on the Company’s business, management performed an impairment analysis of its long-lived assets as of each quarter end during 2021 and determined that the carrying value of the Company’s trademark/tradenames intangible asset, property and equipment and operating lease assets were impaired for an aggregate amount $1.5 million for the years ended December 31, 2021. The determination was based on the best judgment of management for the future of the assets and on information known at the time of the assessment. During 2022, primarily as a result of multiple permanent store closures, the Company determined that triggering events occurred requiring management to review certain long-lived assets for impairment and determined that the carrying value of the Company’s trademark/tradenames intangible asset, acquired franchise rights intangible asset, property and equipment and operating lease assets were impaired. resulting in an aggregate impairment charge of $3.2 million for the year ended December 31, 2022. The determinations were based on the best judgment of management for the future of the assets and on information known at the time of the assessment.

Goodwill

Goodwill is not subject to amortization but is tested at least annually or when impairment indicators are present. When evaluating goodwill for impairment, the Company may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. Management has determined that the Company only has one reporting unit. If the Company does not perform a qualitative assessment or determines that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, a quantitative assessment is performed to calculate the estimated fair value of the reporting unit. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. The Company’s decision to perform a qualitative impairment assessment is influenced by a number of factors, including the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the price of our common stock. Impairment is measured as the excess of carrying value of the goodwill to its estimated fair value. Due to the ongoing impact of the COVID-19 pandemic on the Company’s business during 2021 and changing consumer habits, macroeconomic trends and poor performance and the ultimate closure of certain stores during 2022, management performed an impairment analysis of goodwill as of each quarter end during 2022 and 2021, the result of the analysis was that due to the negative carrying value of the reporting unit no impairment was recorded in either year.

Business Combination Accounting

Accounting for assets acquired, liabilities assumed and consideration transferred in a business combination requires Amergent’s management to exercise judgment and make estimates and assumptions regarding fair value. The Company acquired Pie Squared Holdings during the year ended December 31, 2021, resulting in the Company recording the assets acquired and liabilities assumed at fair value on the acquisition date, as well as fair valuing the convertible promissory note issued as consideration for the business combination. The Company elected the fair value option to account for the convertible promissory note. The convertible promissory note was initially recorded at fair value at the acquisition date and will be subsequently remeasured to fair value at each reporting date, with changes recognized in the consolidated statement of operations until the liability is repaid or converted into common stock.

In addition, the Company assumed all the rights and obligations of Pie Squared Holdings that arose from transactions of Pie Squared Holdings prior to the business combination, both stated rights and obligations as well as those that are contingent. Pie Squared Holdings applied for and received an approximately $10.0 million grant from the U.S. SBA under the RRF and used approximately $8.0 million to repay existing debt of Pie Squared Holdings and to fund some of its operating expenses. Under the RRF there is a requirement that the grant monies be for “eligible uses.” The Company, through the structure of the acquisition, is now responsible that the grant proceeds were, in fact, properly obtained and disbursed for “eligible uses.” If it is determined that Pie Squared Holdings obtained the grant improperly or the disbursement of such grant monies were not “eligible uses,” then the Company would be responsible for the ramifications of such actions, including repayment of the approximately $10.0 million of grant monies, among other items. Management completed its analysis of this contingency and concluded that, at this time, a liability does not need to be recorded for this contingency. In connection with the acquisition, the Company obtained an indemnification from the sellers which is inclusive of any matters related to the RRF.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to the consolidated financial statements included elsewhere in this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, Amergent is not required to provide the information required by this Item 7A.

ITEM 8: FINANCIAL STATEMENTS

Amergent Hospitality Group, Inc. and Subsidiaries

Table of Contents

	Page Number
Report of Independent Registered Public Accounting Firm (PCAOB ID 677)	39
Consolidated Balance Sheets	42
Consolidated Statements of Operations	43
Consolidated Statements of Comprehensive Loss	44
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit	45
Consolidated Statements of Cash Flows	46
Notes to the Consolidated Financial Statements	47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Amergent Hospitality Group Inc. and Subsidiaries

Charlotte, North Carolina

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Amergent Hospitality Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred approximately $3.3 million in losses for the year ended December 31, 2022, that included $3.2 million in asset impairments, and the Company has a working capital deficit of approximately $16.3 million as of December 31, 2022. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluations of the events and conditions and management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Long-Lived Assets and Operating Lease Assets

Critical Audit Matter Description –

The Company periodically evaluates the carrying amounts of long-lived assets when events and circumstances warrant such a review in order to ascertain whether any of these assets is impaired. As a result of multiple store abandonments during fiscal year 2022, management performed an impairment analysis at the store-level, which represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets. The carrying amount of long-lived assets and operating lease assets is considered impaired when the carrying value of the asset group exceeds the expected future cash flows from the asset group. As of December 31, 2022, long-lived assets aggregated to approximately $2,360,000 and operating lease assets aggregated to approximately $4,976,000. During fiscal year 2022, the Company recorded impairment charges of approximately $1,420,000 and $1,790,000 to long-lived assets and operating lease assets, respectively.

Inherent in the impairment analysis of long-lived assets and operating lease assets are certain significant judgments and estimates related to forecasted cash flows and revenues. As disclosed by management, changes in these assumptions can significantly impact the valuation of long-lived assets and operating lease assets, and recorded impairment charges thereover.

How the Critical Audit Matter Was Addressed in the Audit –

Our audit procedures related to the forecasted cash flows and revenues used in the long-lived asset and operating lease asset impairment analyses included the following:

-	Obtaining an understanding of the relevant controls related to management’s evaluation of long-lived asset and operating lease asset impairment analyses.

-	Evaluating the reasonableness of management’s cash flow forecasts by comparing the forecasts to historical performance, considering actual financial performance and management expectations for future performance.

-	Performing procedures including reviewing the sensitivity over the assumptions utilized in the impairment analyses to assess their impact on the determination of impairment.

/s/ Cherry Bekaert LLP

We have served as the Company’s auditor since 2015.

Charlotte, North Carolina

July 14, 2023

Amergent Hospitality Group Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands except share and per share data)	December 31, 2022			December 31, 2021
ASSETS
Current assets:
Cash	$	375		$	646
Restricted cash		—			1,672
Investments		12			50
Accounts and other receivables		869			865
Inventories		158			182
Prepaid expenses and other current assets		222			360
TOTAL CURRENT ASSETS		1,636			3,775
Property and equipment, net		2,338			3,115
Operating lease assets		4,976			8,021
Intangible assets, net		2,309			3,129
Goodwill		7,810			7,810
Investments		16			16
Deposits and other assets		100			352
TOTAL ASSETS	$	19,185		$	26,218

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	9,245		$	6,844
Current portion of long-term debt and notes payable		3,329			3,264
Current portion of operating lease liabilities		5,395			4,599
Deferred grant income		—			1,545
TOTAL CURRENT LIABILITIES		17,969			16,252

Operating lease liabilities, net of current portion		5,868			8,644
Contract liabilities		67			757
Deferred tax liabilities		192			150
Long-term debt and notes payable, net of current portion (includes debt measured at fair value of $599 at December 31, 2021)		4,335			6,593
TOTAL LIABILITIES		28,431			32,396

Commitments and contingencies (see Note 13)		-			-

Convertible Preferred Stock: Series 2: $1,000 stated value; authorized 1,500 shares; 100 issued and outstanding at both December 31, 2022 and December 31, 2021		58			58

Stockholders’ Deficit:
Common stock: $0.0001 par value; authorized 50,000,000 shares; 15,706,736 shares issued and outstanding at both December 31, 2022 and December 31, 2021		2			2
Additional paid-in-capital		93,160			92,882
Accumulated deficit		(100,976	)		(97,963	)
Total Amergent Hospitality Group, Inc. Stockholders’ Deficit		(7,814	)		(5,079	)
Non-controlling interests		(1,490	)		(1,157	)
TOTAL STOCKHOLDERS’ DEFICIT		(9,304	)		(6,236	)
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT	$	19,185		$	26,218

See accompanying notes to the consolidated financial statements

Amergent Hospitality Group Inc. and Subsidiaries

Consolidated Statements of Operations


	Year Ended
(in thousands except share and per share data)	December 31, 2022			December 31, 2021
Revenue:
Restaurant sales, net	$	19,678		$	19,797
Gaming income, net		493			403
Franchise income		1,123			452
Total revenue		21,294			20,652
Expenses:
Restaurant cost of sales		6,377			6,172
Restaurant operating expenses		15,089			13,262
Restaurant pre-opening and closing expenses		—			8
General and administrative expenses		5,584			5,210
Asset impairment charges		3,208			1,456
Depreciation and amortization		693			1,047
Employee retention credit and other grant income		(2,208	)		(3,009	)
Total expenses		28,743			24,146
Operating loss		(7,449	)		(3,494	)
Other income (expense):
Interest expense		(886	)		(656	)
Change in fair value of derivative liabilities		—			119
Change in fair value of investment		(38	)		(244	)
Change in fair value of convertible promissory note		99			95
Gain on sale of subsidiary		—			58
Gain on extinguished/settled lease liabilities		256			412
Gain on extinguished trade payable		161			—
Gain on forgiveness of Paycheck Protection Program loans		4,201			—
Other income		354			310
Total other income		4,147			94
Loss before income taxes		(3,303	)		(3,400	)
Income tax expense		(42	)		(118	)
Consolidated net loss		(3,346	)		(3,518	)

Less: Net loss attributable to non-controlling interests		333			142
Net loss attributable to Amergent Hospitality Group Inc.	$	(3,013	)	$	(3,376	)

Net loss attributable to Amergent Hospitality Group Inc. per common share, basic	$	(0.19	)	$	(0.22	)
Net loss attributable to Amergent Hospitality Group Inc. per common share, diluted	$	(0.19	)	$	(0.22	)

Weighted average shares outstanding, basic		15,706,736			15,303,558
Weighted average shares outstanding, diluted		15,706,736			15,303,558

See accompanying notes to the consolidated financial statements

Amergent Hospitality Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss


	Year Ended
(in thousands)	December 31, 2022			December 31, 2021
Net loss attributable to Amergent Hospitality Group Inc.	$	(3,013	)	$	(3,376	)
Foreign currency translation gain		—			26
Comprehensive loss	$	(3,013	)	$	(3,350	)

See accompanying notes to the consolidated financial statements

Amergent Hospitality Group Inc. and Subsidiaries

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

Years Ended December 31, 2021 and 2022

(in thousands except share data)	Shares			Amount			Shares		Amount		Capital		Deficit			Loss			Interests			Total
	(Temporary equity) Preferred Series 2 Convertible										Additional					Accumulated Other
	Preferred Stock						Common Stock				Paid-in		Accumulated			Comprehensive			Non-Controlling
(in thousands except share data)	Shares			Amount			Shares		Amount		Capital		Deficit			Loss			Interests			Total
Balance, January 1, 2021		787		$	460			14,282,736	$	1	$	92,433	$	(94,587	)	$	(26	)	$	(970	)	$	(3,149	)
Conversion of preferred stock into common stock		(687	)		(402	)		1,374,000		1		401		—			—			—			402
Common stock issued for compensation		—			—			50,000		—		27		—			—			—			27
Share-based compensation expense		—			—			—		—		21		—			—			—			21
Foreign currency translation		—			—			—		—		—		—			26			—			26
Non-controlling interest distribution		—			—			—		—		—		—			—			(45	)		(45	)
Net loss		—			—			—		—		—		(3,376	)		—			(142	)		(3,518	)
Balance, December 31, 2021		100			58			15,706,736		2		92,882		(97,963	)	$	—			(1,157	)		(6,236	)
Share-based compensation expense		—			—			—		—		15		—			—			—			15
Issuance of warrants		—			—			—		—		263		—			—			—			263
Net loss		—			—			—		—		—		(3,013	)		—			(333	)		(3,346	)
Balance, December 31, 2022		100		$	58			15,706,736	$	2	$	93,160	$	(100,976	)	$	—		$	(1,490	)	$	(9,304	)

See accompanying notes to the consolidated financial statements

Amergent Hospitality Group Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)	December 31, 2022			December 31, 2021
	Year Ended
(in thousands)	December 31, 2022			December 31, 2021
Cash flows from operating activities:
Net loss	$	(3,346	)	$	(3,518	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		693			1,047
Amortization of operating lease assets		1,261			1,011
Asset impairment charges		3,208			1,456
Gain on extinguished/settled lease liabilities		(256	)		(412	)
Gain on sale of subsidiary		—			(58	)
Gain on extinguished trade payable		(161	)		—
Share-based compensation		15			48
Change in fair value of investment		38			244
Change in fair value of convertible promissory note		(99	)		(95	)
Amortization of debt discount		195			186
Change in fair value of derivative liabilities		—			(119	)
Gain on loan forgiveness		(4,201	)		—
Change in operating assets and liabilities:
Accounts and other receivables		(4	)		(555	)
Inventories		24			(46	)
Prepaid expenses and other assets		390			(22	)
Accounts payable and accrued expenses		2,450			(1,592	)
Deferred tax liabilities		42			41
Deferred grant income		(1,545	)		(455	)
Operating lease liabilities		(1,724	)		(1,495	)
Contract liabilities		(691	)		(74	)
Derivative liability		—			(66	)
Net cash flows used in operating activities		(3,711	)		(4,474	)

Cash flows from investing activities:
Purchase of property and equipment		(315	)		(129	)
Cash and restricted cash acquired in connection with acquisition		—			2,071
Net proceeds from sale of subsidiary		—			568
Proceeds from sale of investments		—			468
Net cash flows (used in) provided by investing activities		(315	)		2,978

Cash flows from financing activities:
Proceeds from long-term debt and notes payable		2,428			2,000
Payments of long-term debt and notes payable		(309	)		(53	)
Payment of financing costs		(36	)		—
Distributions to non-controlling interest		—			(45	)
Net cash flows provided by financing activities		2,083			1,902
Effect of exchange rate changes on cash		—			(16	)

Net (decrease) increase in cash and restricted cash		(1,943	)		390
Cash and restricted cash, beginning of period		2,318			1,928
Cash and restricted cash, end of period	$	375		$	2,318

Supplemental cash flow information:
Cash paid for interest and income taxes
Interest	$	676		$	402
Income taxes	$	23		$	76

Non-cash operating, investing and financing activities:
Conversion of Preferred Series 2 stock to common stock	$	—		$	402
Change in operating lease assets and liabilities due to new and amended leases	$	45		$	404
Issuance of warrants in connection with convertible promissory notes	$	263		$	—
Purchases of property and equipment included in accounts payable and accrued expenses	$	203		$	—
Issuance of convertible promissory note as consideration for acquisition	$	—		$	1,194

Details of end of period cash and restricted cash:
Cash	$	375		$	646
Restricted cash		—			1,672
Total cash and restricted cash	$	375		$	2,318

See accompanying notes to the consolidated financial statements

Amergent Hospitality Group, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

1. NATURE OF BUSINESS

BASIS OF PRESENTATION

Amergent Hospitality Group, Inc. (“Amergent”) was incorporated on February 18, 2020 as a wholly owned subsidiary of Chanticleer Holdings, Inc. (“Chanticleer”) for the purpose of conducting the business of Chanticleer and its subsidiaries after completion of the spin-off of Amergent to the shareholders of Chanticleer (the “Spin-Off”). The Spin-Off transaction was completed on April 1, 2020 in connection with Chanticleer’s completion of its merger transaction (the “Merger”) with Sonnet BioTherapeutics, Inc. (“Sonnet”). Amergent is in the business of owning, operating and franchising fast casual dining concepts.

During 2021, the Company purchased all of the outstanding membership interests in Pie Squared Holdings LLC and its wholly owned subsidiaries (“Pie Squared Holdings”) (see Note 3).

The accompanying consolidated financial statements include the accounts of Amergent and its subsidiaries along with Chanticleer and its subsidiaries (collectively “we,” “us,” “our,” or the “Company”). All intercompany and inter-entity balances have been eliminated in consolidation.

The consolidated financial statements include the accounts of Amergent and its subsidiaries presented below:

Amergent Hospitality Group, Inc.	Jurisdiction of Incorporation	Percent owned

American Roadside Burgers, Inc.	DE, USA
American Burger Ally, LLC	NC, USA		100	%
American Burger Morehead, LLC	NC, USA		100	%
American Burger Prosperity, LLC	NC, USA		50	%
American Roadside Burgers Smithtown, Inc.	DE, USA		100	%
BGR Acquisition, LLC	NC, USA		100	%
BGR Franchising, LLC	VA, USA		100	%
BGR Operations, LLC	VA, USA		100	%
BGR Acquisition 1, LLC	NC, USA		100	%
BGR Annapolis, LLC	MD, USA		100	%
BGR Arlington, LLC	VA, USA		46	%
BGR Columbia, LLC	MD, USA		100	%
BGR Michigan Ave, LLC	DC, USA		100	%
BGR Mosaic, LLC	VA, USA		100	%
BGR Old Keene Mill, LLC	VA, USA		100	%
BGR Washingtonian, LLC	MD, USA		46	%
Capitol Burger, LLC	MD, USA		100	%
BT Burger Acquisition, LLC	NC, USA		100	%
BT’s Burgerjoint Rivergate LLC	NC, USA		100	%
BT’s Burgerjoint Sun Valley, LLC	NC, USA		100	%
LBB Acquisition, LLC	NC, USA		100	%
Cuarto LLC	OR, USA		100	%
LBB Acquisition 1 LLC	OR, USA		100	%
LBB Hassalo LLC	OR, USA		80	%
LBB Platform LLC	OR, USA		80	%
LBB Capitol Hill LLC	WA, USA		50	%
LBB Franchising LLC	NC, USA		100	%
LBB Green Lake LLC	OR, USA		50	%
LBB Lake Oswego LLC	OR, USA		100	%
LBB Magnolia Plaza LLC	NC, USA		50	%
LBB Multnomah Village LLC	OR, USA		50	%
LBB Progress Ridge LLC	OR, USA		50	%
LBB Rea Farms LLC	NC, USA		50	%
LBB Wallingford LLC	WA, USA		50	%
LBB Downtown PDX LLC	WA, USA		100	%
Noveno LLC	OR, USA		100	%
Octavo LLC	OR, USA		100	%
Primero LLC	OR, USA		100	%
Quinto LLC	OR, USA		100	%
Segundo LLC	OR, USA		100	%
Septimo LLC	OR, USA		100	%
Sexto LLC	OR, USA		100	%
LBB University of Oregon LLC	OR, USA		100	%
Jantzen Beach Wings, LLC	OR, USA		100	%
Oregon Owl’s Nest, LLC	OR, USA		100	%
West End Wings LTD (sold in 2021)	United Kingdom		100	%
Pie Squared Holdings LLC	DE, USA		100	%
PizzaRev Franchising LLC	DE, USA		100	%
Pie Squared Pizza LLC	CA, USA		100	%
Pie Squared Austin LLC	DE, USA		100	%
PizzaRev IP Holdings LLC	DE, USA		100	%

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

As of December 31, 2022, the Company’s cash balance was $0.4 million, its working capital deficiency was $16.3 million and it had significant near-term commitments and contractual obligations. The level of additional cash needed to fund operations and our ability to conduct business for the next 12 months will be influenced primarily by the following factors:

●

our ability to access the capital and debt markets to satisfy current obligations and operate the business;

●

our ability to qualify for and access financial stimulus programs available through federal and state government programs;

●

our ability to refinance or otherwise extend maturities of current debt obligations;

●

our ability to manage our operating expenses and maintain gross margins;

●

popularity of and demand for our fast-casual dining concepts; and

●

general economic conditions and changes in consumer discretionary income.

The Company expects to have to seek additional debt or equity funding to support operations and there can be no assurances that such funding would be available at commercially reasonable terms, if at all.

As Amergent executes its business plan over the next 12 months, it intends to carefully monitor its working capital needs and cash balances relative to the availability of cost-effective debt and equity financing. In the event that capital is not available, Amergent may then have to scale back or freeze its growth plans, sell assets on less than favorable terms, reduce expenses, and/or curtail future acquisition plans to manage its liquidity and capital resources.

The Company’s current operating losses, combined with its working capital deficit, raise substantial doubt about its ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Certain prior year amounts have been updated to conform to the current year presentation. The Company has opted to present the financial information on the consolidated balance sheets and consolidated statements of operations, comprehensive loss, stockholders’ deficit and cash flows in thousands.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include the valuation of derivatives, options, warrants and convertible notes payable and analysis of the recoverability of goodwill and long-lived assets. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. U.S. GAAP provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority, referred to as Level 1, to quoted prices in active markets for identical assets and liabilities. The next priority, referred to as Level 2, is given to quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active; that is, markets in which there are few transactions for the asset or liability. The lowest priority, referred to as Level 3, is given to unobservable inputs.

The Company is required to disclose fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of the Company’s cash, restricted cash, accounts receivable, other receivables, accounts payable, other current liabilities, convertible notes payable (other than the convertible note payable discussed above) and notes payable approximate fair value due to the short-term maturities of these financial instruments and/or because related interest rates offered to the Company approximate current rates.

SEGMENTS

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company operates under four brands but views its operations and manages its business in one segment – fast casual dining.

CASH

Cash consists of deposits held at financial institutions and is stated at fair value. The Company limits its credit risk associated with cash by maintaining its bank accounts at major financial institutions.

RESTRICTED CASH

As of December 31, 2022 and 2021, the Company maintained restricted cash of nil and $1.7 million, respectively. The restricted cash was maintained in a segregated bank account. The restricted cash at December 31, 2021 relates to the acquisition discussed in Note 3.

ACCOUNTS AND OTHER RECEIVABLES

The Company monitors its exposure for credit losses on its receivable balances and the credit worthiness of its receivables on an ongoing basis and records related allowances for doubtful accounts. Allowances are estimated based upon specific customer and other balances where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical experience. The majority of the Company’s accounts are from customer credit card transactions with minimal historical credit risk. As of December 31, 2022 and 2021, the Company has not recorded an allowance for doubtful accounts. If circumstances related to specific customers change, estimates of the recoverability of receivables could also change.

INVENTORIES

Inventories are recorded at the lower of cost (first-in, first-out method) or net realizable value, and consist primarily of restaurant food items, supplies, beverages and merchandise.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization are recorded generally using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the lesser of the expected lease term or the estimated useful lives of the related assets using the straight-line method. Maintenance and repairs that do not improve or extend the useful lives of the assets are not considered assets and are charged to expense when incurred.

The estimated useful lives used to compute depreciation and amortization are as follows:

Leasehold improvements			5-15 years
Restaurant furnishings and equipment			3-10 years
Furniture and fixtures			3-10 years
Office and computer equipment			3-7 years

INTANGIBLE ASSETS

Trademark//Tradenames

Certain of the Company’s trademark/tradenames have been determined to have a definite life and are being amortized on a straight-line basis over estimated useful lives of 10 years. The amortization expense of these definite-lived intangibles is included in depreciation and amortization in the Company’s consolidated statements of operations and comprehensive loss. Certain of the Company’s trademark/tradenames have been classified as indefinite-lived intangible assets and are not amortized. Definite lived intangible assets are assessed for impairment the using methods discussed below in the long-lived assets section. The Company’s indefinite-lived intangible assets are tested for impairment at least annually by estimating their fair value and comparing it to the asset’s carrying value. The Company estimates the fair value of trademarks using the relief-from-royalty method, which requires assumptions related to projected sales from its annual long-range plan; assumed royalty rates that could be payable if the Company did not own the trademarks; and a discount rate.

During the first quarter of 2023, as a result of recent store closures, the Company reassessed the useful lives of the indefinite-lived trademark/tradenames intangible assets, which had an aggregate carrying value of $2.3 million as of December 31, 2022, and determined that they were no longer considered to be indefinite. Prior to assigning useful lives to the previously indefinite-lived intangible assets, the Company tested the assets for impairment, concluding that they were not impaired. Effective March 31, 2023, these trademark/tradenames intangible assets were assigned a useful life of approximately five years, and the Company began amortizing their carrying values on a straight-line basis over the remaining useful lives.

Franchise Rights

As of December 31, 2021, we had intangible assets related to initial franchise fees for our PizzaRev restaurants, which were amortized over the five-year life of the franchise agreement. As of December 31, 2022, the Company determined that the franchise rights for PizzaRev restaurants should be charged off.

The Company also has intangible assets representing the acquisition date fair value of customer contracts acquired in connection with BGR’s franchise business, which are amortized over the weighted average life of the underlying franchise agreements, which is the estimated useful life.

LONG-LIVED ASSETS

	●	significant under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash flows for two consecutive years);
	●	significant negative industry or economic trends;
	●	knowledge of transactions involving the sale of similar property at amounts below the Company’s carrying value; or
	●	the Company’s expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do not meet the criteria to be classified as “Held for Sale.”

During 2021, primarily as a result of the COVID-19 outbreak, the Company determined that triggering events occurred requiring management to review certain long-lived assets for impairment and determined that the carrying value of the Company’s trademark/tradenames intangible asset, property and equipment and operating lease assets were impaired. As a result, an aggregate impairment charge was recognized of $1.5 million for the year ended December 31, 2021. Additionally, during 2022, primarily as a result of multiple permanent store closures, the Company determined that triggering events occurred requiring management to review certain long-lived assets for impairment and determined that the carrying value of the Company’s trademark/tradenames intangible asset, acquired franchise rights intangible asset, property and equipment and operating lease assets were impaired. resulting in an aggregate impairment charge of $3.2 million for the year ended December 31, 2022. See Notes 7, 8 and 13 for further discussion. The determinations were based on the best judgment of management for the future of the assets and on information known at the time of the assessment.

GOODWILL

Goodwill, which is not subject to amortization, is evaluated for impairment annually as of the end of the Company’s year-end, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant number of store closures, that would indicate an impairment may exist. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit. Management determined that the Company has one reporting unit.

When evaluating goodwill for impairment, the Company may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the Company does not perform a qualitative assessment or determines that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, a quantitative assessment is performed to calculate the estimated fair value of the reporting unit. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. The Company’s decision to perform a qualitative impairment assessment is influenced by a number of factors, including the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the price of our common stock.

Step one of the impairment test is based upon a comparison of the carrying value of net assets, including goodwill balances, to the fair value of net assets. Due to the impact of the COVID-19 pandemic during 2021, the Company performed quarterly quantitative impairment assessments at each quarter end and determined that goodwill was not impaired due to the excess fair value of the reporting unit over its carrying value based on the best judgement of management on information known at the time of the assessment. Additionally, due to changing consumer habits, macroeconomic trends and poor performance and the ultimate closure of certain stores, management performed quarterly qualitative impairment analyses of goodwill during 2022 and a quantitative analysis as of December 31, 2022, the result of the analysis was that due to the negative carrying value of the reporting unit no impairment was recorded at December 31, 2022.

CONVERTIBLE NOTES PAYABLE

The Company analyzes its convertible debt instruments for embedded attributes that may require bifurcation from the host and accounting as derivatives. At the inception of each instrument, the Company performs an analysis of the embedded features requiring bifurcation and may elect, if eligible, to account for the entire debt instrument at fair value. If the fair value option were to be elected, any changes in fair value would be recognized in the accompanying statements of operations until the instrument is settled. The Company elected to account for its convertible note payable issued in 2021 in connection with the PizzaRev acquisition (see Note 3) at fair value and, as such, has recognized the change in fair value in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021. See Note 5.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities denominated in local currency are translated to U.S. dollars using the exchange rates as in effect at the balance sheet date. Results of operations are translated using average exchange rates prevailing throughout the period. Adjustments resulting from the process of translating foreign currency financial statements from functional currency into U.S. dollars are included in accumulated other comprehensive loss within stockholders’ equity. Foreign currency transaction gains and losses are included in current earnings. The Company has determined that local currency was the functional currency for its foreign operations. The foreign subsidiary was sold in 2021, and there are no foreign assets held at December 31, 2022.

REVENUE RECOGNITION

The Company generates revenues from the following sources: (i) restaurant sales; (ii) gaming income; and (iii) franchise income, consisting of royalties based on a percentage of sales reported by franchise restaurants and initial signing fees.

Restaurant Sales, Net

The Company records revenue from restaurant sales at the time of sale, net of discounts, coupons, employee meals, and complimentary meals. Sales tax and value added tax (“VAT”) collected from customers and remitted to governmental authorities are presented on a net basis within revenue in the consolidated statements of operations.

Gaming Income

The Company receives revenue from operating a gaming facility adjacent to its restaurant in Jantzen Beach, Oregon. Revenue from gaming is recognized as earned from gaming activities, net of payouts to customers, taxes and government fees. These fees are recognized as they are earned based on the terms of the agreements.

Franchise Income

The Company grants franchises to operators in exchange for initial franchise license fees and continuing royalty payments. The license granted for each restaurant or area is considered a performance obligation. All other obligations (such as providing assistance during the opening of a restaurant) are combined with the license and were determined to be a single performance obligation. Accordingly, the total transaction price (comprised of the restaurant opening and territory fees) is allocated to each restaurant expected to be opened by the licensee under the contract. There are significant judgments regarding the estimated total transaction price, including the number of stores expected to be opened. We recognize the fee allocated to each restaurant as revenue on a straight-line basis over the restaurant’s license term, which generally begins upon the signing of the contract for area development agreements and upon the signing of a store lease for franchise agreements. The payments for these upfront fees are generally received upon contract execution. Continuing fees, which are based upon a percentage of franchisee revenues and are not subject to any constraints, are recognized on the accrual basis as those sales occur. The payments for these continuing fees are generally made on a weekly basis.

Contract Liabilities

Contract liabilities consist of deferred revenue resulting from initial and renewal franchise license fees paid by franchisees, which are generally recognized on a straight-line basis over the term of the underlying franchise agreement, as well as upfront development fees paid by franchisees, which are generally recognized on a straight-line basis over the term of the underlying franchise agreement once it is executed. The recognition of initial and renewal license fees is accelerated if the development agreement is terminated. During the year ended December 31, 2022, the Company recognized $0.7 million of franchise income as a result of the cancellation of its international Master Franchise Agreements. The Company recognized $0.1 million of revenue related to contract liabilities during the year ended December 31, 2021.

RESTAURANT PRE-OPENING AND CLOSING EXPENSES

Restaurant pre-opening expenses consist of the costs of hiring and training the initial hourly work force for each new restaurant, travel, the cost of food and supplies used in training, grand opening promotional costs, the cost of the initial stocking of operating supplies and other direct costs related to the opening of a restaurant, including rent during the construction and in-restaurant training period. Restaurant opening expenses are expensed as incurred.

Restaurant closing expenses consist of costs related to closing a restaurant location and include, among other things lease termination costs and franchise breakage fees directly related to the closure. Impairment charges associated with closed locations are recorded as a component of asset impairment charges. The derecognition of lease liabilities due to the Company negotiating the cancellation of its obligations under certain lease agreements is recorded as gain on extinguished lease liabilities. Restaurant closing costs are expensed as incurred.

LIQUOR LICENSES

The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in other assets. Liquor licenses are reviewed for impairment annually or when events or changes in circumstances indicate that the carrying amount may not be recoverable. Annual liquor license renewal fees are expensed over the renewal term.

ADVERTISING

Advertising costs are expensed as incurred. Advertising expenses, which are included in restaurant operating expenses and general and administrative expenses in the accompanying consolidated statements of operations, totaled approximately $0.2 million and $0.2 million for the years ended December 31, 2022 and 2021, respectively.

LEASES

We determine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office space. Our leases have remaining terms of up to approximately 11 years and most include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods. If the estimate of our reasonably certain lease term was changed, our rent expense could differ materially.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. We estimated this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.

In April 2020, the FASB staff issued a question-and-answer document (“FASB Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant or if a lease concession was under the enforceable rights and obligations within the existing lease agreement. The FASB Q&A allows the Company, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company elected to apply such relief and availed itself of the election to avoid performing a lease-by-lease analysis for the lease concessions received as the concessions granted as relief were due to the COVID-19 pandemic and result in the cash flows to the landlord remaining substantially the same or less. The Company received COVID-19-related lease concessions during 2021; however, none were received during 2022.

SHARE-BASED COMPENSATION

The Company measures and recognizes share-based compensation expense for both employee and nonemployee awards based on the grant date fair value of the awards. The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. The Company recognizes forfeitures as they occur.

The Company estimates the fair value of employee and non-employee stock awards as of the date of grant using the Black-Scholes option pricing model. Management estimates the expected share price volatility based on the historical volatility of the Company. The expected term of the Company’s stock awards has been determined utilizing the “simplified” method for awards that qualify as “plain vanilla” stock awards. The risk-free interest rate is determined by reference to the yield curve of a zero-coupon U.S. Treasury bond on the date of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

INCOME TAXES

Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Based on the rules of the Internal Revenue Code (“IRC”), Amergent has determined that it has approximately $23.7 million of net operating loss carryforwards available to the Company as of December 31, 2022 to offset future taxable income of the Company. Approximately $7.2 million of the net operating loss carryforwards available will be limited by section 382 of the IRC.

The Company has provided a valuation allowance for the full amount of the deferred tax assets in the accompanying consolidated financial statements.

As of December 31, 2022 and 2021, the Company had no accrued interest or penalties relating to any income tax obligations. The Company currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its inception. The last three years of the Company’s tax years are subject to federal and state tax examination.

LOSS PER COMMON SHARE

The Company computes net loss per share using the weighted-average number of common shares outstanding during the period. Basic and diluted net loss per share is the same because the conversion, exercise or issuance of all potential common stock equivalents, which comprise the entire amount of the Company’s outstanding warrants, as described in Note 12, the potential conversion of the convertible debt instruments, as described in Note 9, and share-based compensation awards as described in Note 14, would be anti-dilutive.

COMPREHENSIVE INCOME OR LOSS

Standards for reporting and displaying comprehensive income or loss and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements requires that all items that are required to be recognized under accounting standards as components of comprehensive income or loss be reported in a financial statement that is displayed with the same prominence as other financial statements. We are required to (a) classify items of other comprehensive income or loss by their nature in financial statements, and (b) display the accumulated balance of other comprehensive income or loss separately in the equity section of the balance sheet for all periods presented. Other comprehensive income or loss represents foreign currency translation adjustments.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 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 or Freestanding Equity-Classified Written Call Options. The pronouncement outlines how an entity should account for modifications made to equity-classified written call options, including stock options and warrants to purchase the entity’s own common stock. The guidance in the ASU requires an entity to treat a modification of an equity classified option that does not cause the option to become liability-classified as an exchange of the original option for a new option. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the equity-classified written call option or as termination of the original option and issuance of a new option. The guidance is effective prospectively for fiscal years beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022, and it did not have a material effect on the consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic ASC 832): Disclosures by Business Entities about Government Assistance. This standard requires disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about the types of transactions, the accounting for the transactions, and the effect of the transactions on an entity’s financial statements. The new standard is effective for annual periods beginning after December 15, 2021. The Company early adopted this guidance on January 1, 2022, and it did not have a material effect on the consolidated financial statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the consolidated financial statements.

3. ACQUISITION

On August 30, 2021, the Company purchased all of the outstanding membership interests in Pie Squared Holdings pursuant to a Unit Purchase Agreement (“Purchase Agreement”). Pie Squared Holdings, directly and through its four wholly owned subsidiaries, owns, operates and franchises pizza restaurants operating under the tradename PizzaRev. The PizzaRev stores consist of three company owned stores and nine franchised locations. The purchase price is an 8% secured, convertible promissory note (“Note”) with a face value of $1.0 million and a fair value of $1.2 million at the acquisition date. Transaction costs of $0.2 million were incurred in connection with the acquisition and charged to general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2021. Of the total transaction costs, $0.1 million were for services provided by a related-party entity which is owned by a major investor of the Company and the Company’s Chief Financial Officer.

The assets acquired, and liabilities assumed as of the acquisition date consists of the following:


Assets acquired:
Cash	$	71
Restricted cash		2,000
Property and equipment		348
Right of use asset		1,391
Tradename/trademark intangible		410
Franchise rights intangible		410
Goodwill		51
Security deposits and other assets		126
Total assets acquired	$	4,807

Liabilities assumed
Gift card liability	$	139
Deferred revenue		36
Deferred grant income		2,000
Right of use liability		1,438
Total liabilities assumed	$	3,613

Net purchase price	$	1,194

Interest on the Note is due at maturity on August 30, 2023, the maturity date. The Note is convertible at any time, in whole or in part, at the holder’s option but includes a beneficial ownership blocker of 4.99%. The conversion price at any time is the volume weighted average price of the Company’s common stock the 30 trading days immediately prior to delivery of notice of conversion, less a discount of 15%; provided, however, that the conversion price has a floor of $0.50 per share and a cap of $2.00 per share. The Note contains customary provisions preventing dilution and providing the holder rights in the event of fundamental transactions. The Note is secured by various security and other instruments creating a first priority lien on all of the membership interests and all of the assets of Pie Squared Holdings and subsidiaries in favor of the sellers. The Note has an estimated fair value of $1.2 million at the acquisition date as determined using a Monte Carlo simulation and the following assumptions:

Volatility		90.00	%
Risk free rate		0.08% - 0.20	%
Stock price	$	0.52
Credit spread		6.35	%

In 2021, and prior to the acquisition, Pie Squared Holdings received a grant under the U.S. SBA’s Restaurant Revitalization Fund for approximately $10.0 million. The proceeds received were mainly used to repay existing debt and to also pay operating expenses. The unused funds received under the Restaurant Revitalization Fund at closing of $2.0 million were placed into escrow for the benefit of the Company for working capital to be used solely in the operations of the acquired business. The Company has periodically submitted to the escrow agent the planned uses of these funds, and the sellers have the right to review the planned uses to determine whether, in the sellers’ opinion, the planned uses meet the criteria of “eligible uses” under the Restaurant Revitalization Fund. The Company has used all of the funds and submitted all reports to the escrow agent and as of December 31, 2022 there were no funds or restricted cash available in the escrow account.

Restricted cash and a deferred grant income liability has been recorded on the opening balance sheet for the unused proceeds from the Restaurant Revitalization Fund, and the liability is being reduced as the restricted cash is used for eligible costs incurred under the Restaurant Revitalization Fund post acquisition.

4. EMPLOYEE RETENTION CREDIT AND RESTAURANT REVITALIZATION FUND

Employee Retention Credit

Restaurant Revitalization Fund

As the Company acquired all the outstanding membership interests in Pie Squared Holdings, the Company is now responsible that the grant proceeds were, in fact, properly obtained and disbursed for “eligible uses.” If it is determined that Pie Squared Holdings obtained the grant improperly or that disbursements of such grant monies were not “eligible uses,” then the Company would be responsible for the ramifications of such actions, including repayment of the approximately $10.0 million of grant monies, among other items. Management completed its analysis of this contingency and concluded that, through the date at which the consolidated financial statements were available to be issued, a liability does not need to be recorded for this contingency. In connection with the acquisition, the Company obtained an indemnification from the sellers which is inclusive of any matters related to the RRF.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The tables below reflect the level of the inputs used in the Company’s fair value calculations:


(in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
December 31, 2022
Assets (Note 6)
Common stock of Sonnet	$	12	$	—	$	—	$	12
Liabilities (Note 9)
Convertible note payable	$	—	$	—	$	1,000	$	1,000


(in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
December 31, 2021
Assets (Note 6)
Common stock of Sonnet	$	50	$	—	$	—	$	50
Liabilities (Note 9)
Convertible note payable	$	—	$	—	$	1,099	$	1,099

The Company evaluated the convertible note payable issued in connection with the acquisition of Pie Squared Holdings (see Note 9) in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion price discount creates a derivative. This derivative was not clearly and closely related to the debt host and was required to be separated and accounted for as a derivative instrument. The Company elected to initially and subsequently measure the convertible note payable at fair value, with changes in fair value recognized in operations. As of December 31, 2022, the convertible note payable is classified as current, and, as such, the outstanding principal amount due and payable at maturity approximates the fair value.

The reconciliation of the convertible note payable measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:

	Year Ended
(in thousands)	December 31, 2022			December 31, 2021
Beginning balance	$	1,099		$	—
Fair value at issuance date		—			1,194
Change in fair value		(99	)		(95	)
Ending balance	$	1,000		$	1,099

6. INVESTMENTS

Investments consist of the following:

SCHEDULE OF INVESTMENT

(in thousands)	December 31, 2022		December 31, 2021
Common stock of Sonnet, at fair value ^(a)	$	12	$	50
Chanticleer Investors, LLC, at cost ^(b)		16		16
Total	$	28	$	66

(a)

Represents the fair value of the common stock of Sonnet held by the Company after its exercise of warrants received in connection with the Merger. As of December 31, 2022, 8,718 shares of Sonnet were held. During the year ended December 31, 2021, the Company sold shares of Sonnet and received proceeds of $0.1 million.

(b)

Represents the Company’s investment in Chanticleer Investors, LLC, which holds an interest in Hooters of America, the operator and franchisor of the Hooters Brand worldwide. As of the dates presented, the Company’s effective economic interest in Hooters of America was less than 1%. In March 2022, the Company received a dividend from its investment in Hooters of America of approximately $0.1 million, which is included in other income for the year ended December 31, 2022 in our consolidated statement of operations.

7. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

(in thousands)	December 31, 2022			December 31, 2021
Leasehold improvements	$	4,675		$	5,511
Restaurant furniture and equipment		1,893			2,768
Construction in progress		—			20
Office and computer equipment		7			33
Office furniture and fixtures		54			57
Property,plant and equipment, gross		6,629			8,389
Accumulated depreciation and amortization		(4,291	)		(5,274	)
Property, plant and equipment, net	$	2,338		$	3,115

During 2022, as a result of changing consumer habits resulting in poor performance and the ultimate closure of certain stores, the Company determined that triggering events occurred requiring management to review certain long-lived assets for impairment and determined that the carrying value of the Company’s property and equipment were impaired. As a result, an impairment charge of approximately $0.8 million was recorded for the year ended December 31, 2022, which is included in asset impairment charges in our consolidated statement of operations.

During 2021, primarily as a result of the COVID-19 outbreak that had a significant impact throughout the hospitality industry, the Company determined that triggering events occurred requiring management to review certain long-lived assets for impairment and determined that the carrying value of the Company’s property and equipment were impaired. As a result, an impairment charge of approximately $0.4 million was recorded for the year ended December 31, 2021, which is included in asset impairment charges in our consolidated statements of operations. The impact of COVID-19 varied by state/geographical area within the United States at various intervals during the pandemic and, therefore, the operating results and cash flows at the store level varied significantly.

We recognized depreciation expense of $0.5 million and $0.6 million during years ended December 31, 2022 and 2021, respectively.

8. INTANGIBLE ASSETS, NET

Goodwill

A roll forward of goodwill is as follows:

SCHEDULE OF GOODWILL

(in thousands)	December 31, 2022		December 31, 2021
	Year Ended
(in thousands)	December 31, 2022		December 31, 2021
Beginning balance	$	7,810	$	8,591
Acquisition of Pie Squared Holdings		—		51
Sale of Hooters UK		—		(820	)
Foreign currency translation loss		—		(12	)
Ending balance	$	7,810	$	7,810

On October 8, 2021, the Company, through its wholly owned subsidiary, Chanticleer UK Group Limited, sold West End Wings LTD, the Company’s Hooters restaurant located in Nottingham, England, to Hard Four Consultancy Limited (UK) for the final purchase price of £0.4 million (approximately $0.6 million). The Company recognized a gain on sale of subsidiary of $0.1 million in the consolidated statement of operations for the year ended December 31, 2021.

Other Intangible Assets

Franchise and trademark/tradename intangible assets consist of the following:

(in thousands)		December 31, 2022			December 31, 2021
Trademark, Tradenames:
American Roadside Burger	10 years	$	561		$	561
BGR: The Burger Joint	Indefinite^*		739			739
Little Big Burger	Indefinite^*		1,550			1,550
PizzaRev	5 years		—			410
			2,850			3,260
Acquired Franchise Rights:
BGR: The Burger Joint	7 years		828			828
PizzaRev	5 years		—			410
			828			1,238
Total intangibles at cost			3,678			4,498
Accumulated amortization			(1,369	)		(1,369	)
Intangible assets, net		$	2,309		$	3,129

*	See Note 2; the Company is re-designating these to 5-year useful lives in the first quarter of 2023.

Based on an analysis of the recoverability of the carrying value at each quarter end during 2022, including December 31, 2022, an impairment charge of approximately $0.3 million was recorded to trademark/tradenames for PizzaRev and $0.3 million was recorded to franchise rights for PizzaRev during the year ended December 31, 2022.

Based on an analysis of the recoverability of the carrying value at each quarter end during 2021, including December 31, 2021, an impairment charge of approximately $0.3 million was recorded to trademark/tradenames for ABC: American Burger Company during the year ended December 31, 2021.

Amortization of intangible assets was $0.2 million and $0.4 million for the years ended December 31, 2022 and 2021, respectively.

Amortization expense for the next five years is as follows (in thousands). The amounts below reflect the Company’s change in estimate relating to the useful lives of the formerly indefinite-lived trademark/tradename intangible assets. For additional information, see Note 2.

SUMMARY OF AMORTIZATION EXPENSE

Year ending December 31:
2023	$	343
2024		458
2025		458
2026		458
2027		458
Thereafter		134
Total	$	2,309

9. LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt and notes payable are summarized as follows:

SCHEDULE OF DEBT AND NOTES PAYABLE

(in thousands)	December 31, 2022			December 31, 2021
10% convertible debt (a)	$	4,038		$	4,038
8% convertible debt (b)		1,350			—
Convertible promissory note (measured at fair value) (c)		1,000			1,099
PPP loans (d)		—			4,109
EIDL loans (e)		300			300
Contractor note (f)		348			348
Notes payable (g)		144			—
Related party note (h)		625			—
Total Debt		7,805			9,894
Less: discount on convertible debt (a)(b)		(141	)		(37	)
Total Debt, net of discount	$	7,664		$	9,857

Current portion of long-term debt and notes payable	$	3,329		$	3,264
Long-term debt and notes payable, less current portion	$	4,335		$	6,593

	(a)	In connection with and prior to the Spin-Off and Merger, on April 1, 2020, pursuant to an agreement among Chanticleer, Oz Rey, LLC (“Oz Rey”), a related party, and certain original holders of the 8% non-convertible debentures that were satisfied during 2020, the Company issued a 10% secured convertible debenture (the “10% Convertible Debt”) to Oz Rey in exchange for the 8% non-convertible debentures. The principal amount of the 10% Convertible Debt is $4.0 million and is payable in full on April 1, 2024, subject to extension by the holders in two-year intervals for up to 10 years from the issuance date upon Amergent meeting certain conditions. Interest is payable quarterly in cash. In connection with the exchange of the debentures, Amergent issued warrants to Oz Rey and the original 8% non-convertible debenture holders to purchase 2,925,200 shares of common stock. The exercise price is $0.125 for 2,462,600 warrants and $0.50 for 462,500 warrants. The warrants can be exercised on a cashless basis and expire 10 years from the issuance date. All of the assets of the Company are collateral for this debt.

		The 10% Convertible Debt was previously amended to fix the conversion rate into common stock at $0.10 per share. There is also a limitation on Oz Rey’s ability to convert the debenture into common stock such that only the portion of the balance for which the Company has sufficient available shares, considering all other outstanding instruments at the time of conversion on a fully diluted basis, can be converted. Oz Rey may, however, upon reasonable notice to the Company, require the Company to include in its proxy materials, for any annual meeting of stockholders being held by the Company, a proposal to amend the Company’s certificate of incorporation to increase the Company’s authorized shares to a number sufficient to allow for conversion of all shares underlying the debenture, on a fully diluted basis. Oz Rey also agreed that the Company would not be required under any circumstances to make a cash payment to settle the conversion feature not exercisable due to the authorized share cap or in an event that the Company was unable to deliver shares under the conversion feature. As of December 31, 2022, $2.4 million of the 10% Convertible Debt was convertible into approximately 23,700,000 shares of common stock.

		The Company recorded a debt discount of approximately $0.4 million for the difference between the face value of the 10% Convertible Debt and the estimated fair value at the April 1, 2020 issuance date and amortized this discount over the two-year term of the notes.

		In connection with the 8% Convertible Debt transaction described in (b) below, the maturity date of the 10% Convertible Debt was extended to April 1, 2024 and Oz Rey agreed to subordinate payment of its 10% Convertible Debt to payment of the 8% Convertible Debt, which has been accounted for as a loan modification. In addition, Oz Rey received a fee equal to 2.0% of the principal amount of the 8% Convertible Debt issued in the transaction, which has been recorded as a debt discount and is being amortized over the two-year term of the related debt.

	(b)	In March 2022, the Company commenced a private placement of up to $3.0 million of 8% senior unsecured convertible debentures (the “8% Convertible Debt”) and 3,000,000 common stock warrants. Pursuant to a Securities Purchase Agreement (exhibit 10.34), the Company issued $1.35 million of 8% Convertible Debt and warrants to purchase the number of shares of the Company’s common stock equal to the principal amount of 8% Convertible Debt issued.

		The 8% Convertible Debt matures on September 1, 2023 and is subject to acceleration in the event of customary events of default. Interest is payable quarterly in cash. The 8% Convertible Debt may be converted by the holders at any time at a fixed conversion price of $0.40 per share, and each warrant entitles the holder to purchase one share of common stock at an exercise price of $0.50 per share. Both the notes and the warrants include a beneficial ownership blocker of 4.99% and contain customary provisions preventing dilution and providing the holders rights in the event of fundamental transactions. Upon the earlier of the maturity date or the one-year anniversary of conversion of the 8% Convertible Debt, holders of 51% of the registerable securities may request the Company to file a registration statement for the securities. The warrants can be exercised on a cashless basis and expire five years from the issuance date. If the Company makes any distribution to the common stockholders, the holders of the warrants will be entitled to participate on an as-if-exercised basis. As of December 31, 2022, the 8% Convertible Debt was convertible into 3,375,000 shares of common stock.

		The Company analyzed the 8% Convertible Debt and did not identify any embedded features that require bifurcation from the host and accounting as derivatives. However, as the convertible notes payable were issued with warrants, the net proceeds from the issuance were allocated to the 8% Convertible Debt and the warrants based on their relative fair values, resulting in an allocation of $1.0 million to the 8% Convertible Debt and $0.3 million to the warrants (see Note 12). The Company recorded a debt discount of approximately $0.3 million for the difference between the face value of the 8% Convertible Debt and the amount allocated to the debt at the issuance date and is amortizing this discount over the 18-month term of the related debt.

	(c)	On August 30, 2021, the Company purchased all of the outstanding membership interests in Pie Squared Holdings. The purchase price was funded through the issuance of an 8% secured, convertible promissory note with a face value of $1.0 million and a fair value of $1.2 million at the acquisition date. The note is convertible at any time, in whole or in part, at the holder’s option but includes a beneficial ownership blocker of 4.99%. The conversion price at any time is the volume weighted average price of the Company’s common stock the 30 trading days immediately prior to delivery of notice of conversion, less a discount of 15%; provided, however, that the conversion price has a floor of $0.50 per share and a cap of $2.00 per share. As of December 31, 2022, the note was convertible into 2,000,000 shares of common stock.

		Interest on the convertible promissory note is due on August 30, 2023, the maturity date. The Company elected to measure the convertible promissory note at fair value, with changes in the fair value recorded within change in fair value of convertible promissory note in the consolidated statements of operations. See Note 5 for additional information on the valuation of the convertible promissory note as of December 31, 2022.

	(d)	On April 27, 2020, Amergent received a Paycheck Protection Program (“PPP”) loan of approximately $2.1 million. Due to the Spin-Off and Merger, Amergent was not publicly traded at the time of the loan application or funding. The note bore interest at 1% per year, was due to mature in April 2022, and required monthly interest and principal payments of approximately $0.1 million beginning in November 2020 and through maturity. On February 25, 2021, the Company received a second PPP loan in the amount of $2.0 million. The note bore interest at 1% per year, was due to mature on February 25, 2026, and required monthly principal and interest payments of approximately $45,000 beginning June 25, 2022 through maturity. On November 15, 2022 and December 16, 2022, the Company received notice from the SBA that the first and second PPP loans, respectively, had been fully forgiven with accrued interest.

	(e)	On August 4, 2020, the Company obtained two loans under the Economic Injury Disaster Loan (“EIDL”) assistance program from the U.S. SBA in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the loans is $0.3 million, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per year. Total installment payments of $1,462, including principal and interest, are due monthly. The balance of principal and interest is payable over the next thirty years from the date of the promissory note (August 2050). There are no penalties for prepayment. Based upon guidance issued by the U.S. SBA on June 19, 2020, the EIDL loans are not required to be refinanced by the PPP loan. In March 2022, the U.S. SBA extended the deferral period for the EIDL payments for an additional 12 months. The Company’s installment payments will begin August 4, 2023.

	(f)	The Company entered into a promissory note to repay a contractor for the build-out of a new Little Big Burger location. The note bears interest at 12% per year. In connection with and prior to the Merger and Spin-Off, on April 1, 2020, this note was assumed by Amergent. The Company is currently in default on this loan and a writ of garnishment was ordered against the Company in 2020 for approximately $0.4 million. The additional $0.1 million is included in accounts payable and accrued expenses at December 31, 2022 and December 31, 2021.

	(g)	In February and March 2022, eight company-owned stores entered into notes payable to Toast Capital Loans. The terms of the notes require payment of 13.2% of daily credit card sales of the eight stores until the notes are paid in full. The terms of the notes are 270 days, and the implied interest rate is approximately 15% per year.

		In August 2022, the Company entered into a Future Revenue Sales Agreement with Sprout Funding which is being treated as a note payable. The Company received a net $0.2 million and the terms of the note require 180 payments of $1,359 for each working day of the week. The terms of the note are open ended until all amounts under the note are repaid with an expected maturity date of February 2024. The implied interest rate is 80%.

	(h)	In August 2022 through December 2022, the Company received advances from a related party in aggregate of $0.6 million. The lending entity is an entity in which the Company’s Chairman and Chief Executive Officer has an ownership interest and serves as the Chief Executive Officer. Interest accrues at a rate of 1%, and principal and accrued interest was due on June 30, 2023 and the loan has not been extended.

The Company’s various loan agreements contain financial and non-financial covenants and provisions providing for cross-default. The evaluation of compliance with these provisions is subject to interpretation and the exercise of judgment. Oz Rey has provided a waiver of certain financial covenants through December 31, 2023.

Maturities of our debt as of December 31, 2022 are presented below (in thousands):

SCHEDULE OF FUTURE MINIMUM PAYMENTS

Year ending December 31:
2023	$	3,329
2024		4,185
2025		7
2026		7
2027		7
Thereafter		270
Total debt maturities		7,805
Less: discount on convertible debt		(141	)
Total debt	$	7,664

10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses are summarized as follows:

(in thousands)	December 31, 2022		December 31, 2021
Accounts payable	$	3,240	$	2,544
Accrued expenses		3,385		1,955
Accrued taxes (sales, payroll, etc.)		2,214		2,149
Accrued interest		406		196
Accounts payable and accrued expenses, total	$	9,245	$	6,844

As of December 31, 2022 and December 31, 2021, approximately $2.1 million and $2.0 million, respectively, of employee and employer payroll taxes and associated interest and penalties have been accrued but not remitted to certain taxing authorities by the Company. These accruals are for periods prior to 2019 for cash compensation paid and are reflected as a component of the accrued taxes line above. As a result, the Company is liable for such payroll taxes and any related penalties and interest. The Company will record an additional accrual for such payroll taxes upon receipt of notice from a relevant taxing authority. During the year ended December 31, 2022, the Company increased its accrual for payroll taxes by $0.3 million. Upon the advice of our tax professionals, we are paying the trust fund portion of the outstanding tax accruals which represents the portion of taxes withheld from our employees but not remitted to the taxing authorities. For our locations that have permanently closed, our tax liability after paying the trust fund balance is approximately $0.9 million and is recorded within accrued taxes on our consolidated balance sheet as of December 31, 2022. The taxing authorities have indicated that we are still liable for these amounts, however, since the locations are permanently closed and have no assets, they will stop active collection procedures on these amounts.

As of December 31, 2022 and December 31, 2021, the Company had no accrued interest or penalties relating to any income tax obligations.

11. INCOME TAXES

The income tax expense consists of the following:

SCHEDULE OF INCOME TAX EXPENSE

(in thousands)	December 31, 2022			December 31, 2021
Foreign
Current	$	—		$	38
Deferred		—			36
Change in valuation allowance		—			(36	)
U.S. Federal
Current		—			—
Deferred		(1,656	)		575
Change in valuation allowance		1,616			(627	)
State and local
Current		—			—
Deferred		(355	)		61
Change in valuation allowance		437			71
Income tax expense	$	42		$	118

The income tax expense using the statutory U.S. federal tax rate of 21% is reconciled to the Company’s effective tax rate as follows:

(in thousands)	December 31, 2022			December 31, 2021
Computed “expected” income tax benefit	$	(479	)	$	(580	)
Change in valuation allowance		2,238			(593	)
Permanent items		(1,295	)		25
State income taxes, net of federal benefit		(399	)		61
Prior year true-ups and other deferred tax balances		(116	)		1,329
Rate change		74			(169	)
Other		19			45
Income tax expense	$	42		$	118

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for tax purposes. Major components of deferred tax assets at December 31, 2022 and 2021 were:

(in thousands)	December 31, 2022			December 31, 2021
Net operating loss carryforwards	$	8,033		$	6,582
Accrued expenses		1,049			733
Section 163(j) limitation		923			848
Fixed assets and intangibles		809			750
ROU asset/liability		464			—
Capital loss carryforwards		394			387
Restaurant start-up expenses		74			77
Contract liabilities		17			198
Deferred occupancy liabilities		8			—
Charitable contribution carryforwards		4			7
Credits		176			153
Total deferred tax assets		11,951			9,735

Investments		(382	)		(323	)
Deferred occupancy liabilities		—			(21	)
Other		—			(18	)
Total deferred tax liabilities		(382	)		(362	)

Net deferred tax assets		11,569			9,373
Valuation allowance		(11,761	)		(9,523	)
Total	$	(192	)	$	(150	)

As of December 31, 2022, the Company has U.S. federal and state net operating loss carryovers of approximately $31.0 million, which will expire at various dates beginning in 2031 through 2036 if not utilized, with the exception of loss carryovers generated in tax years after 2017. As described in Note 2, approximately $7.2 million of these net operating loss carryovers are subject to limitations by section 382 of the IRC. As a result of Tax Cuts and Jobs Act of 2017 (“TCJA”), net operating losses generated in 2018 and beyond have indefinite lives. In accordance with Section 382 of the internal revenue code, deductibility of the Company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control as defined under the Section 382 regulations. Quarterly ownership changes for the past three years were analyzed, and it was determined that there was no change of control as of December 31, 2022.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2022 and 2021, the change in valuation allowance was approximately $2.2 million and $(0.6) million, respectively.

The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in the financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between two positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing-authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

Interest related to uncertain tax positions are required to be calculated, if applicable, and would be classified as “interest expense” in the consolidated statements of operations. Penalties would be recognized as a component of “general and administrative expenses.” For the years ended December 31, 2022 and 2021, no interest or penalties were required to be reported.

The Company previously did not record a provision for taxes on undistributed foreign earnings, based on an intention and ability to permanently reinvest the earnings of its foreign subsidiaries in those operations. Under the TCJA, the Company has re-assessed its strategies by evaluating the impact of the TCJA on its operations. As a result of the TCJA, the Company analyzed if a liability needed to be recorded for the deemed repatriation of undistributed earnings. It was determined that there is no outstanding liability associated with this based on overall negative undistributed earnings (accumulated deficit) in the consolidated foreign group.

During the 2018 fiscal year, numerous provisions of the TCJA went into effect. The Company evaluated these provisions and incorporated the estimated impact in the 2018 income tax expense. These provisions include, but are not limited to, reductions in the corporate income tax rate with regard to current income taxes, limitations with regard to interest expense under IRC §163(j) that disallows a portion of interest expense but is carried forward with no future expiration, changes to the deductibility of meals and entertainment, changes to bonus depreciation and a reduced tax rate on foreign export sales.

An additional provision of the TJCA is the implementation of the Global Intangible-Low Taxed Income Tax, or “GILTI”. The Company has elected to account for the impact of GILTI in the period in which the tax actually applies to the Company. During fiscal 2019, the Company incurred $0.2 million of additional taxable income as a result of this provision. This increase of taxable income was incorporated into the overall net operating loss and valuation. Due to foreign losses in 2021, and with no foreign activity in 2022, the impact of GILTI on taxable income is nil.

12. STOCKHOLDERS’ DEFICIT

2020 Bridge Financing

Pursuant to a Securities Purchase Agreement dated February 7, 2020, the Company sold 1,500 shares of a new series of convertible preferred stock of Chanticleer (the “Series 2 Preferred”) to an institutional investor. In March 2020, an aggregate of 713 shares of Series 2 Preferred were converted into shares of common stock. In connection with the Merger, all remaining outstanding shares of the Series 2 Preferred were automatically cancelled and exchanged for substantially similar shares of preferred stock in Amergent. The shareholders of Chanticleer common stock received shares of Amergent on a 1 for 1 basis (spin-off shares) and received 1 share of Sonnet common stock for 26 shares of Chanticleer common stock held at the time of the Merger.

During the year ended December 31, 2021, the investors converted 637 shares of the Series 2 Preferred into 1,274,000 common shares and sold those common shares in the market. In addition, the investors sold their remaining 150 Series 2 Preferred to other investors. The shares sold to the investors no longer contain the True-Up Payment provision discussed below. The new investors converted 50 shares of Series 2 Preferred into 100,000 shares of common stock during May 2021, and 100 shares of Series 2 Preferred remain outstanding at December 31, 2021 and December 31, 2022.

The Series 2 Preferred is classified in the accompanying consolidated balance sheets as temporary equity due to certain contingent redemption features which are outside the control of the Company.

Designations, rights and preferences of Series 2 Preferred:

Stated value: Each share of Series 2 Preferred had a stated value of $1,000.

True-Up Payment: Amergent was required to pay the original holder an amount in cash equal to the dollar value of 125% of the stated value of the Series 2 Preferred less the proceeds previously realized by the holder from the sale of all conversion and spin-off shares received by holder in Amergent, net of brokerage commissions and any other fees incurred by the holder in connection with the sale of any conversion shares or spin-off shares on April 1, 2021 (which period was extended). This True-Up Payment was settled in July 2021 with a payment of $0.1 million, and the cash previously held in escrow for repayment is no longer subject to restriction for this matter.

The Company determined that the True-Up Payment constituted a “make-whole” provision as defined by U.S. GAAP that was required to be settled in cash and, as such, was bifurcated from the host instrument, the Series 2 Preferred. It was accounted for as a derivative liability prior to settlement, with changes in fair value recorded in change in fair value of derivative liabilities in the consolidated statement of operations. A $0.1 million increase in fair value was recorded for year ended December 31, 2021.

Redemption: There are triggering events, as defined, that can cause the Series 2 Preferred to be redeemable at the option of the holder, some of which are outside the control of the Company.

Conversion at option of holder/ beneficial ownership limitation: The Series 2 Preferred is convertible at the option of holder at the lesser of (i) $1.00 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) or (ii) 90% of the five day average volume weighted average price of the common, provided the conversion price has a floor of $0.50 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like). Conversion is subject to a beneficial ownership limitation of 4.99%. This limitation was increased by the holder to 9.99% prior to the Merger.

Liquidation preference: Upon any liquidation, dissolution or winding-up of the Company, the holder is entitled to receive out of the assets, whether capital or surplus, an amount equal to 125% of the stated value plus any default interest and any other fees or liquidated damages then due and owing thereon under the Certificate of Designations, for each share of Series 2 Preferred before any distribution or payment to the holders of common stock.

Voting rights: The holder of Series 2 Preferred has the right to vote together with the holders of common stock as a single class on an as-converted basis on all matters presented to the holders of common stock and shall vote as a separate class on all matters presented to the holders of Series 2 Preferred. In addition, without the approval of the holder, the Company is required to obtain the approval of Series 2 Preferred, as is customary, for certain events and transactions not contemplated by the Merger.

Triggering events: Breach of the Company’s obligations will trigger a redemption event.

Anti-dilution: The Series 2 Preferred provides for customary adjustments in the event of dividends or stock splits and anti-dilution protection.

Warrants

At December 31, 2022, the outstanding warrants consisted of the following:

SCHEDULE OF OUTSTANDING WARRANTS

Date Issued	Number of Warrants		Exercise Price		Expiration Date
April 1, 2020		2,462,600	$	0.125	April 1, 2030
April 1, 2020		462,600	$	0.500	April 1, 2030
March 30, 2020		350,000	$	1.250	March 30, 2025
August 17, 2020		134,000	$	1.250	August 17, 2025
March 15, 2022		250,000	$	0.500	March 15, 2027
March 21, 2022		250,000	$	0.500	March 21, 2027
March 22, 2022		250,000	$	0.500	March 22, 2027
March 24, 2022		600,000	$	0.500	March 24, 2027
		4,759,200

A summary of the warrant activity during the year ended December 31, 2022 is presented below:

SUMMARY OF WARRANTS ACTIVITY

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)
Outstanding at January 1, 2022		3,409,200	$	0.34		7.6
Granted		1,350,000	$	0.50		5.0
Outstanding at December 31, 2022		4,759,200	$	0.38		5.9

Exercisable at December 31, 2022		4,759,200	$	0.38		5.9

As discussed in Note 9, 1,350,000 warrants were granted in March 2022 in connection with the issuance of 8% Convertible Debt and are equity-classified in the consolidated financial statements. The net proceeds from the issuance were allocated to the 8% Convertible Debt and the warrants based on their relative fair values at the issuance date, resulting in an allocation of approximately $0.3 million to the warrants. Inputs used in calculating the fair value of the warrants at the issuance date include the following:

Stock price per share	$	0.37 – 0.40
Term		5.0 years
Expected volatility		90.00	%
Divided yield		—
Risk-free interest rate		2.10% – 2.39	%
Strike price	$	0.50

13. COMMITMENTS AND CONTINGENCIES

Indemnification Agreement and Tail Policy

On March 25, 2020, in connection with the Merger, Chanticleer, Sonnet and Amergent entered into an indemnification agreement (“Indemnification Agreement”) providing that Amergent will fully indemnify and hold harmless each of Chanticleer and Sonnet, and each of their respective directors, officers, stockholders and managers who assumes such role upon or following the closing of the Merger against all actual or threatened claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, administrative, investigative or otherwise, related to the Spin-Off business prior to or in connection with its disposition to Amergent. The Indemnification Agreement expires on March 25, 2026.

In addition, prior to closing of the Merger, the Spin-Off entity acquired a tail insurance policy in a coverage amount of $3.0 million, prepaid in full by the Spin-Off entity, at no cost to the indemnitees, and effective for at least six years following the consummation of the disposition, covering the Spin-Off entity’s indemnification obligations to the indemnitees (referred to herein as the “Tail Policy”). No claims have arisen to date, and the Company does not anticipate that any potential liability would exceed the insured amount.

Legal Proceedings

Litigation related to leased properties

During 2022 and 2021, the Company was in arrears on rent due on several of its leases. As a result, the Company has pending litigation related to seven sites of which four have permanently closed. The outcome of this litigation could result in the permanent closure of additional restaurant locations as well as the possibility of the Company being required to pay interest and damages, modify certain leases on unfavorable terms and could result in material impairments to the Company’s assets. The Company has four judgements against it in the amount of $0.8 million for defaulting on leases. See Leases section below for discussion of past due rent on abandoned locations.

No amounts in addition to contracted rent that is due have been accrued as of December 31, 2022 or 2021 in the accompanying consolidated balance sheets as management does not believe the outcome will result in additional liabilities to the Company; however, there can be no guarantees.

Leases

The Company’s leases typically contain rent escalations over the lease terms. The Company recognizes expense for these leases on a straight-line basis over the lease terms. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the leases. These incentives are amortized through the right-of-use asset as reductions of expense over the lease terms.

Some of the Company’s leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant’s sales in excess of stipulated amounts. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As part of the lease agreements, the Company is also responsible for payments regarding non-lease components (common area maintenance, operating expenses, etc.) and percentage rent payments based on monthly or annual restaurant sales amounts which are considered variable costs and are not included as part of the lease liabilities.

Related to the adoption of Leases Topic 842, our policy elections were as follows:

Short-term policy

The Company has elected the short-term lease recognition exemption for all applicable classes of underlying assets. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise, are not recorded on the balance sheet.

Supplemental balance sheet information related to leases was as follows (in thousands):

SCHEDULE OF OPERATING LEASE INFORMATION

Operating Leases	Classification	December 31, 2022		December 31, 2021
Right-of-use assets	Operating lease assets	$	4,976	$	8,021

Current lease liabilities	Current operating lease liabilities	$	5,395	$	4,599
Non-current lease liabilities	Long-term operating lease liabilities		5,868		8,644
		$	11,263	$	13,243

Lease term and discount rate were as follows:

December 31,

2022

December 31,

2021

Weighted average remaining lease term (years)

5.9

6.7

Weighted average discount rate

8.0

8.1

As of December 31, 2022 and 2021, we performed an analysis of the recoverability of our right-of-use assets. Based on the analysis, we recorded an impairment of approximately $1.8 million and $0.7 million for the years ended December 31, 2022 and 2021, respectively, which is included in asset impairment charges in our consolidated statements of operations. The impairment recognized during the year ended December 31, 2022 was primarily the result of changing consumer habits resulting in poor performance and the ultimate closure of certain stores, and the impairment recognized during the year ended December 31, 2021 was primarily the result of the impact of the COVID-19 outbreak in the United States, which had a significant impact throughout the hospitality industry. Negative impacts to the operating results and cash flows varied significantly at the store level, where some stores operated at a reduced capacity and several stores were permanently closed.

During the years ended December 31, 2022 and 2021, approximately $0.3 million and $0.4 million, respectively, of lease liabilities were derecognized due to the Company negotiating the cancellation of its obligations under certain lease agreements, which is included in gain on extinguished/settled lease liabilities in our consolidated statements of operations. The cancellations resulted from the COVID-19 pandemic. As of December 31, 2022 and 2021, the Company had lease liabilities of $6.8 million and $3.1 million, respectively, related to abandoned leases. These lease liabilities are included in current operating lease liabilities, accrued expenses and accounts payable in our consolidated balance sheets.

During the year ended December 31, 2022, the Company amended certain leases and changed its assumptions regarding the exercise of a renewal option, which have been accounted for as lease modifications. The operating lease assets and liabilities were remeasured at the modification dates, resulting in an increase of $0.6 million during the year ended December 31, 2022 to both the right-of-use assets and lease liabilities. There were no lease modifications during the year ended December 31, 2021.

Rent expense of approximately $2.6 million and $2.4 million was incurred during the years ended December 31, 2022 and 2021, respectively, of which approximately $0.1 million was variable in each year.

Maturities of our operating lease liabilities as of December 31, 2022 are presented below (in thousands):

Year ending December 31:
2023	$	2,645
2024		2,654
2025		2,501
2026		2,083
2027		1,626
Thereafter		2,799
Total remaining lease payments		14,308
Less: imputed interest		(3,045	)
Total lease liabilities	$	11,263

Certain additional amounts of lease liabilities for leases in default have been presented as current liabilities. The above schedule reflects the original contractual maturities.

PPP Loan

As discussed in Note 9, the Company received two PPP loans totaling $4.1 million, which were established under the CARES Act and administered by the U.S. SBA. On November 15, 2022 and December 16, 2022, the Company received notice from the SBA that the first and second PPP loans, respectively, had been fully forgiven with accrued interest.

Presently, the U.S. SBA and other governmental communications have indicated that all loans in excess of $2.0 million will be subject to audit and that those audits could take up to seven years to complete. If the U.S. SBA determines that the PPP loans were not properly obtained and/or expenditures supporting forgiveness were not appropriate, the Company would need to repay some or all of the PPP loans and record additional expense which could have a material adverse impact on the business, financial condition and results of operations in a future period.

RRF

As discussed in Note 4, Pie Squared Holdings received an approximately $10.0 million grant under the RRF, and the Company assumed the risks and rewards related to the grant through the acquisition of Pie Squared Holdings. If it is determined that Pie Squared Holdings obtained the grant improperly or the disbursement of such grant monies was not for “eligible uses,” then the Company would be responsible for the ramifications of such actions including the repayment of the $10.0 million of grant monies, among other items.

14. SHARE-BASED COMPENSATION

In August 2021, the Company adopted the 2021 Inducement Plan (the “Plan”). Under the 2021 Inducement Plan, the Company can grant stock options and stock awards. There are

Amergent Hospitality Group Inc. 10-K