UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-41371 EDIBLE GARDEN AG INCORPORATED (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 85-05587 ...

Edible Garden AG Incorporated (NASDAQ:EDBL) Q2 2023 Earnings Conference Call August 10, 2023 8:00 AM ET Corporate Participants Ted Ayvas - Investor Relations Jim Kras - Chief Executive Officer Mike James - Chief Financial Officer Conference Call Participants Anthony Vendetti - Maxim Group Operator Greetings, and welcome to the Edible Garden Second Quarter 2023 Business Update Conference Call. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal p ...

[PART I — FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial information, including financial statements and management's analysis [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section details the company's financial position, outlining assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cash | $1,368 | $110 | $1,258 | 1143.64% | | Accounts receivable, net | $2,672 | $1,105 | $1,567 | 141.81% | | Inventory | $482 | $586 | $(104) | -17.75% | | Total current assets | $4,699 | $1,863 | $2,836 | 152.23% | | TOTAL ASSETS | $9,793 | $6,965 | $2,828 | 40.61% | | Total current liabilities | $1,902 | $4,829 | $(2,927) | -60.61% | | Total liabilities | $6,133 | $9,145 | $(3,012) | -32.94% | | Total stockholders' equity (deficit) | $3,660 | $(2,180) | $5,840 | 267.89% | [Unaudited Condensed Consolidated Statements of Operations](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net loss over specific periods, reflecting operational results Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % Change (YoY) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $4,221 | $2,985 | 41.41% | $6,676 | $5,722 | 16.67% | | Cost of goods sold | $3,668 | $2,779 | 31.99% | $6,148 | $5,611 | 9.57% | | Gross profit | $553 | $206 | 168.45% | $528 | $111 | 375.68% | | Selling, general and administrative expenses | $2,380 | $2,733 | -12.92% | $5,071 | $4,340 | 16.84% | | Loss from operations | $(1,827) | $(2,527) | -27.70% | $(4,543) | $(4,229) | 7.42% | | Interest expense, net | $(44) | $(1,234) | -96.43% | $(277) | $(1,737) | -84.05% | | Employee retention credit | $1,233 | $- | N/A | $1,233 | $- | N/A | | NET LOSS | $(638) | $(4,776) | -86.63% | $(3,517) | $(7,382) | -52.36% | | Net Income / (Loss) per common share - basic and diluted | $(0.24) | $(20.44) | -98.83% | $(1.78) | $(36.64) | -95.14% | [Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section outlines changes in the company's equity, including common stock, paid-in capital, and accumulated deficit Stockholders' Equity (Deficit) Highlights (in thousands, except shares) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Common Stock Shares Outstanding | 2,827,082 | 362,716 | | Additional Paid-In Capital | $27,249 | $17,892 | | Accumulated Deficit | $(23,589) | $(20,072) | | Total Stockholders' Equity (Deficit) | $3,660 | $(2,180) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents cash flows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Net Cash Provided by / (Used in) Operating Activities | $(5,568) | $(5,601) | $33 | | Net Cash Provided by / (Used in) Investing Activities | $(591) | $(33) | $(558) | | Net Cash Provided by / (Used in) Financing Activities | $7,417 | $11,307 | $(3,890) | | Net Change in Cash | $1,258 | $5,673 | $(4,415) | | Cash at End of Period | $1,368 | $5,704 | $(4,336) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information for the condensed consolidated financial statements [NOTE 1 – ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION](index=6&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION,%20NATURE%20OF%20BUSINESS,%20AND%20BASIS%20OF%20PRESENTATION) This note describes the company's business, organizational structure, and the basis for financial statement presentation - Edible Garden AG Incorporated is a retail seller of locally grown hydroponic produce, distributed to approximately **4,500 supermarkets** across the Northeast and Midwest[29](index=29&type=chunk) - The company's stockholders approved an amendment on June 8, 2023, to increase the number of authorized common stock shares from **6,666,667 to 10,000,000**[27](index=27&type=chunk) - The company's financial statements are prepared on a going concern basis, but substantial doubt exists regarding its ability to continue as a going concern due to insufficient liquidity to meet future financial obligations[32](index=32&type=chunk)[33](index=33&type=chunk) [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=7&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines key accounting principles and methods, including revenue recognition and credit losses - The company adopted ASU 2016-13 (Financial Instruments – Credit Losses) effective January 1, 2023, with no impact on its financial statements[34](index=34&type=chunk) - Five customers accounted for approximately **81% of total revenue** for the six months ended June 30, 2023, indicating significant customer concentration risk[40](index=40&type=chunk) - The company filed Forms 941-X to claim **$1,145,707 plus accrued interest** for the Employee Retention Credit on qualified wages paid during 2020 and 2021, recognized as income[38](index=38&type=chunk) Revenue Disaggregation (in thousands) | Revenue Stream | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Herbs, Produce & Floral | $5,578 | $5,054 | | Vitamins and Supplements | $1,098 | $668 | | **Total** | **$6,676** | **$5,722** | [NOTE 3 – INVENTORY](index=10&type=section&id=NOTE%203%20%E2%80%93%20INVENTORY) This note details the composition of the company's inventory, covering raw materials, work-in-progress, and finished goods Inventory Composition (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Raw materials | $157 | $298 | | Work-in-progress | $278 | $288 | | Finished goods | $47 | $- | | **Total inventory** | **$482** | **$586** | [NOTE 4 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET](index=10&type=section&id=NOTE%204%20%E2%80%93%20PROPERTY,%20EQUIPMENT%20AND%20LEASEHOLD%20IMPROVEMENTS,%20NET) This note details the company's property, equipment, and leasehold improvements, net of accumulated depreciation Property, Equipment and Leasehold Improvements, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Furniture and equipment | $1,998 | $1,408 | | Leasehold improvements | $5,191 | $5,192 | | Vehicles | $456 | $304 | | Less accumulated depreciation | $(2,928) | $(2,223) | | **Net Property, equipment and leasehold improvements** | **$4,929** | **$4,891** | - Depreciation expense for the six months ended June 30, 2023, was **$705,118**, an increase from **$385,515** in the prior year period[61](index=61&type=chunk) [NOTE 5 – INTANGIBLE ASSETS](index=11&type=section&id=NOTE%205%20%E2%80%93%20INTANGIBLE%20ASSETS) This note outlines the company's intangible assets, primarily pulp brand recipes, and associated amortization Intangible Assets, Net (in thousands) | Category | June 30, 2023 Net Carrying Value | December 31, 2022 Net Carrying Value | | :--- | :--- | :--- | | Pulp brand recipes | $48 | $50 | | Non-compete agreement | $- | $- | | **Total Intangible Assets, net** | **$48** | **$50** | - Amortization expense for the six months ended June 30, 2023, was **$1,667**, compared to nil in the prior year period[62](index=62&type=chunk) [NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=11&type=section&id=NOTE%206%20%E2%80%93%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) This note details the company's current liabilities, including accounts payable, accrued expenses, and interest Accounts Payable and Accrued Expenses (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Accounts payable | $993 | $1,728 | | Accrued expenses | $50 | $542 | | Accrued interest payable | $39 | $185 | | Accrued payroll | $229 | $187 | | Accrued vacation | $135 | $53 | | Current lease liability | $82 | $92 | | **Total Accounts Payable and Accrued Expenses** | **$1,528** | **$2,787** | [NOTE 7 – NOTES PAYABLE](index=11&type=section&id=NOTE%207%20%E2%80%93%20NOTES%20PAYABLE) This note details the company's notes payable, including secured promissory notes, SBA loans, and vehicle loans Notes Payable (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Secured promissory note (First Sament Note) | $3,106 | $3,783 | | NJD Investments, LLC promissory note | $1,009 | $1,155 | | Evergreen private placement | $- | $1,022 | | SBA loan | $150 | $150 | | Vehicle loans | $365 | $244 | | **Total Gross Debt** | **$4,630** | **$6,354** | - The company prepaid the Second Sament Note, reducing principal by approximately **10%** and recognizing a gain from extinguishment of debt of **$70,420** during the six months ended June 30, 2023[68](index=68&type=chunk) - The Evergreen A&R Note was repaid in full during the six months ended June 30, 2023, incurring a **$153,239 penalty** for early repayment[75](index=75&type=chunk) - New vehicle loans totaling **$151,850** were entered into during the six months ended June 30, 2023, with interest rates at **10.49%** and maturity in 2028, personally guaranteed by the CEO[80](index=80&type=chunk) [NOTE 8 – STOCKHOLDERS' EQUITY (DEFICIT)](index=14&type=section&id=NOTE%208%20%E2%80%93%20STOCKHOLDERS'%20EQUITY%20(DEFICIT)) This note details changes in stockholders' equity, including public offerings, warrant exercises, and equity plan amendments - On February 7, 2023, the company completed a public offering, issuing **1,619,000 common shares** and **1,861,850 warrants**, raising approximately **$10.2 million** in gross proceeds (**$9.4 million net**)[81](index=81&type=chunk)[156](index=156&type=chunk) - As of June 30, 2023, **2,827,082 common shares** were outstanding, a significant increase from **362,716 shares** at December 31, 2022[83](index=83&type=chunk) - **836,040 common shares** were issued during the six months ended June 30, 2023, from the exercise of **1,672,080 Follow-On Warrants** via an alternative cashless exercise option[82](index=82&type=chunk)[85](index=85&type=chunk) - The 2022 Equity Incentive Plan was amended on June 8, 2023, increasing reserved shares by **300,000** and extending the term to June 8, 2033[89](index=89&type=chunk) [NOTE 9 – LEASES](index=15&type=section&id=NOTE%209%20%E2%80%93%20LEASES) This note provides information on operating lease assets and liabilities, including lease terms and discount rates Operating Lease Assets and Liabilities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Operating lease assets | $82 | $126 | | Operating lease liabilities | $82 | $126 | - Total operating lease cost for the six months ended June 30, 2023, was **$146,392**, with **$53,250** attributed to short-term leases[96](index=96&type=chunk) - The weighted average remaining lease term for operating leases was **9 months**, with a weighted average discount rate of **17.5%** as of June 30, 2023[99](index=99&type=chunk) [NOTE 11 – RELATED PARTY TRANSACTIONS](index=16&type=section&id=NOTE%2011%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with related parties, including lease arrangements and guaranteed loan agreements - The company has an ongoing lease arrangement with its Predecessor, involving monthly payments of approximately **$21,860** for land used in operations[100](index=100&type=chunk) - Several vehicle loan agreements are personally guaranteed by the company's Chief Executive Officer and Chief Financial Officer[101](index=101&type=chunk) - Promissory notes totaling **$175,000** issued to Michael James (CFO and Director) were fully repaid during the six months ended June 30, 2023[102](index=102&type=chunk) [NOTE 12 – GOING CONCERN](index=16&type=section&id=NOTE%2012%20%E2%80%93%20GOING%20CONCERN) This note addresses the company's ability to continue as a going concern, citing historical losses and liquidity issues - The company incurred net losses of **$3.517 million** for the six months ended June 30, 2023, and **$12.5 million** for the year ended December 31, 2022[104](index=104&type=chunk) - As of June 30, 2023, the company had **$1.4 million** in cash available for operations, but has not generated sufficient cash from operating activities to fund ongoing operations[104](index=104&type=chunk) - The history of losses and limited capital resources raise substantial doubt about the company's ability to continue as a going concern for the next twelve months[104](index=104&type=chunk)[108](index=108&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, recent developments, critical accounting policies, and an analysis of financial results for the three and six months ended June 30, 2023, compared to the prior year, along with a discussion of liquidity and capital resources [FORWARD-LOOKING STATEMENTS](index=17&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section cautions that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including the company's history of losses, ability to continue as a going concern, market competition, and ability to obtain additional financing[109](index=109&type=chunk)[110](index=110&type=chunk) [OVERVIEW](index=18&type=section&id=OVERVIEW) This section describes Edible Garden's business model, focusing on sustainable hydroponic produce and proprietary technology - Edible Garden is a Controlled Environment Agriculture (CEA) company that sustainably grows organic herbs and lettuces using hydroponic and vertical greenhouses, distributed to approximately **4,500 supermarkets**[111](index=111&type=chunk)[29](index=29&type=chunk) - The company utilizes proprietary GreenThumb software for real-time monitoring, demand planning, inventory management, and traceability, aiming to reduce its carbon footprint through efficient production and distribution[113](index=113&type=chunk)[116](index=116&type=chunk) - Key differentiators include a focus on the 'Edible Garden' brand, sustainability, traceability, and social contribution[115](index=115&type=chunk) [RECENT DEVELOPMENTS](index=19&type=section&id=RECENT%20DEVELOPMENTS) This section highlights significant recent events, including facility operations, equity plan amendments, and stock changes - The Edible Garden Heartland facility in Grand Rapids, Michigan, commenced shipping products in April 2023 after completing its buildout and receiving USDA Organic and PrimusGFS certifications[117](index=117&type=chunk) - Stockholders approved an amendment to the 2022 Equity Incentive Plan, increasing reserved shares by **300,000** and extending its term to June 8, 2033[118](index=118&type=chunk) - The number of authorized common stock shares was increased from **6,666,667 to 10,000,000** on June 8, 2023[119](index=119&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=19&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section discusses accounting policies requiring significant management judgment, such as revenue recognition and income taxes - Key accounting estimates requiring significant judgment include allowance for doubtful accounts, revenue recognition, property, equipment, and leasehold improvements, and income taxes[121](index=121&type=chunk)[122](index=122&type=chunk) - Revenue is recognized when control of goods or services is transferred to customers, typically at fixed sales prices without material returns or discounts[123](index=123&type=chunk) - Income tax provisions are determined in accordance with ASC 740, with deferred tax assets for net operating losses fully offset by a valuation allowance[127](index=127&type=chunk) [RESULTS OF OPERATIONS](index=20&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance over specific periods, comparing current results to prior year [COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022](index=20&type=section&id=COMPARISON%20OF%20THE%20THREE%20MONTHS%20ENDED%20JUNE%2030,%202023%20AND%202022) This section compares the company's financial performance for the three months ended June 30, 2023, against the prior year - Revenue increased by **$1.236 million (41.41%)** to **$4.221 million**, primarily due to the Edible Garden Heartland facility commencing shipments and increased vitamin and supplement sales[131](index=131&type=chunk) - Gross profit increased by **$347 thousand (168.45%)** to **$553 thousand**, with gross margin improving from **6.90% to 13.10%**, reflecting price increases and Heartland facility shipments[133](index=133&type=chunk) - Net loss significantly decreased by **$4.138 million (86.63%)** to **$638 thousand**, driven by higher revenue, improved gross profit, lower interest expense, and a **$1.233 million Employee Retention Credit**[136](index=136&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk) - Selling, general and administrative expenses decreased by **$353 thousand (12.92%)** to **$2.380 million**, mainly due to non-recurring transaction bonuses in 2022, partially offset by costs for the Heartland facility and public company operations[134](index=134&type=chunk) [COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022](index=22&type=section&id=COMPARISON%20OF%20THE%20SIX%20MONTHS%20ENDED%20JUNE%2030,%202023%20AND%202022) This section compares the company's financial performance for the six months ended June 30, 2023, against the prior year - Revenue increased by **$954 thousand (16.67%)** to **$6.676 million**, driven by shipments from the Edible Garden Heartland facility and increased orders from existing customers[142](index=142&type=chunk) - Gross profit increased by **$417 thousand (375.68%)** to **$528 thousand**, with gross margin improving from **1.94% to 7.91%**, reflecting price increases and Heartland facility shipments[144](index=144&type=chunk) - Net loss decreased by **$3.865 million (52.36%)** to **$3.517 million**, primarily due to higher revenue, improved gross profit, lower interest expense, and a **$1.233 million Employee Retention Credit**[146](index=146&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk) - Selling, general and administrative expenses increased by **$731 thousand (16.84%)** to **$5.071 million**, mainly due to costs for the Heartland facility and public company operations, partially offset by non-recurring bonuses in 2022[145](index=145&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=23&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's ability to meet financial obligations, covering cash, working capital, and funding sources [Going Concern Considerations](index=23&type=section&id=Going%20Concern%20Considerations) This section addresses the company's ability to continue operations, given its history of losses and external funding reliance - The company's history of significant net losses (**$3.517 million** in H1 2023, **$12.453 million** in FY 2022) and insufficient cash from operations raise substantial doubt about its ability to continue as a going concern[151](index=151&type=chunk)[152](index=152&type=chunk) - Future success is dependent on achieving profitable operations and generating cash from operating activities, or raising additional funds through public/private financing[153](index=153&type=chunk) [Liquidity](index=24&type=section&id=Liquidity) This section details the company's current cash position, working capital, and cash usage from operations - Cash and cash equivalents increased to **$1.368 million** as of June 30, 2023, from **$110 thousand** at December 31, 2022[155](index=155&type=chunk) - Working capital improved significantly to **$2.797 million** as of June 30, 2023, from a deficit of **$2.966 million** at December 31, 2022[155](index=155&type=chunk) - The company used **$5.568 million** for operating activities during the first half of 2023[155](index=155&type=chunk) - Remaining proceeds from the February 2023 public offering are expected to fund operations through December 2023[155](index=155&type=chunk) [Capital Resources](index=24&type=section&id=Capital%20Resources) This section describes the company's capital sources, including public offering proceeds and vehicle loans - A public offering on February 7, 2023, generated approximately **$9.4 million** in net proceeds from the issuance of common stock and warrants[156](index=156&type=chunk) - Proceeds were used for operations (**$2.166 million**), debt payoff (**$1.9 million**), accounts payable (**$497 thousand**), inventory (**$436 thousand**), equipment (**$361 thousand**), and offering costs (**$140 thousand**)[156](index=156&type=chunk) - The company continues to enter into vehicle loans, some personally guaranteed by executives, with interest rates ranging from **7.64% to 18.66%**[157](index=157&type=chunk) [Cash Flows](index=24&type=section&id=Cash%20Flows) This section analyzes cash flows from operating, investing, and financing activities, highlighting year-over-year changes - Cash used in operating activities remained stable at **$5.568 million** for the six months ended June 30, 2023, compared to **$5.601 million** in the prior year[159](index=159&type=chunk) - Cash used in investing activities increased significantly to **$591 thousand** from **$33 thousand**, primarily due to purchases for the Edible Garden Heartland facility[160](index=160&type=chunk) - Cash provided by financing activities decreased to **$7.417 million** from **$11.307 million**, mainly due to a smaller public offering in 2023 compared to the initial public offering in 2022[161](index=161&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Edible Garden AG Incorporated is not required to provide detailed quantitative and qualitative disclosures about market risk - The company is exempt from providing detailed market risk disclosures due to its status as a smaller reporting company[162](index=162&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2023, primarily due to a material weakness in internal control over financial reporting related to inadequate segregation of duties and insufficient documentation and review of internal controls - Disclosure controls and procedures were deemed ineffective as of June 30, 2023[163](index=163&type=chunk) - A material weakness exists due to inadequate segregation of duties in the finance department and insufficient documentation/review of internal controls[164](index=164&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[165](index=165&type=chunk) [PART II — OTHER INFORMATION](index=25&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) This section includes additional information not covered in financial statements, such as legal proceedings and exhibits [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) Management believes there are no pending or threatened legal proceedings that would have a material adverse effect on the company's business, results of operations, or financial condition - No material adverse legal proceedings are currently pending or threatened against the company[166](index=166&type=chunk) [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications, and XBRL financial data Key Exhibits Filed | Exhibit Number | Description | | :--- | :--- | | 3.1 | Certificate of Amendment to the Certificate of Incorporation, filed June 8, 2023 | | 10.1 | First Amendment to the Edible Garden AG Incorporated 2022 Equity Incentive Plan | | 31.1 | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) | | 31.2 | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) | | 32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 | | 101 | XBRL Financial Data (Unaudited Consolidated Balance Sheet, Statements of Operations, Cash Flows, Stockholders' Deficit, and Notes) | | 104 | Cover Page Interactive Data File | [Signatures](index=26&type=section&id=Signatures) The report is duly signed on behalf of Edible Garden AG Incorporated by its Chief Executive Officer and President, James E. Kras, and its Chief Financial Officer, Treasurer, and Secretary, Michael James, as of August 10, 2023 - The report was signed by James E. Kras (CEO & President) and Michael James (CFO, Treasurer & Secretary) on August 10, 2023[169](index=169&type=chunk)[170](index=170&type=chunk)

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company reported a wider net loss on lower revenue, but a public offering significantly improved its financial position [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows improved liquidity and a shift from a stockholder deficit to equity due to a recent capital raise Key Financial Metrics | Financial Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | **Cash** | $3,948 | $110 | +$3,838 | | **Total Current Assets** | $6,019 | $1,863 | +$4,156 | | **Total Assets** | $11,276 | $6,965 | +$4,311 | | **Total Current Liabilities** | $2,648 | $4,829 | -$2,181 | | **Total Liabilities** | $6,981 | $9,145 | -$2,164 | | **Total Stockholders' Equity (Deficit)** | $4,295 | $(2,180) | +$6,475 | [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue declined while operating expenses increased, resulting in a larger net loss compared to the prior-year period Quarterly Operational Performance | Metric (in thousands, except per-share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Revenue** | $2,455 | $2,737 | | **Gross Profit** | $(24) | $(95) | | **Selling, general and administrative expenses** | $2,691 | $2,008 | | **Loss from operations** | $(2,715) | $(2,103) | | **NET LOSS** | $(2,879) | $(2,606) | | **Net Loss per common share - basic and diluted** | $(2.21) | $(15.40) | - The net loss per share improved significantly from **$(15.40) to $(2.21)** year-over-year, primarily due to a substantial increase in the weighted-average number of common shares outstanding following recent stock issuances[13](index=13&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) A public offering drove a significant increase in stockholders' equity, offsetting the quarterly net loss - A public offering in Q1 2023 resulted in the issuance of **1,619,000 shares** of common stock, generating **$9.26 million** in additional paid-in capital, net of expenses[15](index=15&type=chunk) - The number of outstanding common shares increased from **362,716** at December 31, 2022, to **1,989,645** at March 31, 2023[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Financing activities from a public offering funded cash outflows from operations and investments, boosting cash reserves Quarterly Cash Flow Summary | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Net Cash Used in Operating Activities** | $(3,319) | $(1,279) | | **Net Cash Used in Investing Activities** | $(361) | $(19) | | **Net Cash Provided by Financing Activities** | $7,518 | $1,285 | | **Net Change in Cash** | $3,838 | $(13) | | **Cash at End of Period** | $3,948 | $18 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=5&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes highlight substantial going concern doubt, significant customer concentration, and details of a recent public offering - Management has **substantial doubt** about the company's ability to continue as a going concern due to recurring net losses and its dependency on raising additional capital[30](index=30&type=chunk)[94](index=94&type=chunk)[98](index=98&type=chunk) - The company faces significant customer concentration risk, with three customers accounting for approximately **69% of total revenue** in Q1 2023 and **80% of gross outstanding trade receivables**[35](index=35&type=chunk) - In February 2023, the company completed a public offering, raising approximately **$10.2 million in gross proceeds** by issuing 1,619,000 shares of common stock and warrants[71](index=71&type=chunk) - The company settled two legal matters during the quarter: one with Green City Growers for **$120,000** and another with a former officer for **$235,000**[89](index=89&type=chunk)[90](index=90&type=chunk) Revenue by Segment | Revenue Stream (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Herbs & Produce | $1,832 | $2,410 | | Vitamins and Supplements | $623 | $327 | | **Total** | **$2,455** | **$2,737** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a revenue decline in core business, rising SG&A costs, and improved liquidity from a recent offering - Revenue decreased **10.3% YoY**, driven by a **$578 thousand (24%) decrease** in the herbs and produce business, while the vitamins and supplements segment grew by **$296 thousand (90.5%)**[123](index=123&type=chunk) - SG&A expenses increased by **$684 thousand (34%) YoY**, primarily due to costs related to the new Grand Rapids facility ($217k) and increased public company costs ($418k)[127](index=127&type=chunk) - Gross margin improved from **-3.47%** in Q1 2022 to **-0.98%** in Q1 2023, which management attributes to the impact of price increases[126](index=126&type=chunk) - The company raised approximately **$10.2 million in gross proceeds** from a public offering in February 2023, which management believes is sufficient to fund operations through December 2023[136](index=136&type=chunk)[137](index=137&type=chunk) - Management reiterates that there is **substantial doubt** about the company's ability to continue as a going concern due to its history of significant losses and reliance on external financing[132](index=132&type=chunk)[133](index=133&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from market risk disclosure requirements as a smaller reporting company - As a **smaller reporting company**, Edible Garden is not required to provide quantitative and qualitative disclosures about market risk[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective due to material weaknesses in internal financial reporting - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were **ineffective**[144](index=144&type=chunk) - The ineffectiveness is due to **material weaknesses** in internal control, including a lack of adequate segregation of duties because of the small size of the finance department[145](index=145&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company settled and dismissed two separate legal claims during the first quarter of 2023 - The company settled a lawsuit with Green City Growers Cooperative concerning an alleged breach of a supplier agreement for an aggregate payment of **$120,000**[148](index=148&type=chunk)[149](index=149&type=chunk) - A breach of contract claim filed by a former officer was settled for an aggregate payment of **$235,000** and dismissed in February 2023[150](index=150&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including agreements, warrants, and officer certifications - The report lists exhibits filed, including the **Underwriting Agreement** from the February 2, 2023 public offering, forms of warrants, and required officer certifications[151](index=151&type=chunk)

Financial Data and Key Metrics - Revenue for Q4 2022 was $3.1 million, a 10% increase compared to $2.8 million in Q4 2021 [21] - Full-year revenue for 2022 was $11.6 million, a 10% increase from $10.5 million in 2021 [24] - Cost of goods sold for Q4 2022 was $3 million, up from $2.8 million in Q4 2021, driven by higher packaging and labor costs [22] - Net loss for Q4 2022 was $3 million ($9.31 per share), compared to a net loss of $2.1 million ($12.76 per share) in Q4 2021 [23] - Full-year net loss for 2022 was $12.5 million ($48.68 per share), compared to a net loss of $5.5 million ($39.28 per share) in 2021 [26] Business Line Data and Key Metrics - The company introduced complete salad kits in Q4 2022, which were well-received and are expected to expand to other regions [11][38] - Acquired the Pulp line of gourmet sauces and chili-based products, marking entry into the global sauces and condiments market, projected to grow from $172.8 billion in 2021 to $240.7 billion by 2028 [12] - Pulp products will launch at Whole Foods Markets in Mid-Atlantic and Southeastern regions starting summer 2023 [13] Market Data and Key Metrics - Distribution network expanded to over 4,000 stores, primarily concentrated in the Northeast, Midwest, and Southeast [29] - Added Morton Williams Supermarkets to the Northeast distribution network and expanded with Gristedes and D'Agostino markets in New York [14] - Achieved a fill rate exceeding 100% with one of the country's largest supercenter operators during the holiday season [16] Company Strategy and Industry Competition - The company aims to achieve positive cash flow in 2023, driven by the operationalization of the Heartland Midwest facility and higher-margin products [9][49] - Focus on sustainability through the Zero-Waste Inspired mission, resonating with environmentally conscious consumers and distribution partners [10][19] - Research partnership with the New Jersey Institute of Technology, USDA, and EPA to explore nanobubble technology for sustainable agriculture [18][50] Management Commentary on Operating Environment and Future Outlook - Management highlighted resilience in a challenging economic climate, with stable pricing and exceptional customer service contributing to competitive advantage [8] - The company expects margin improvements once the Heartland Midwest facility is fully operational [9] - Management is optimistic about the potential of the Pulp product line and its impact on revenue in the second half of 2023 [43] Other Important Information - The company completed a $10.2 million offering in February 2023 to fund business expansion [27] - Recognized as one of the top agro food tech companies globally in the FoodTech 500 rankings [20] Q&A Session Summary Question: Distribution network and store count plans for 2023 [29] - Currently in over 4,000 stores, primarily in the Northeast, Midwest, and Southeast - Plans to expand distribution with major retailers and regional chains Question: Status of the Grand Rapids greenhouse and USDA organic certification [30][32] - Final stages of bringing the greenhouse online, expected within 30 days - USDA organic certification is completed and awaiting final approval Question: Impact of the Grand Rapids facility on contract growers and margins [33] - The facility will allow the company to offset higher costs from contract growers and improve margins through vertical integration Question: Reception of new salad kits and expansion plans [38] - Salad kits have been well-received, with plans to expand distribution to other regions and introduce new varieties Question: Product pipeline and innovation [39] - Constant innovation is a key differentiator, with new products like Pulp and alternate proteins in development Question: Revenue impact of the Grand Rapids facility and capital sufficiency [41][42] - Immediate impact on margins and profitability, with the goal of achieving cash flow positivity in 2023 - Current capital is sufficient to reach profitability Question: Revenue impact of the Pulp product line in 2023 [43] - Expected to contribute significantly in the second half of 2023, with POs already in place from Whole Foods Question: Future expansion plans post-Grand Rapids facility [44] - Focus on achieving cash flow positivity before considering further expansion, with a preference for retrofitting existing facilities Question: Path to positive cash flow in 2023 [49] - Driven by the operationalization of the Grand Rapids facility and higher-margin, shelf-stable products Question: Partnership with NJIT, USDA, and EPA [50] - Research on nanobubble technology to improve plant growth, yield, and sustainability, funded by the EPA

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 1934 Commission File Number: 001-41371 EDIBLE GARDEN AG INCORPORATED (Exact name of registrant as specified in its charter) Delaware 85-0558704 (State or other jurisdiction of incorporation or organization) (I.R.S. E ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-41371 EDIBLE GARDEN AG INCORPORATED (Exact name of registrant as specified in its charter) 85-0558704 (State or other jurisdiction of incorporation or organization) (I.R.S ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the company's unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and stockholders' deficit, along with management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and stockholders' deficit, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended June 30, 2022, and December 31, 2021 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :------------------ | | Cash | $5,704 | $31 | | Total Current Assets | $6,999 | $1,191 | | Property, equipment, and leasehold improvements, net | $2,220 | $2,573 | | Total Assets | $9,418 | $3,990 | | Total Current Liabilities | $4,481 | $7,089 | | Total Liabilities | $7,870 | $11,097 | | Total Stockholders Equity (Deficit) | $1,548 | $(7,107) | - Total assets significantly increased from **$4.0 million** at December 31, 2021, to **$9.4 million** at June 30, 2022, primarily driven by a substantial increase in cash[5](index=5&type=chunk) - The company transitioned from a stockholders' deficit of **$(7.1 million)** at December 31, 2021, to a positive stockholders' equity of **$1.5 million** at June 30, 2022[7](index=7&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over specific periods, showing revenues, expenses, and net loss Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $2,985 | $2,777 | $5,722 | $5,260 | | Cost of goods sold | $2,779 | $2,457 | $5,611 | $4,823 | | Gross profit | $206 | $320 | $111 | $437 | | Selling, general and administrative expenses | $2,733 | $1,410 | $4,340 | $2,684 | | Loss from operations | $(2,527) | $(1,090) | $(4,229) | $(2,247) | | Interest expense, net | $(1,234) | $(62) | $(1,737) | $(100) | | Loss from extinguishment of debt | $(826) | $- | $(826) | $- | | NET LOSS | $(4,776) | $(1,152) | $(7,382) | $(2,347) | | Net Income / (Loss) per common share - basic and diluted | $(0.68) | $(0.29) | $(1.22) | $(0.59) | - Net loss significantly increased for both the three-month period (from **$(1.15 million)** to **$(4.78 million)**) and six-month period (from **$(2.35 million)** to **$(7.38 million)**) ended June 30, 2022, primarily due to higher operating expenses, interest expense, and a loss from extinguishment of debt[9](index=9&type=chunk) [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided by / (Used In) Operating Activities | $(5,601) | $(899) | | Net Cash Provided by / (Used In) Investing Activities | $(33) | $(28) | | Net Cash Provided by / (Used In) Financing Activities | $11,307 | $936 | | NET CHANGE IN CASH | $5,673 | $9 | | CASH AT END OF PERIOD | $5,704 | $14 | - Cash provided by financing activities increased significantly to **$11.31 million** in the six months ended June 30, 2022, primarily due to proceeds from common stock issuance related to the IPO[12](index=12&type=chunk) - Net cash used in operating activities increased from **$(899 thousand)** in 2021 to **$(5.60 million)** in 2022, indicating higher operational cash burn[12](index=12&type=chunk) [Consolidated Statements of Stockholders' Deficit](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Deficit) This section tracks changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Consolidated Statements of Stockholders' Equity (Deficit) Highlights (in thousands, except shares) | Metric | December 31, 2021 | June 30, 2022 | | :----------------------------------- | :------------------ | :------------ | | Common Shares Outstanding | 5,000,000 | 8,654,941 | | Additional Paid-In Capital | $511 | $16,548 | | Accumulated Deficit | $(7,619) | $(15,001) | | Total Stockholders Equity (Deficit) | $(7,107) | $1,548 | - Additional paid-in capital increased substantially from **$511 thousand** to **$16.55 million**, primarily due to the issuance of common stock and conversion of debt to common stock[16](index=16&type=chunk) - The accumulated deficit worsened from **$(7.62 million)** to **$(15.00 million)**, reflecting the net losses incurred during the period[16](index=16&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering significant accounting policies and specific financial items [NOTE 1 – ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%2C%20NATURE%20OF%20BUSINESS%2C%20AND%20BASIS%20OF%20PRESENTATION) This note details the company's corporate history, including its formation and various stock splits, the specifics of its Initial Public Offering (IPO) on Nasdaq in May 2022, and its core business as a retail seller of hydroponic produce. It also highlights the significant going concern uncertainty - Edible Garden AG Inc. completed its IPO on **May 5, 2022**, with its stock trading on Nasdaq under the symbol 'EDBL'[22](index=22&type=chunk) - The IPO generated total net proceeds of **$13.62 million** after deducting underwriting discounts and offering expenses[22](index=22&type=chunk) - The company's core business is the retail sale of locally grown hydroponic produce, distributed across the Northeast and Midwest to approximately **4,500 supermarket stores**[24](index=24&type=chunk) - Substantial doubt exists regarding the company's ability to continue as a going concern due to insufficient liquidity to satisfy future financial obligations, despite efforts to minimize capital expenditures and reduce expenses[27](index=27&type=chunk) [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and estimates applied in the financial statements, covering areas such as revenue recognition, inventory valuation, depreciation of fixed assets, and income tax provisions. It also clarifies that the company operates as a single reportable segment - Revenue is recognized when control of promised goods or services is transferred to customers, with sales prices generally fixed at the point of sale and no material returns or discounts[37](index=37&type=chunk)[40](index=40&type=chunk) Disaggregated Revenue (in thousands) | Revenue Stream | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------- | :----------------------------- | :----------------------------- | | Herbs & Produce | $5,054 | $4,967 | | Vitamins and Supplements | $668 | $293 | | Total | $5,722 | $5,260 | - Inventory is valued at the lower of actual cost (FIFO method) or net realizable value, with periodic reviews for excess, obsolete, or impaired items[31](index=31&type=chunk) - The company operates in one reportable operating segment, as management measures profit and loss as a whole and does not maintain discrete financial information for specific segments[47](index=47&type=chunk) [NOTE 3 – INVENTORY](index=12&type=section&id=NOTE%203%20%E2%80%93%20INVENTORY) This note provides a detailed breakdown of the company's inventory, categorized into raw materials and work-in-progress, as of June 30, 2022, and December 31, 2021 Inventory Composition (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--------------- | :------------ | :------------------ | | Raw materials | $103 | $68 | | Work-in-progress | $291 | $292 | | Total inventory | $394 | $360 | - Total inventory increased slightly from **$360 thousand** at December 31, 2021, to **$394 thousand** at June 30, 2022, primarily due to an increase in raw materials[49](index=49&type=chunk) [NOTE 4 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET](index=12&type=section&id=NOTE%204%20%E2%80%93%20PROPERTY%2C%20EQUIPMENT%20AND%20LEASEHOLD%20IMPROVEMENTS%2C%20NET) This note details the company's property, equipment, and leasehold improvements, net of accumulated depreciation, for June 30, 2022, and December 31, 2021, showing a decrease in net value Property, Equipment and Leasehold Improvements, Net (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------------------------------------------ | :------------ | :------------------ | | Subtotal (Cost) | $3,870 | $3,837 | | Less accumulated depreciation | $(1,650) | $(1,264) | | Property, equipment and leasehold improvements, net | $2,220 | $2,573 | - Net property, equipment, and leasehold improvements decreased from **$2.57 million** to **$2.22 million**, primarily due to increased accumulated depreciation[50](index=50&type=chunk) - Depreciation expense for the six months ended June 30, 2022, was **$385,515**, up from **$359,066** in the prior year period[50](index=50&type=chunk) [NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=13&type=section&id=NOTE%205%20%E2%80%93%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) This note provides a breakdown of current liabilities, including accounts payable and various accrued expenses, as of June 30, 2022, and December 31, 2021, indicating a decrease in total current liabilities Accounts Payable and Accrued Expenses (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :------------------ | | Accounts payable | $1,465 | $2,270 | | Accrued interest payable | $77 | $117 | | Accrued payroll | $211 | $213 | | Accrued vacation | $103 | $39 | | Current lease liability | $84 | $77 | | Total Accounts Payable and Accrued Expenses | $1,940 | $2,880 | - Total accounts payable and accrued expenses decreased by **$940 thousand** from December 31, 2021, to June 30, 2022, primarily driven by a reduction in accounts payable[52](index=52&type=chunk) [NOTE 6 – NOTES PAYABLE](index=13&type=section&id=NOTE%206%20%E2%80%93%20NOTES%20PAYABLE) This note details the company's various debt instruments, including secured promissory notes, convertible notes from Evergreen, an SBA loan, and related party loans. It highlights significant debt repayments and conversions to common stock following the IPO, and the issuance of a new consolidated secured promissory note to Evergreen Notes Payable (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :------------------ | | Secured promissory note | $3,783 | $3,783 | | Evergreen private placement | $1,842 | $2,301 | | SBA loan | $150 | $150 | | SAFE agreements | $- | $538 | | Related party loans | $- | $1,888 | | Vehicle loans | $107 | $116 | | Total Gross Debt | $5,882 | $8,776 | | Net Long Term Debt | $3,307 | $3,882 | - Total gross debt decreased from **$8.78 million** at December 31, 2021, to **$5.88 million** at June 30, 2022, largely due to repayments and conversions of SAFE agreements and related party loans[53](index=53&type=chunk) - Following the IPO, the company repaid Evergreen **$1.93 million** in principal and **$26,881** in accrued interest, incurring a **$577,875** prepayment penalty[71](index=71&type=chunk)[72](index=72&type=chunk) - A new amended and restated consolidated secured promissory note of **$1.84 million** was issued to Evergreen on June 30, 2022, bearing **7.0% interest** and maturing March 31, 2023, which resulted in a loss on extinguishment of debt of **$826,203**[72](index=72&type=chunk)[74](index=74&type=chunk) - Convertible notes held by the CFO and CEO, totaling **$1.32 million** and **$27,821** respectively, were converted into common stock upon the closing of the IPO[178](index=178&type=chunk) [NOTE 7 – LEASES](index=19&type=section&id=NOTE%207%20%E2%80%93%20LEASES) This note outlines the company's accounting for leases, primarily operating leases, and provides details on lease costs, liabilities, and the weighted-average remaining lease term and discount rate - Total operating lease cost for the six months ended June 30, 2022, was **$118,552**, with **$65,032** attributed to short-term leases[95](index=95&type=chunk) Operating Lease Liabilities and Terms (in thousands) | Metric | June 30, 2022 | | :-------------------------------- | :------------ | | Operating lease assets | $167 | | Operating lease liabilities | $167 | | Remaining lease term (years) | 1.8 | | Discount rate | 17.5% | - The company has an ongoing month-to-month short-term lease arrangement with the Predecessor for its flagship facility, with payments of approximately **$15,550** per month during 2022[94](index=94&type=chunk)[110](index=110&type=chunk) [NOTE 8 – STOCKHOLDERS' EQUITY (DEFICIT)](index=20&type=section&id=NOTE%208%20%E2%80%93%20STOCKHOLDERS%27%20EQUITY%20%28DEFICIT%29) This note details the changes in common stock and warrants outstanding, primarily driven by the Initial Public Offering (IPO) and subsequent issuances for debt conversion and as consideration for the Evergreen note Common Stock and Warrants Outstanding | Metric | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :------------------ | | Common Shares Outstanding | 8,654,941 | 5,000,000 | | Shares Issued in Public Offering | 2,930,000 | N/A | | Shares Issued to Evergreen | 280,000 | N/A | | Shares Issued for Debt Conversion | 444,941 | N/A | | Warrants Outstanding | 3,758,961 | 205,750 | | Weighted-Average Exercise Price (Warrants) | $5.04 | $11.18 | - The company issued **2,930,000 shares** of common stock in its public offering and **444,941 shares** for the conversion of debt principal and accrued interest during the six months ended June 30, 2022[99](index=99&type=chunk)[101](index=101&type=chunk) - Total warrants outstanding increased significantly to **3,758,961** by June 30, 2022, primarily due to the issuance of warrants in the IPO and to Evergreen[102](index=102&type=chunk)[103](index=103&type=chunk) [NOTE 9 – COMMITMENTS AND CONTINGENCIES](index=21&type=section&id=NOTE%209%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses an ongoing legal proceeding, a lawsuit filed by Green City Growers Cooperative, and highlights the potential for reputational damage, legal costs, and judgments that could materially affect the company's financial condition - The company is a party to a lawsuit filed on **November 29, 2021**, by Green City Growers Cooperative, seeking damages for an alleged breach of a supplier agreement[108](index=108&type=chunk) - Potential adverse outcomes include reputational damage, legal costs, and settlements or judgments that may exceed existing insurance coverage, which could materially affect the company's business and financial condition[109](index=109&type=chunk) [NOTE 10 – RELATED PARTY TRANSACTIONS](index=21&type=section&id=NOTE%2010%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) This note refers to disclosures in other notes regarding loan agreements with officers and an ongoing lease arrangement with the Predecessor, indicating the nature of related party dealings - Loan agreements with certain officers are detailed in Note 6, 'Notes Payable'[110](index=110&type=chunk) - An ongoing lease arrangement with the Predecessor for land utilized in operations is discussed in Note 7, 'Leases'[110](index=110&type=chunk) [NOTE 11 – GOING CONCERN](index=21&type=section&id=NOTE%2011%20%E2%80%93%20GOING%20CONCERN) This note reiterates the substantial doubt about the company's ability to continue as a going concern, citing significant net losses and insufficient cash from operations, emphasizing the critical need for additional capital to support future operations - The company incurred net losses of **$5.5 million** for the year ended December 31, 2021, and **$7.4 million** for the six-month period ended June 30, 2022[112](index=112&type=chunk) - At June 30, 2022, the cash balance was **$5.7 million**, but the company has not generated sufficient cash from operating activities to fund ongoing operations[112](index=112&type=chunk) - Substantial doubt exists regarding the company's ability to continue as a going concern for the next twelve months, necessitating additional funds through public or private financing, collaborative relationships, or other arrangements[112](index=112&type=chunk)[113](index=113&type=chunk)[116](index=116&type=chunk) [NOTE 12 – SUBSEQUENT EVENTS](index=22&type=section&id=NOTE%2012%20%E2%80%93%20SUBSEQUENT%20EVENTS) This note states that management has evaluated subsequent events through August 15, 2022, and found no events requiring adjustment to or disclosure in the consolidated financial statements - No subsequent events requiring adjustment or disclosure were identified through **August 15, 2022**, the date the financial statements were available for issuance[117](index=117&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, recent developments, critical accounting policies, and a detailed comparison of financial performance for the three and six months ended June 30, 2022 and 2021. It also addresses liquidity, capital resources, and the impact of macroeconomic conditions [FORWARD-LOOKING STATEMENTS](index=24&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section highlights the inherent uncertainties and risks associated with forward-looking statements, cautioning that actual results may differ materially from projections - The report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from projections[119](index=119&type=chunk) - Key risks include the company's history of losses, ability to continue as a going concern, market competition, customer retention, growth management, impact of COVID-19, and ability to obtain additional financing[120](index=120&type=chunk)[121](index=121&type=chunk) [OVERVIEW](index=25&type=section&id=OVERVIEW) This section describes the company's core business as a controlled environment agriculture (CEA) farming company, emphasizing its sustainable practices and proprietary technology - Edible Garden is a controlled environment agriculture (CEA) farming company that uses hydroponic and vertical greenhouses to sustainably grow organic herbs and lettuces[123](index=123&type=chunk) - The company utilizes proprietary GreenThumb software for greenhouse management, demand planning, sales data monitoring, forecasting, inventory management, and traceability[126](index=126&type=chunk) - Sustainability efforts include a 'closed loop' water system, LED lighting, and efficient truck loading to reduce natural resource consumption and carbon footprint[125](index=125&type=chunk)[129](index=129&type=chunk) [RECENT DEVELOPMENTS](index=27&type=section&id=RECENT%20DEVELOPMENTS) This section outlines key recent events, including the company's Initial Public Offering (IPO), board changes, and significant debt restructuring - The company completed its Initial Public Offering (IPO) on **May 9, 2022**, selling **2,930,000 units** (common stock and warrants) at **$5.00 per unit**, generating approximately **$14.7 million** in gross proceeds[132](index=132&type=chunk) - In connection with the IPO, the company issued Representative's Warrants to purchase up to **117,200 shares** of Common Stock at an exercise price of **$6.25 per share**[133](index=133&type=chunk) - The board of directors saw new appointments (Mathew McConnell, Tracy Nazzaro, Ryan Rogers) and a subsequent resignation (Tracy Nazzaro)[135](index=135&type=chunk) - On **June 30, 2022**, the company issued an amended and restated consolidated secured promissory note to Evergreen Capital Management LLC[136](index=136&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=27&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section discusses the accounting policies that require significant management judgment and estimates, such as revenue recognition and income taxes - Critical accounting policies involve significant management judgment and estimates, including revenue recognition, valuation of property, equipment and leasehold improvements, and income taxes[137](index=137&type=chunk)[138](index=138&type=chunk) - The company establishes valuation allowances for deferred tax assets to reduce them to the amount expected to be realized, fully offsetting net operating losses at June 30, 2022, and December 31, 2021[142](index=142&type=chunk) [RESULTS OF OPERATIONS](index=28&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, comparing revenues, costs, and net losses for the reported periods [COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021](index=28&type=section&id=COMPARISON%20OF%20THE%20THREE%20MONTHS%20ENDED%20JUNE%2030%2C%202022%20AND%202021) For the three months ended June 30, 2022, revenue increased by 7.49% year-over-year, but gross profit declined due to higher costs. Selling, general, and administrative expenses surged by 93.83%, primarily driven by IPO-related bonuses, leading to a significant increase in loss from operations and net loss Financial Performance (Three Months Ended June 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $2,985 | $2,777 | $208 | 7.49% | | Cost of goods sold | $2,779 | $2,457 | $322 | 13.11% | | Gross profit | $206 | $320 | $(114) | (35.63%) | | Selling, general and administrative expenses | $2,733 | $1,410 | $1,323 | 93.83% | | Loss from operations | $(2,527) | $(1,090) | $(1,437) | 131.83% | | Interest expense, net | $(1,234) | $(62) | $(1,172) | 1890.32% | | Loss from extinguishment of debt | $(826) | $- | $(826) | N/A | | NET LOSS | $(4,776) | $(1,152) | $(3,624) | 314.58% | - Selling, general and administrative expenses increased by **$1.323 million**, or **93.83%**, primarily due to **$1 million** in transaction bonuses paid to the CEO and CFO upon IPO completion, wage increases, and higher accounting and insurance costs[149](index=149&type=chunk) - Gross profit declined by **$114 thousand**, or **4.11% of sales**, due to increased packaging costs (inflation), higher labor costs (COVID-19), and increased costs from contract farmers[148](index=148&type=chunk) [COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021](index=30&type=section&id=COMPARISON%20OF%20THE%20SIX%20MONTHS%20ENDED%20JUNE%2030%2C%202022%20AND%202021) For the six months ended June 30, 2022, revenue grew by 8.78% year-over-year, but gross profit significantly decreased. Selling, general, and administrative expenses rose by 61.70%, driven by IPO-related bonuses and increased natural gas costs, resulting in a substantial increase in loss from operations and net loss Financial Performance (Six Months Ended June 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $5,722 | $5,260 | $462 | 8.78% | | Cost of goods sold | $5,611 | $4,823 | $788 | 16.34% | | Gross profit | $111 | $437 | $(326) | (74.60%) | | Selling, general and administrative expenses | $4,340 | $2,684 | $1,656 | 61.70% | | Loss from operations | $(4,229) | $(2,247) | $(1,982) | 88.21% | | Interest expense, net | $(1,737) | $(100) | $(1,637) | 1637.00% | | Loss from extinguishment of debt | $(826) | $- | $(826) | N/A | | Other income / (loss) | $(590) | $- | $(590) | N/A | | NET LOSS | $(7,382) | $(2,347) | $(5,035) | 214.53% | - Selling, general and administrative expenses increased by **$1.656 million**, or **61.70%**, primarily due to **$1.189 million** in compensation (including IPO bonuses), a **$186 thousand** increase in natural gas expense, and higher accounting and insurance costs[161](index=161&type=chunk) - Gross profit declined by **$326 thousand**, or **6.20% of sales**, with margins dropping from **8.31% to 1.94%**, due to increased packaging, labor (COVID-19), and contract farmer costs[160](index=160&type=chunk) - Other income / (loss) for the six months ended June 30, 2022, was **$(590 thousand)**, including **$189 thousand** from warrant revaluation and **$401 thousand** from a leak-out provision on convertible debt[168](index=168&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=30&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's ability to meet its short-term and long-term financial obligations, discussing cash on hand, debt, and capital-raising efforts [Going Concern Considerations](index=30&type=section&id=Going%20Concern%20Considerations) The company's financial statements are prepared on a going concern basis, but significant net losses and expected increases in expenses raise substantial doubt about its ability to continue operations for the next twelve months without additional financing - The company incurred net losses of **$7.382 million** for the six months ended June 30, 2022, and **$2.347 million** for the year ended December 31, 2021[171](index=171&type=chunk) - Operating losses are expected to continue or increase due to anticipated increases in sales and marketing, operational, and general and administrative costs[171](index=171&type=chunk) - Substantial doubt exists regarding the company's ability to continue as a going concern, and failure to raise additional capital could lead to scaling back or ceasing operations[172](index=172&type=chunk)[173](index=173&type=chunk) [Liquidity](index=31&type=section&id=Liquidity) This section details the company's cash position and its ability to fund operations and capital expenditures, noting potential challenges in accessing credit Liquidity Position (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $5,700 | $31 | | Total debt outstanding | $5,850 | $8,090 | - The company believes its current cash on hand and cash flows will be adequate for operational and business needs in the next twelve months, but long-term needs may require additional debt or equity financing[176](index=176&type=chunk) - There is a risk that the company may not be able to access credit markets on commercially acceptable terms or at all for additional funds[176](index=176&type=chunk) [Capital Resources](index=31&type=section&id=Capital%20Resources) This section details the capital raised through the IPO, including the net proceeds and their allocation towards debt repayments, conversions of SAFEs and convertible notes, and the subsequent issuance of a new consolidated secured promissory note to Evergreen - The IPO generated total net proceeds of **$13.62 million** after deducting underwriting discounts and offering expenses[177](index=177&type=chunk) - Proceeds were used to repay Evergreen (**$2.53 million**), convert SAFEs into common stock (**153,996 shares**) and cash (**$5,790**), repay the CFO (**$785,597**), and convert CFO/CEO convertible notes into common stock (**284,930 and 6,015 shares**, respectively)[178](index=178&type=chunk) - A new **$1.84 million** consolidated secured promissory note was issued to Evergreen on June 30, 2022, with a **7.0% interest rate** and a maturity date of March 31, 2023[179](index=179&type=chunk)[180](index=180&type=chunk) [Cash Flows](index=32&type=section&id=Cash%20Flows) This section summarizes the company's cash flow activities for the six months ended June 30, 2022 and 2021, highlighting a significant increase in cash provided by financing activities due to the IPO, which offset increased cash used in operating activities - Cash used in operating activities increased to **$5.60 million** for the six months ended June 30, 2022, primarily due to the timing of vendor payments and increased executive and director compensation[184](index=184&type=chunk) - Cash provided by financing activities significantly increased to **$11.31 million** for the six months ended June 30, 2022, driven by the completion of the IPO[185](index=185&type=chunk) [Impact of COVID-19 and Macroeconomic Conditions](index=32&type=section&id=Impact%20of%20COVID-19%20and%20Macroeconomic%20Conditions) This section discusses the ongoing and potential future impacts of the COVID-19 pandemic and broader macroeconomic conditions, such as the Russian invasion of Ukraine, on the company's business, including supply chain disruptions, increased commodity costs, and workforce challenges - The COVID-19 pandemic and macroeconomic conditions have led to volatile supply and demand, disrupted global supply chains, and increased costs for certain commodities like natural gas[186](index=186&type=chunk) - Workforce disruptions related to COVID-19 pose a significant risk to maintaining operations and could adversely affect financial results[187](index=187&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Edible Garden AG Incorporated is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide information on quantitative and qualitative disclosures about market risk[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting, specifically a lack of adequate segregation of duties within the finance department - Disclosure controls and procedures were not effective as of **June 30, 2022**[189](index=189&type=chunk) - A material weakness was identified due to the limited number of employees in the finance department, leading to inadequate segregation of duties in the financial statement preparation process[190](index=190&type=chunk) [PART II - OTHER INFORMATION](index=33&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, exhibits, and official signatures, providing additional context beyond the financial statements [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 9 for details on legal proceedings, stating that management does not believe any other pending or threatened proceedings would have a material adverse effect on the company's business, results of operations, or financial condition - The company is involved in various legal proceedings in the ordinary course of business, with specific details on a material action provided in Note 9[195](index=195&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the IPO prospectus for a comprehensive discussion of risk factors and highlights new risks related to non-compliance with Nasdaq continued listing requirements, specifically concerning board independence and stockholders' equity, which could lead to delisting - The company received notice from Nasdaq on **August 1, 2022**, for non-compliance with listing rules **5605(b)(1)** (majority independent directors) and **5605(c)(2)** (audit committee composition) due to a director resignation[198](index=198&type=chunk) - As of **June 30, 2022**, stockholders' equity was below **$1.5 million**, and the company did not meet Nasdaq's net income or market value standards for continued listing, posing a risk of delisting[199](index=199&type=chunk) - Failure to regain compliance with Nasdaq listing standards could result in delisting, negatively impacting the market price and liquidity of the company's securities and its ability to raise capital[199](index=199&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the gross and net proceeds from the company's IPO, the expenses incurred, and confirms that there has been no material change in the planned use of proceeds as described in the prospectus - The IPO generated approximately **$14.7 million** in gross proceeds from the sale of **2,930,000 units** and **439,500 additional warrants**[200](index=200&type=chunk) - Offering expenses totaled **$1.44 million**, resulting in net proceeds of **$13.21 million**[201](index=201&type=chunk) - There has been no material change in the planned use of proceeds as described in the prospectus dated **May 5, 2022**[201](index=201&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including key agreements, warrants, and certifications - Exhibits include the Underwriting Agreement, forms of Warrants, Warrant Agency Agreement, Amended and Restated Consolidated Secured Promissory Note, Letter Agreement, and various certifications (31.1, 31.2, 32, 101, 104)[205](index=205&type=chunk) [Signatures](index=35&type=section&id=Signatures) This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report - The report is signed by James E. Kras, Chief Executive Officer and President, and Michael James, Chief Financial Officer, Treasurer and Secretary[208](index=208&type=chunk)[209](index=209&type=chunk) - The report was dated **August 15, 2022**[209](index=209&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-41371 EDIBLE GARDEN AG INCORPORATED (Exact name of registrant as specified in its charter) (State or other incorporation or organization) Delaware jurisdictionof 85-0558704 (I ...