Edible Garden AG rporated(EDBL) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial information, including financial statements and management's analysis Item 1. Financial Statements 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 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 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) 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 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 This section provides detailed explanations and additional information for the condensed consolidated financial statements NOTE 1 – ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION 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] - 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] - 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][33] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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] - Five customers accounted for approximately 81% of total revenue for the six months ended June 30, 2023, indicating significant customer concentration risk[40] - 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] 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 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 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] NOTE 5 – INTANGIBLE ASSETS 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] NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES 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 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] - 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] - 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] NOTE 8 – STOCKHOLDERS' EQUITY (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][156] - As of June 30, 2023, 2,827,082 common shares were outstanding, a significant increase from 362,716 shares at December 31, 2022[83] - 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][85] - 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] NOTE 9 – LEASES 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] - 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] NOTE 11 – RELATED PARTY TRANSACTIONS 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] - Several vehicle loan agreements are personally guaranteed by the company's Chief Executive Officer and Chief Financial Officer[101] - Promissory notes totaling $175,000 issued to Michael James (CFO and Director) were fully repaid during the six months ended June 30, 2023[102] NOTE 12 – GOING CONCERN 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] - 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] - 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][108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][110] 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][29] - 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][116] - Key differentiators include a focus on the 'Edible Garden' brand, sustainability, traceability, and social contribution[115] RECENT DEVELOPMENTS 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] - 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] - The number of authorized common stock shares was increased from 6,666,667 to 10,000,000 on June 8, 2023[119] CRITICAL ACCOUNTING POLICIES 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][122] - Revenue is recognized when control of goods or services is transferred to customers, typically at fixed sales prices without material returns or discounts[123] - 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] RESULTS OF OPERATIONS 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 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] - 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] - 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][138][140] - 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] COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 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] - 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] - 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][148][150] - 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] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's ability to meet financial obligations, covering cash, working capital, and funding sources Going Concern Considerations 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][152] - Future success is dependent on achieving profitable operations and generating cash from operating activities, or raising additional funds through public/private financing[153] 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] - 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] - The company used $5.568 million for operating activities during the first half of 2023[155] - Remaining proceeds from the February 2023 public offering are expected to fund operations through December 2023[155] Capital Resources 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] - 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] - The company continues to enter into vehicle loans, some personally guaranteed by executives, with interest rates ranging from 7.64% to 18.66%[157] Cash Flows 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] - Cash used in investing activities increased significantly to $591 thousand from $33 thousand, primarily due to purchases for the Edible Garden Heartland facility[160] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - A material weakness exists due to inadequate segregation of duties in the finance department and insufficient documentation/review of internal controls[164] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[165] PART II — OTHER INFORMATION This section includes additional information not covered in financial statements, such as legal proceedings and exhibits Item 1. Legal Proceedings 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] Item 6. Exhibits 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 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][170]