# Edible Garden AG Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [Edible Garden AG Inc](/companies/edbl.md) (CIK 1809750)
- Form: 10-Q
- Filed: 2024-11-13
- Accepted by EDGAR: Nov 13, 2024, 09:56 ET
- Period: 2024-09-30
- Accession: 0001477932-24-007062
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1809750/000147793224007062/edbl_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1809750/000147793224007062/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $2.6m | us-gaap:Revenues |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $10.0m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $1.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $7.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $699.0k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $2.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $2.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $8.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$1.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$6.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $409.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $944.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$2.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$8.0m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$6.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $177.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2024-09-30 | $5.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $8.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $4.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $5.6m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $649.0k | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2024-09-30 | $1.4m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-09-30 | $3.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,118 characters.

### FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provides a “safe harbor” for forward-looking statements made by us. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends, and other information, may be forward-looking statements. Words such as “might,” “will,” “would,” “could,” “should,” “may,” “can,” “estimates,” “expects,” “anticipates,” “projections,” “plans,” “potential,” “intends,” “believes,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs, estimates, and projections will occur or can be achieved. Actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including:

- our history of losses and our ability to continue as a going concern;
- our ability to obtain additional financing to fund our operations;
- our ability to remain listed on the Nasdaq Stock Market LLC (“Nasdaq”) and regain compliance with its listing standards;
- our ability to pay our debts as they come due;
- the departure of members of our management team;
- our market opportunity;
- our ability to effectively manage our growth;
- our ability to integrate business acquisitions;
- the effects of increased competition as well as innovations by new and existing competitors in our market;
- our ability to retain our existing customers and to increase our customer base;
- the future growth of the indoor agriculture industry and demands of our customers;
- our ability to maintain, or strengthen awareness of, our brand;
- our ability to expand the product lines we offer;
- our ability to maintain, protect, and enhance our intellectual property;
- future revenue, hiring plans, expenses and capital expenditures;
- our ability to comply with new or modified laws and regulations that currently apply or become applicable to our business;
- our ability to recruit and retain key employees and management personnel;
- our financial performance and capital requirements;
- the material weaknesses in our internal control over financial reporting and the potential insufficiency of our disclosure controls and procedures to detect errors or acts of fraud; and
- the potential lack of liquidity and trading of our securities.

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report and our other reports filed with the Securities and Exchange Commission (“SEC”).

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### OVERVIEW

We are a controlled environment agriculture (“CEA”) farming company. We use traditional agricultural growing techniques together with technology to grow fresh, organic food, sustainably and safely while improving traceability. We use the controlled environment of traditional greenhouse structures, such as glass greenhouses, together with hydroponic and vertical greenhouses to sustainably grow organic herbs, lettuces and floral products. In our hydroponic greenhouse, we grow plants without soil. Instead of planting one row of lettuce in the ground, by using a vertical greenhouse, we can grow many towers of lettuce in the same area by planting up instead of planting across. Growing these products sustainably means that we avoid depleting natural resources in order to maintain an ecological balance, such as by renewing, reusing and recycling materials in order to lower the overall one-time use of materials.

Our controlled greenhouse facilities allow us to grow consistent quality herbs and lettuces year-round, first by eliminating some of the variability of outdoor farming with our CEA techniques, and second by leveraging our proprietary software, GreenThumb. In addition to using hydroponic and vertical greenhouse systems, we use a “closed loop” system in our greenhouses. Generally, in a “closed loop” system, drain water is recollected and reused for irrigation. In our closed loop system, we also cycle water back into the system that has been collected through reverse osmosis. When compared with conventional agriculture, our closed looped systems and hydroponic methods use less land, less energy and less water (than legacy farms), thus conserving some of the planet’s limited natural resources. Our advanced systems are also designed to help mitigate contamination from harmful pathogens, including salmonella, e-coli and others.

We have also developed patented software called GreenThumb that assists in tracking plants through our supply chain. Utilizing our GreenThumb software to track the status of our plants as they grow and move throughout the greenhouse allows us to add a layer of quality control due to the frequent monitoring of the growing process, leading to improved traceability. In this context, traceability means being able to track a plant through all stages of production and distribution. In addition to improving traceability, GreenThumb helps us better manage the day-to-day operations of our business. GreenThumb is a web-based greenhouse management and demand planning system that does the following:

- integrates in real-time with our cloud business software suite for monitoring daily sales data;
- generates reports by category, product, customer, and farm to allow us to analyze sales, trends, margins and retail shrink (spoiled product);
- provides dynamic pallet mapping for packout, which enables us to more efficiently ship our products;
- utilizes a proprietary algorithm that uses year-over-year and trending sales data to develop customer specific and aggregate product specific forecasting for our greenhouses;
- aggregates all greenhouse activity input to provide real-time inventory and availability reports of all products in our greenhouses;
- manages our online ordering system with user-controlled product availability based upon greenhouse inventory;
- provides a route management system for coordinating the logistics of our direct store delivery program; and
- tracks all production activities at greenhouses, including sowing, spacing, dumping, spraying, picking and packing, using handheld devices.

We also use our GreenThumb software to help monitor the quality of our products, and we have dedicated quality assurance and quality control personnel that check and monitor our products. We have customer service personnel that answer any questions the consumers of our products may have, and we regularly ask for feedback from our customers on the quality of our products. The combination of the GreenThumb software, quality assurance and control processes (including compliance with food safety standards), and feedback from consumers and purchasers holds us accountable for maintaining the quality of our herbs and lettuce.

We focus our efforts on producing our herbs and vegetables in a sustainable manner that will reduce consumption of natural resources, by recycling water in our closed loop system and using LED lights instead of conventional lightbulbs to accelerate crop growth and yield, when necessary. In addition, the inventory management component of GreenThumb allows us to manage inventory levels, order quantities and fill rates while maximizing truck loads. This means that we are better able to control shipping our products in full truck loads, thus eliminating multiple deliveries and decreasing the excess emission of greenhouse gases that would result from many partially full trucks delivering our products. Together, these elements of our production and distribution process are intended to reduce our carbon footprint, or the total amount of greenhouse gases that are generated by our actions, as compared with a legacy farm business.

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We believe our focus on our brand “Edible Garden” is a significant differentiator. The brand not only lends itself to our current portfolio of products but allows us to develop other products in the “Consumer Brands” category. Our focus on sustainability, traceability, and social contribution, which we define as an ongoing effort to improve employee relations, working conditions, and local communities, presents our value proposition to our customers and supermarket partners and distributors.

### RECENT DEVELOPMENTS

### Nasdaq Compliance

On October 21, 2024, we received a letter from the Listing Qualifications Department (the “Staff”) of Nasdaq indicating that, based upon the closing bid price of our common stock for at least 30 consecutive business days, we no longer met Nasdaq Listing Rule 5550(a)(2), which requires listed companies to maintain a minimum bid price of at least $1 per share (the “Bid Price Rule”).

On October 28, 2024, we submitted a request for a hearing before a Nasdaq Hearings Panel (the “Panel”) to appeal the delisting notice from the Staff. Until the hearing process concludes and the Panel issues a written decision, our common stock and warrants will continue to trade on the Nasdaq under the symbols “EDBL” and “EDBLW,” respectively. There can be no assurance that the Panel will grant us additional time to regain compliance with Nasdaq’s listing standards or that we could ultimately meet all applicable criteria for continued listing on Nasdaq.

### Acquisition of Edible Garden Corp.

On October 1, 2024, we acquired Edible Garden Corp. (“EGC”) from Unrivaled Brands, Inc., our former parent company, for the nominal price of $1.00. At our inception, we had acquired substantially all of the assets of EGC from Unrivaled Brands, Inc., except for the lease agreement between EGC and Whitetown Realty, LLC (the “Landlord”), made as of December 30, 2014 (the “Lease Agreement”), as amended by a lease extension agreement between EGC and the Landlord, dated September 10, 2019 (the “Lease Extension,” together with the Lease Agreement, the “Lease”), for a 5-acre greenhouse location in Belvidere, New Jersey. As a result, prior to October 1, 2024, we had operated the New Jersey property through an informal arrangement with EGC in which we effectively rented the property on a month-to-month basis with no set term. On October 1, 2024, upon the closing of its acquisition of EGC, we assumed the Lease and became subject to its terms. The Lease has a term that commenced on January 1, 2015 and ends on December 31, 2029. Under the terms of the Lease, we will pay the Landlord a monthly lease payment of approximately $22,189.

### Payoff of Secured Promissory Note

On March 30, 2020, we entered into a promissory note (the “First Sament Note”) for $3,000,000 with Sament Capital Investments, Inc. (“Sament”) in connection with the acquisition of EGC’s assets. The First Sament Note accrued interest at a rate of 3.5% per annum on a 360-day year basis and had a maturity date of March 30, 2025. The First Sament Note was secured by our operating assets purchased from EGC. On September 30, 2024, we prepaid the principal and accrued interest due under the First Sament Note with a premium of $155,322. As a result of the agreement, we repaid $3,106,458 of outstanding principal and $9,061 of accrued interest. During the three and nine months ended September 30, 2024, we recognized a loss from extinguishment of debt equal to $163,584 for the premium paid less the unamortized debt discount on the First Sament Note.

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### September 2024 Public Offering

On September 30, 2024, we closed on a best-efforts public offering (the “September Offering”) of (i) 4,240,650 common units, each consisting of one share of common stock, one Class A warrant (“Class A Warrant”) to purchase one share of common stock and one Class B warrant (“Class B Warrant,” together with the Class A Warrants, the “Warrants”) to purchase one share of common stock at a purchase price of $0.36 per unit; and (ii) 11,460,000 pre-funded units, each consisting of one pre-funded warrant to purchase one share of common stock, one Class A Warrant and one Class B Warrant at a purchase price of $0.35 per unit. The Warrants have an exercise price of $0.36. Gross proceeds from the September Offering, before deducting placement agent fees and estimated offering expenses, were approximately $5.6 million.

### CRITICAL ACCOUNTING ESTIMATES

The preparation of the unaudited consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. The following accounting policies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management’s estimates are based on historical experience, the relevant information available at the end of each period, and their judgment. Although management believes the judgment applied in preparing estimates is reasonable based on circumstances and information known at the time, actual results could differ materially from these estimates under different assumptions or market conditions.

The most significant accounting estimates involve a high degree of judgment or complexity. Management believes the estimates and judgments most critical to the preparation of our consolidated financial statements and to the understanding of our reported financial results include allowance for doubtful accounts. The following are the accounting policies most critical to the preparation of our consolidated financial statements.

### Revenue Recognition

Revenues is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company does not offer returns, discounts, loyalty programs or other sales incentive programs that are material to revenue recognition. Payments from our customers are due upon delivery or within a short period after delivery.

### Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Our fixed assets, which are comprised of leasehold improvements, equipment and vehicles, have useful lives of five years. Expenditures for major renewals and improvements are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon sale or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations.

The Company continually monitors events and changes in circumstances that could indicate that the carrying balances of its property, equipment and leasehold improvements may not be recoverable in accordance with the provisions of Accounting Standards Codification (“ASC”) 360, “*Property, Plant, and Equipment.”* When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.

### Income Taxes

The provision for income taxes is determined in accordance with ASC 740, “*Income Taxes.”* The Company files a consolidated United States federal income tax return. The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expense are expected to be settled in our income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. At September 30, 2024 and December 31, 2023, such net operating losses were offset entirely by a valuation allowance.

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The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50.0% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations.

### RESULTS OF OPERATIONS

### COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

| (in thousands): | Three Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Revenue | $2,584 | $3,289 |
| Cost of goods sold | 1,885 | 3,277 |
| Gross profit | 699 | 12 |
| Selling, general and administrative expenses | 2,189 | 2,387 |
| Loss from operations | (1,490) | (2,375) |
| Other expenses |  |  |
| Interest expenses, net | (409) | (57) |
| Loss from extinguishment of debt | (164) | - |
| Other income / (loss) |  | 1 |
| Total other expenses | (573) | (56) |
| **NET LOSS** | $(2,063) | $(2,431) |

### Revenue

Revenue was $2.584 million for the three months ended September 30, 2024, compared to $3.289 million for the three months ended September 30, 2023. The decrease in revenue of $705 thousand was driven by our strategic shift away from the sale of lower margin products; specifically, lettuce and floral. Combined, the omission of these two products drove a decrease of $597 thousand. In addition, certain shipments of our nutraceutical products were delayed due to a hurricane in the Gulf of Mexico, which caused $215 thousand of revenue to shift to the fourth quarter. This was partially offset by an increase in cut herbs of 10% ($98 thousand) and the addition of Pulp revenue of $30 thousand. During the three months ended September 30, 2024, total revenue was reduced by approximately $67 thousand as we adjusted the transaction price of our sales to a customer to account for funds we agreed to pay to the customer for the installation of fixtures in their stores. See Note 2, *"Summary of Significant Accounting Policies.”*

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### Cost of goods sold

Cost of goods sold were $1.885 million for the three months ended September 30, 2024, compared to $3.277 million for the three months ended September 30, 2023. Cost of goods sold decreased $1.392 million, or 42.5%, primarily driven by our seasonally low sales in the current quarter and the elimination of the use of large third-party growers that previously made up a material portion of our cost of goods sold.

### Selling, general and administrative

Selling, general and administrative expenses (“SG&A”) were $2.189 million for the three months ended September 30, 2024, compared to $2.387 million for the three months ended September 30, 2023. SG&A decreased $198 thousand, or 8.3%, due to a reduction in labor costs and professional fees.

### Loss from operations

Lower cost of goods sold along with lower SG&A expenses resulted in a loss from operations of $1.490 million for the three months ended September 30, 2024, compared to $2.375 million for the three months ended September 30, 2023. The decrease in net loss from operations was $885 thousand, or 37.3% compared with the three months ended September 30, 2023.

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### Interest expense

Interest expense was $409 thousand for the three months ended September 30, 2024, compared to $57 thousand for the three months ended September 30, 2023. Higher interest expense was related to the amended and restated standard merchant cash advance agreement with Cedar Advance LLC (the “Cedar Agreement”).

### Loss from extinguishment of debt

During the three months ended September 30, 2024, the Company recognized a loss from the extinguishment of the First Sament Note of $164 thousand related to the premium paid associated with the early payoff of the First Sament Note.

### Net loss

Net loss was $2.063 million for the three months ended September 30, 2024, compared to a net loss of $2.431 million for the three months ended September 30, 2023. The decrease of the net loss of $368 thousand, or 15.1%, was primarily driven by a 27% expansion of gross profit margin and lower SG&A offset by other expenses.

### COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

| (in thousands): | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Revenue | $9,985 | $9,965 |
| Cost of goods sold | 7,696 | 9,425 |
| Gross profit | 2,289 | 540 |
| Selling, general and administrative expenses | 8,823 | 7,458 |
| Loss from operations | (6,534) | (6,918) |
| Other expenses |  |  |
| Interest expenses, net | (944) | (344) |
| Gain (Loss) from extinguishment of debt | (498) | 70 |
| Employee retention credit | - | 1,233 |
| Other income / (loss) | 4 | 1 |
| Total other expenses | (1,438) | 970 |
| **NET LOSS** | $(7,972) | $(5,948) |

### Revenue

Revenue was $9.985 million for the nine months ended September 30, 2024, compared to $9.965 million for the nine months ended September 30, 2023. The increase in revenue of $20 thousand, was primarily attributed to an increase in customer demand for our core products of cut herbs and potted herbs. Revenue from cut herbs increased by 55% ($1.1 million) and our potted herb revenue increased by $179 thousand (5%). In 2024 there was additional revenue supplied by the new Pulp product offering of $67 thousand. This was offset by our strategic shift away from low margin floral and lettuce products which decreased by $1 million along with the hurricane-related delay of recognizing revenue from nutraceuticals in the third quarter of 2024.

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During the nine months ended September 30, 2024, total revenue was reduced by approximately $124 thousand as we adjusted the transaction price of our sales to a customer to account for funds we agreed to pay to the customer for the installation of fixtures in their stores. See Note 2, *"Summary of Significant Accounting Policies.”*

### Cost of goods sold

Cost of goods sold were $7.696 million for the nine months ended September 30, 2024, compared to $9.425 million for the nine-month period ended September 30, 2023. Cost of goods sold decreased $1.729 million, or 18.3%, primarily due to our shift away from using third party growers for some of our produce business as our Michigan facility production capacity was brought online during the nine months ended September 30, 2024.

### Selling, general and administrative

SG&A expenses were $8.823 million for the nine months ended September 30, 2024, compared to $7.458 million for the nine months ended September 30, 2023. SG&A increased $1.365 million, or 18.3%, due to a one-time severance charge of $0.6 million related to the departure of our Chief Financial Officer and higher audit, accounting and legal fees related to our capital raising activities.

### Loss from operations

Higher SG&A expense resulted in a loss from operations of $6.534 million for the nine months ended September 30, 2024, compared to $6.918 million for the nine months ended September 30, 2023. The decrease in loss from operations was $384 thousand, or 5.6% compared with the nine months ended September 30, 2023, primarily due to improvement in gross margin during the period and offset by higher SG&A expense.

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### Interest expense

Interest expense was $944 thousand for the nine months ended September 30, 2024, compared to $334 thousand for the nine months ended September 30, 2023. Higher interest expense was a result of the company entering into and amending the Cedar Agreement.

### Loss from extinguishment of debt

During the nine months ended September 30, 2023, the Company recognized a loss from the extinguishment of debt of $498 thousand related to the Cedar Agreement and the early payoff of the First Sament Note.

### Net loss

Net loss was $7.972 million for the nine months ended September 30, 2024, compared to a net loss of $5.948 million for the nine months ended September 30, 2023. The net loss for the nine months ending September 30, 2023 included one time Employee Retention Credit income of $1.233 million. Without this one-time income item, the net loss for the nine months ending September 30, 2023 was $7.181 million. The reasons for the increase in net loss are explained above.

### LIQUIDITY AND CAPITAL RESOURCES

### Going Concern Considerations

We have incurred significant losses since our inception. We recognized net losses of approximately $7.972 million during the nine months ended September 30, 2024 and $10.188 million during the twelve months ended December 31, 2023. As of September 30, 2024, we have an accumulated deficit of $38.2 million. Our operating activities used $6.6 million and $8.5 million of cash during the nine months ended September 30, 2024 and the year ended December 31, 2023, respectively. We expect our capital expenses and operational expenses to increase in the future due to expected increased sales and marketing expenses, operational costs, and general and administrative costs. Therefore, we believe our operating losses will continue at least through the near term.

The risks and uncertainties surrounding our ability to continue our business with limited capital resources raises substantial doubt as to our ability to continue as a going concern for twelve months from the issuance of these financial statements. Our financial statements have been prepared on a “going concern” basis, which implies we may not continue to meet our obligations and continue our operations for the next twelve months. Our consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern. If we are unable to continue as a going concern, holders of our securities might lose their entire investment. These factors, among others, may make it difficult to raise any additional capital and may cause us to be unable to continue to operate our business.

There is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity or equity-linked securities by us would result in significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business as planned and as a result may be required to scale back or cease operations, which could cause our stockholders to lose some or all of their investment in us. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

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### Liquidity

The Company’s primary liquidity requirements are for working capital, continued investments in capital expenditures, repayment of indebtedness, and other strategic investments. Although income taxes are not currently a significant use of funds, after the benefits of our net operating loss carryforwards are fully recognized, they could become a material use of funds, depending on our future profitability and future tax rates. The Company’s liquidity needs have been met primarily through public equity offerings, term loan borrowings, accounts receivable financing, convertible notes, and related party loans.

As of September 30, 2024 and December 31, 2023, we had $2.214 million and $510 thousand in cash and cash equivalents available, respectively. During the nine months ended September 30, 2024, we used $6.761 million of cash for operating activities. As of September 30, 2024, we had working capital of $524 thousand. As of December 31, 2023, we had a working capital deficit of $257 thousand. As of September 30, 2024 and December 31, 2023, we had $2.035 million and $4.445 million of total gross debt outstanding, respectively. To meet our cash needs, we closed a best-efforts public offering on September 30, 2024 and raised net proceeds of approximately $4.797 million after paying underwriting and other expenses and before the repayment of the First Sament Note.

We may not be able to access the capital markets in the future on commercially acceptable terms or at all. Our ability to fund future operating expenses and capital expenditures and our ability to meet future debt service obligations or refinance our indebtedness will depend on our future operating performance, which will be affected by general economic, financial and other factors beyond our control, including those described under “*Risk Factors”* below and in our Annual Report on Form 10-K, filed with the SEC on April 1, 2024.

### Capital Resources

On September 30, 2024, we closed on the September Offering of (i) 4,240,650 common units, each consisting of one share of common stock, one Class A Warrant and one Class B Warrant at a purchase price of $0.36 per unit; and (ii) 11,460,000 pre-funded units, each consisting of one Pre-Funded Warrant, one Class A Warrant and one Class B Warrant at a purchase price of $0.35 per unit. Gross proceeds from the offering, before deducting placement agent fees and other offering expenses, were approximately $5.552 million. With the proceeds, the Company used approximately $3.27 million to pay off debt, paid down accounts payable of $603 thousand, acquired inventory of $900 thousand, and paid costs relating to the public offering of $408 thousand.

On May 23, 2024, we closed on the May offering of (i) 2,437,000 common units, each consisting of one share of common stock, one Class A Warrant to purchase one share of common stock and one Class B Warrant to purchase one share of common stock at a purchase price of $2.26 per unit; and (ii) 218,000 pre-funded units, each consisting of one pre-funded warrant to purchase one share of common stock, one Class A Warrant and one Class B Warrant at a purchase price of $2.25 per unit. The Warrants had an exercise price of $2.26 per share, subject to an exercise price reset, which took effect on June 22, 2024 and reduced the exercise price of the Warrants to $1.49 per share. Gross proceeds from the May offering, before deducting placement agent fees and estimated offering expenses, were approximately $6 million.

On March 14, 2024, we entered into a standard merchant cash advance agreement with Cedar Advance LLC (“Cedar”), pursuant to which we agreed to sell $1,491,000 of trade receivables to Cedar in exchange for $1,000,000 of cash proceeds, after deducting $50,000 for underwriting fees and other transaction expenses. On May 7, 2024, we entered into the Cedar Agreement, pursuant to which we sold Cedar an additional $994,000 of our future accounts receivable for a purchase price of $700,000, less aggregate fees and expenses of $87,500, for additional net funds provided of $544,250, bringing the total financing with Cedar to $2,485,000 in accounts receivable sold for $1,544,250 of net funds provided. Pursuant to the Cedar Agreement, we are required to pay Cedar 35.0% of all funds collected weekly from customers for the sale of goods and services. Weekly, Cedar is authorized to withdraw $65,000 of funds from our bank account until such time a reconciliation is provided calculating the 35.0% of collections owed to Cedar, until such time the total balance of $2,485,000 is repaid. The Cedar Agreement is collateralized by our cash and receivable accounts. In the event of a default (as defined in the Cedar Agreement), Cedar, among other remedies, can enforce its security interest in the collateral and demand payment in full of the uncollected amount of receivables purchased plus all fees due under the Cedar Agreement.

On February 6, 2024, we entered into an Equity Distribution Agreement (“EDA”) with Maxim Group LLC (“Maxim”) as sales agent, pursuant to which we may, from time to time, issue and sell shares of common stock through Maxim in an at-the-market offering for an aggregate offering price of up to $1,146,893. During the nine months ended September 30, 2024, we received net proceeds of approximately $1.1 million from the sale of common stock under the EDA after deducting Maxim’s commission of 3.5% of the gross proceeds and other offering expenses.

For more information on our outstanding debt as of September 30, 2024 and December 31, 2023, see Note 7 to our financial statements.

### Cash Flows

#### Operating activities

During the nine months ended September 30, 2024 and 2023, cash used for operating activities was $6.761 million and $6.778 million, respectively. Cash expenditures for the nine months ended September 30, 2024 decreased primarily due to an increase in our net loss, an increase in inventory purchases for the holiday growing season and lower collections.

#### Investing activities

During the nine months ended September 30, 2024 and 2023, cash used in investing activities was $177 thousand and $800 thousand, respectively. The decrease was due to lower purchases of property, equipment and leasehold improvements related to the completion of our Michigan facility.

#### Financing activities

During the nine months ended September 30, 2024 and 2023, cash provided by financing activities was $8.642 million and $10.046 million, respectively. The $1.4 million decrease in cash provided by financing activities was due to components of both debt and equity; specifically, an incremental $2.27 million in debt proceeds from the Cedar agreements, offset by $3.1 million in incremental debt repayments as compared to the nine months ended September 30, 2023, primarily related to the payoff of the First Sament Note. In addition, cash provided by financing activities decreased $497 thousand as a result of our equity activities; specifically, cash provided by financing activities increased $1.2 million as a result of sales under our EDA in the nine months ended September 30, 2024, offset by a reduction of $686 thousand in year over year proceeds from our public offerings and $874 thousand of higher costs related to our 2024 public offerings.

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## Controls and procedures

As filed, 1,602 characters.

### Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024 pursuant to Rule 13a-15 under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of September 30, 2024, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were ineffective as of September 30, 2024, due to the existence of material weaknesses in our internal control over financial reporting that we have yet to fully remediate.

Because we are a small company with few employees in our finance department, we lacked the ability to have adequate segregation of duties in the financial statement preparation process. Since these entity level controls have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. In addition, we have a material weakness in our internal control over financial reporting because we lack maintenance of appropriate documentation to support our internal controls and we have insufficiently reviewed reports identifying user entity controls.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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## Risk factors

As filed, 5,579 characters.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should consider the risks described in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023. Except as set forth below, there have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K. Any of these risks and uncertainties, including those discussed below, could materially and adversely affect our business, results of operations, financial condition, and/or the market price of our common stock. The risks described below and in our Annual Report on Form 10-K, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our financial condition and/or operating results.

***Because we are not in compliance with the Nasdaq continued listing requirements and are appealing the determination of the Nasdaq Staff to suspend the trading of our securities, we can provide no assurance that our shares will continue to be listed on Nasdaq, which would affect our common stock’s liquidity and reduce our ability to raise capital.***

On October 21, 2024, we received a letter from the Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for at least 30 consecutive business days, we no longer meet the Bid Price Rule. Under Nasdaq Listing Rule 5810(c)(3)(A)(iv), because we effected reverse stock splits in the last two years with a cumulative ratio greater than 250 shares to 1, we are not eligible for any compliance period to regain compliance with the Bid Price Rule. On October 28, 2024, we submitted a request for a hearing before the Panel to appeal the delisting notice from the Staff.

There can be no assurance that the Panel will grant us additional time to regain compliance with Nasdaq’s listing standards or that we could ultimately meet all applicable criteria for continued listing on Nasdaq. The Panel may determine to delist our securities from Nasdaq. If our common stock is delisted, our warrants will also be delisted. We and holders of our securities could be materially adversely impacted if our securities are delisted from Nasdaq. In particular:

- we may be unable to raise equity capital on acceptable terms or at all;
- we may lose the confidence of our customers, which would jeopardize our ability to continue our business as currently conducted;
- the price of our common stock will likely decrease as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws;
- holders may be unable to sell or purchase our securities when they wish to do so;
- we may become subject to stockholder litigation;
- we may lose the interest of institutional investors in our common stock;
- we may lose media and analyst coverage;
- our common stock could be considered a “penny stock,” which would likely limit the level of trading activity in the secondary market for our common stock; and
- we would likely lose any active trading market for our common stock, as it may only be traded on one of the over-the-counter markets, if at all.

### Our indebtedness could have important consequences to you.

Our indebtedness could have important consequences to you. For example, it could:

- limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other general corporate requirements;
- require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes;
- limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
- place us at a competitive disadvantage compared to competitors that may have proportionately less debt and greater financial resources.

The promissory note issued in connection with our purchase of our Edible Garden Heartland property (“Edible Garden Heartland”) is secured by a mortgage on Edible Garden Heartland and a security interest in the assets at Edible Garden Heartland. In addition, the balance under the Cedar Agreement is collateralized by our cash and receivable accounts. If we were to default on our obligations under these loans and arrangements, the counterparties would have the right to our assets. We could be required to dispose of material assets or operations to meet our debt service and other obligations, and the value realized on such assets or operations will depend on market conditions and the availability of buyers. Accordingly, any such sale may not, among other things, be for a sufficient dollar amount. If we were to otherwise attempt to sell material assets or operations, the foregoing encumbrances may limit our ability to dispose of material assets or operations. If we are unable to raise additional capital or improve our ability to generate cash from operating activities, we may not have sufficient cash on hand or available liquidity that can be utilized to meet our debt service and other obligations when they become due. If we were to default on our obligations under these loans and arrangements, the secured counterparties would have the right to our assets. In the event that the counterparties enforced their rights to our assets, we may have to discontinue our business, and our stockholders could lose all or a part of their investment in us.

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Filed Nov 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001477932-24-007062. Last ingested by Listed: Nov 6, 2026, 16:56 ET. No prices; not investment advice.