Edible Garden AG Inc: Form 10-Q for the period ended Jun 30, 2025

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 “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “might,” “plan,” “potential,” “projections,” “seek,” “should,” “will,” “would,” 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 maintain the listing of our common stock on the Nasdaq Stock Market LLC (“Nasdaq”) and comply with Nasdaq’s listing standards;
• the departure of members of our management team;
• our market opportunity;
• our ability to effectively manage our growth;
• our ability to complete and 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 pay our debts as they come due;
• 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; 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”).

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. In our hydroponic greenhouse, we grow plants without soil. Instead of planting one row of plants in the ground, by using vertical growing systems, we can grow many towers of herbs 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.

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Our controlled greenhouse facilities allow us to grow consistent quality herbs 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 hand held 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 products.

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 and retailer backhaul programs, 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. We have recently leveraged our brand recognition to offer more consumer products that are in many cases co-manufactured, such as sauces, fermented products and flavor enhancers.

RECENT DEVELOPMENTS

Nasdaq Compliance

On October 21, 2024, we received a letter from Listing Qualifications Staff (the “Staff”) of Nasdaq indicating that, based on the closing bid price of our common stock for 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 $1.00 per share, (the “Bid Price Rule”). On January 14, 2025, we attended our hearing with Nasdaq and on February 12, 2025, we received written notification (the “Notice”) from Nasdaq that a Nasdaq Hearings Panel granted an extension for us to regain compliance with the Bid Price Rule until March 31, 2025, subject to additional conditions outlined in the Notice. On April 8, 2025, we received a letter from Nasdaq confirming that we had regained compliance with the Bid Price Rule but will remain under a Nasdaq discretionary panel monitor until April 8, 2026.

Arin Cash Advancement

On April 2, 2025, we entered into a standard merchant cash advance agreement (the “Arin II Agreement”) with Arin Funding LLC (“Arin”), pursuant to which we agreed to sell $2,040,000 of future accounts receivable to Arin in exchange for a purchase price of $1,500,000, less fees and expenses of $65,000, for net funds provided of $1,435,000. In connection with the Arin II Agreement, we negotiated with Cedar Advance LLC (“Cedar”) to discount the outstanding balance under the standard merchant cash advance agreement with Cedar, dated as of December 4, 2024 (the “Cedar III Agreement”), from $1,373,285 to $1,263,422, in exchange for us agreeing to prepay the future amounts payable under the Cedar III Agreement. A portion of the net proceeds of the Arin II Agreement were used to satisfy the remaining amount to which Cedar was entitled under the Cedar III Agreement. Weekly, we are required to pay Arin 20.0% of all funds collected from customers for the sale of goods and services and Arin is authorized to withdraw $63,750 of funds from our bank account until the total balance of $2,040,000 is repaid. The Arin II Agreement is collateralized by our cash and receivable accounts.

NaturalShrimp Acquisition and Streeterville Investment

On May 14, 2025, Edible Garden Sustainable Ventures LLC (the “Subsidiary”), a wholly owned subsidiary of the Company, entered into an asset purchase agreement (the “APA”) with the Company, NaturalShrimp Farms Inc. (the “Seller”) and Streeterville Capital, LLC (“Streeterville”) and completed the purchase of certain sustainable aquaculture assets located in Fort Dodge, Iowa (the “Assets”) from the Seller.

In connection with the APA, on May 13, 2025, our Board of Directors (the “Board”) approved a certificate of designation fixing the voting powers, designations, preferences and rights and the qualifications, limitations or restrictions of the Series B Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), a newly created series of preferred stock, which was accepted for filing by the Secretary of State of the State of Delaware on May 14, 2025. Of the 10,000,000 previously undesignated shares of preferred stock, par value $0.0001 per share, 50,000 shares were designated as Series B Preferred Stock as of May 14, 2025.

As consideration for the purchase of the Assets pursuant to the APA, we issued 12,000 shares of Series B Preferred Stock to Streeterville as the sole shareholder of the Seller, at a stated value of $1,000 per share, for an aggregate purchase price of $12,000,000.

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Also on May 14, 2025, we entered into a stock purchase agreement (the “SPA”) with Streeterville, pursuant to which we issued 3,000 shares of Series B Preferred Stock, at a stated value of $1,000 per share, to Streeterville, for the purchase price of $3,000,000. Additionally, pursuant to the SPA, Streeterville shall purchase an additional 500 shares of Series B Preferred Stock, at a stated value of $1,000 per share, on November 13, 2025 for a purchase price of $500,000, provided we remain listed on Nasdaq. The shares of Series B Preferred Stock were issued and sold to Streeterville without registration under the Securities Act, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering. Pursuant to the certificate of designation, subsequent to June 30, 2025, we issued 154 shares of Series B Preferred Stock to Streeterville as payment of the preferred return for the quarter ended June 30, 2025, in reliance on the exemption provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.

Contemporaneous with the APA, the Subsidiary entered into a lease agreement with Iowa Shrimp Holdings, LLC, an affiliate of the Seller (the “Landlord”), for access to and use of certain real property located at 401 Des Moines Street, Webster City, Iowa 50595; where substantially all of the Assets are located (the “Lease”). The Lease includes customary covenants, terms and conditions and has an initial term of 12 months. The Lease may be extended for additional 12-month terms at our discretion, provided that we are in compliance with the Lease in all material respects and redeem or exchanges for common stock a certain amount of the outstanding Series B Preferred Stock held by Streeterville during the 12 months prior to the end of the term. Under the terms of the Lease, we will pay the Landlord a monthly lease payment of $1.00. If we are considered a holdover tenant after the expiration of the initial term or any renewal term with the prior written consent of Landlord, the tenancy will be construed as month to month, except that rent shall be increased to an amount equal to (i) $15,000 per calendar month if the holdover tenancy occurs between the first anniversary and second anniversary of May 14, 2025, (ii) $22,500 per calendar month if the holdover tenancy occurs between the second anniversary and third anniversary of May 14, 2025, or (iii) $30,000 per calendar month if the holdover tenancy occurs after the third anniversary of May 14, 2025, plus, and in addition to the rent, all other sums of money due and payable by us to the Landlord under the Lease. If we (i) fail to pay any installment of rent or additional rent or other sum due within 10 days after written notice from the Landlord; (ii) fail to perform any term, condition or covenant under the Lease within 30 days after written notice that such performance is due; (iii) become bankrupt or insolvent or files a petition in bankruptcy or insolvency, reorganization or for the appointment of a receiver or trustee; or (iv) abandon the premises, the Landlord may terminate the Lease by written notice and reenter and take possession of the premises.

In connection with the integration of the Seller’s assets into our business and operations following the closing of the transactions contemplated by the APA, the Subsidiary entered into a transition services agreement with the Seller on May 14, 2025 (the “TSA”), pursuant to which the Seller will provide ongoing operational support and accounting and bookkeeping services for a period of two months. Pursuant to the TSA, we paid the Seller a fee of $35,000 per calendar month. The TSA was not renewed after the initial two-month term.

Common Stock Issuance

On May 13, 2025, the Board approved the issuance of 94,118 shares of our common stock to Maxim Group LLC (“Maxim”) in connection with the amended letter agreement between us and Maxim, pursuant to which Maxim provides advisory services to the Company. The shares of common stock were issued to Maxim without registration under the Securities Act, in reliance on the exemption provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.

Amended and Restated Executive Employment Agreement

On May 13, 2025, we entered into an amended and restated executive employment agreement with James E. Kras, dated as of May 13, 2025 (the “Employment Agreement”). The Employment Agreement replaces and supersedes the executive employment agreement entered into between us and James E. Kras, dated as of August 18, 2021 and amended on January 18, 2022. Pursuant to the Employment Agreement, Mr. Kras will continue to serve as our Chief Executive Officer.

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The Employment Agreement has a term of two years and automatically extends for additional one-year periods unless either party provides notice of non-renewal at least 90 days prior to the end of any term. Pursuant to the Employment Agreement, Mr. Kras will (i) receive a base salary of $450,000; (ii) be eligible to receive an annual cash bonus with the target amount equal to 100% of his base salary based upon the determination of the compensation committee’s assessment of his performance and achieving our goals; (iii) receive a transaction bonus of $500,000 upon the completion transactions contemplated by the APA and the SPA, half payable upon closing of the APA and SPA and the other half payable in equal installments for the remainder of 2025; (iv) receive upfront awards of restricted stock units and nonqualified stock options, each with a grant date value of $1,000,000, pursuant to our 2022 Equity Incentive Plan (the “Plan”) upon receipt of stockholder approval for an amendment to the Plan to increase the number of shares available for issuance, and awards under the Plan with an aggregate grant date value of at least $1,000,000 beginning in the 2026 calendar year; and (v) be eligible to participate in our benefit plans. The Employment Agreement contains standard restrictive covenants, including non-competition and non-solicitation, and terms and conditions customarily found in similar agreements.

Pursuant to the Employment Agreement, if Mr. Kras is terminated without cause, he will receive (i) severance payments equal to 200% of his then-current base salary and 200% of the target performance bonus for the calendar year in which the termination occurs and (ii) an aggregate cash payment in an amount equal to Mr. Kras’s annual health insurance premium at the time of his termination multiplied by twelve. Further, if Mr. Kras is terminated without cause within six month prior to or twenty-four months following a Change of Control (as defined in the Employment Agreement), he will receive (i) severance payments equal to 300% of his then-current base salary and 300% of the target performance bonus for the calendar year in which the termination occurs; (ii) immediate vesting of his outstanding and unvested restricted stock, restricted stock units and stock options; and (iii) an aggregate cash payment in an amount equal to Mr. Kras’s annual health insurance premium at the time of his termination multiplied by thirty-six.

May 2025 Warrant Inducement

On May 21, 2025, we entered into an inducement letter agreement (the “Inducement Letter Agreement”) with an institutional investor and holder of existing warrants to purchase up to 999,600 shares of our common stock. The existing warrants were originally issued in September and December 2024, with an exercise price of $9.00 per share, and became exercisable immediately following issuance. Pursuant to the Inducement Letter Agreement, the holder agreed to exercise the existing warrants for cash at the exercise price of $3.50 per share in consideration for our agreement to issue a new unregistered warrant to purchase up to an aggregate of 1,999,200 shares of common stock at an exercise price of $3.50 per share. The new warrant was immediately exercisable upon issuance and has a term of five years from the issuance date.

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 condensed consolidated financial statements and to the understanding of our reported financial results include the following.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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We do 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. We continually monitor 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, we assess 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, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. See Note 5, “Property, Equipment and Leasehold Improvements, Net” for further information.

Acquisition

The Company evaluates acquisitions to first determine whether a set of assets acquired constitutes a business and should be accounted for as a business combination. If the assets acquired are not a business, the transaction is accounted for as an asset acquisition in accordance with ASC 805-50, “Asset Acquisitions” which requires the acquiring entity to recognize assets acquired based on the cost to the acquiring entity on a relative fair value based on third-party appraisals. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. The significant assets acquired include equipment and right-of-use lease assets.

When acquiring leases in an asset acquisition, we retain the lease classification utilized by the seller if it was determined using acceptable methods under ASC 842 “Lease Accounting.” As part of the allocation of the purchase price, lease terms are compared to market terms utilizing an income approach to determine if leases are favorable or unfavorable. Any favorable or unfavorable leasehold interests identified increase (favorable) or reduce (unfavorable) the right-of-use lease asset and are recognized over the life of the related right-of-use asset.

Income Taxes

The provision for income taxes is determined in accordance with ASC 740, “Income Taxes.” We file a consolidated United States federal income tax return. We provide 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. We incurred net operating losses for financial-reporting and tax-reporting purposes. At March 31, 2025 and December 31, 2024, such net operating losses were offset entirely by a valuation allowance.

We recognize 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.

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RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2025 AND 2024

(In thousands)

Revenue

Revenue was $3.1 million for the three months ended June 30, 2025, compared to $4.3 million for the three months ended June 30, 2024. The decrease in revenue of $1.2 million, or 26%, is primarily attributed to our strategic exit from the floral and lettuce categories, which contributed $741 thousand of the decline year over year. Excluding these exited categories, revenue decreased $20 thousand, or 1%. Revenue from our core herb portfolio, which excludes the legacy lettuce and floral lines, decreased $208 thousand to $2.9 million year-over-year, or 7%, while revenue from our vitamin and supplement portfolio decreased from $433 thousand to $260 thousand year-over-year as we introduced our Kick. Sports Nutrition line to the market, replacing our legacy Vitamin Way and Vitamin Whey product lines.

Cost of goods sold

Cost of goods sold were $2.5 million for the three months ended June 30, 2025, compared to $2.7 million for the three months ended June 30, 2024. Cost of goods sold decreased $190 thousand, or 7%. As a percentage of revenue, gross profit decreased to 20% from 37% in the three months ended June 30, 2025. The decrease was driven by driven by inflationary pressures and higher labor costs related to production. We are working to mitigate cost pressures, assessing price adjustments and supplier negotiations where market conditions permit.

Selling, general and administrative

Selling, general and administrative expenses (“SG&A”) were $4.2 million for the three months ended June 30, 2025, compared to $2.7 million for the three months ended June 30, 2024. SG&A increased $1.5 million, or 54%. The increase was due to $759 thousand of legal charges related to the NaturalShrimp asset purchase, $268 thousand of expenses related to the Narayan transactions, and $234 thousand of franchise tax expense.

Loss from operations

Loss from operations were $3.6 million for the three months ended June 30, 2025, compared to $1.2 million for the three months ended June 30, 2024. The increase in the loss from operations was driven by higher SG&A expenses as previously described and the decline in revenue.

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Interest expense

Interest expense was $389 thousand for the three months ended June 30, 2025, compared to $419 thousand for the three months ended June 30, 2024. The decrease in interest expense was driven by a reduction in our outstanding debt.

Net loss

Net loss was $4.0 million for the three months ended June 30, 2025, compared to a net loss of $1.9 million for the three months ended June 30, 2024. The reasons for the increase in net loss are explained above.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2025 AND 2024

(In thousands)

Revenue

Revenue was $5.9 million for the six months ended June 30, 2025, compared to $7.4 million for the six months ended June 30, 2024. The decrease in revenue of $1.5 million, or 21%, is primarily attributed to our strategic exit from the floral and lettuce categories, which contributed $1.1 million of the decline year over year. Excluding these exited categories, revenue decreased $87 thousand, or 2%. Revenue from our core herb portfolio, which excludes the legacy lettuce and floral lines, decreased from $5.5 million to $5.4 million year-over-year, or 2%, while revenue from our vitamin and supplement portfolio decreased from $1 million to $996 thousand year-over-year.

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Cost of goods sold

Cost of goods sold were $5.1 million for the six months ended June 30, 2025, compared to $5.8 million for the six months ended June 30, 2024. Cost of goods sold decreased $669 thousand, or 12%. As a percentage of revenue, gross profit decreased to 12% from 21% in the six months ended June 30, 2025. The decrease was driven by driven by inflationary pressures and higher labor costs related to production. We are working to mitigate cost pressures, assessing price adjustments and supplier negotiations where market conditions permit.

Selling, general and administrative

Selling, general and administrative expenses were $7.2 million for the six months ended June 30, 2025, compared to $6.6 million for the six months ended June 30, 2024. SG&A increased $610 thousand, or 9%. The increase was due expenses related to the NaturalShrimp asset purchase and Narayan transactions.

Loss from operations

Loss from operations were $6.5 million for the six months ended June 30, 2025, compared to $5.0 million for the six months ended June 30, 2024. The increase in the loss from operations was driven by the increased expenses described above along with the decline in revenue.

Interest expense

Interest expense was $829 thousand for the six months ended June 30, 2025, compared to $536 thousand for the six months ended June 30, 2024. Higher interest expense was related to the company entering into the Arin II Agreement.

Net loss

Net loss was $7.4 million for the six months ended June 30, 2025, compared to a net loss of $5.9 million for the six months ended June 30, 2024. The reasons for the decrease 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 $7.4 million during the six months ended June 30, 2025 and $11.1 million during the twelve months ended December 31, 2024. 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 or even increase 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. To date, we have financed our operations with the proceeds from debt financings, public and private securities offerings, and operations, among other sources. If we are unable to raise additional capital, we believe that the existing cash will fund operations into the third quarter of 2025 and will not be sufficient to fund our operations through the next twelve months beyond the date of the issuance of our consolidated financial statements. Our operations have consumed substantial amounts of cash since inception. The net cash used in operating activities was $6.8 million and $5.6 million during the six months ended June 30, 2025 and 2024, respectively. 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.

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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.

Liquidity

The Company’s primary liquidity requirements are for working capital, continued investments in capital expenditures, repayment of indebtedness, payment of the preferred return to the holder of our Series B Preferred Stock, 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 and private equity offerings, term loan borrowings, accounts receivable financing, convertible notes, and related party loans.

As of June 30, 2025 and December 31, 2024, we had $2.8 million and $3.5 million in cash and cash equivalents available, respectively. During the six months ended June 30, 2025, we used $6.8 million in cash for operating activities. As of June 30, 2025 and December 31, 2024, we had $2.0 million and $3.2 million of total debt outstanding, respectively. To meet our cash needs, we raised $3.0 million via the sale of preferred stock to Streeterville, entered into the Arin II Agreement, raised approximately $1.86 million in an at-the-market offering, received approximately $3.3 million from warrant exercises and are implementing cost savings strategies. See “Capital Resources” below for additional details.

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” in our Annual Report on Form 10-K, filed with the SEC on April 1, 2025.

Capital Resources

On May 21, 2025, we entered into an Inducement Letter Agreement with an institutional investor and holder of existing warrants to purchase up to 999,600 shares of our common stock of for total proceeds of $2.999 million. Maxim received an aggregate cash fee equal to 6.5% of the $3.5 million in total proceeds received from the exercise of the Existing Warrants exercised in connection with the Inducement Letter Agreement. See Note 10 “Stockholders’ Equity (Deficit) And Stock-Based Compensation.”

On May 14, 2025, we entered into the SPA with Streeterville, pursuant to which we issued 3,000 shares of Series B Preferred Stock, at a stated value of $1,000 per share, to Streeterville, for the purchase price of $3.0 million. Additionally, pursuant to the SPA, Streeterville shall purchase an additional 500 shares of Series B Preferred Stock, at a stated value of $1,000 per share, on November 13, 2025 for a purchase price of $500 thousand, provided we remain listed on Nasdaq.

On April 2, 2025, we entered into the Arin II Agreement with Arin, pursuant to which we agreed to sell $2.0 million of future accounts receivable to Arin in exchange for a purchase price of $1.5 million, less fees and expenses of $65 thousand, for net funds provided of $1.4 million. In connection with the Arin II Agreement, we negotiated with Cedar to discount the outstanding balance under the Cedar III Agreement, from $1.4 million to $1.3 million, in exchange for us agreeing to prepay the future amounts payable under the Cedar III Agreement. A portion of the net proceeds of the Arin II Agreement were used to satisfy the remaining amount to which Cedar was entitled under the Cedar III Agreement. Weekly, we are required to pay Arin 20.0% of all funds collected from customers for the sale of goods and services and Arin is authorized to withdraw $63,750 of funds from our bank account until the total balance of $2.0 million is repaid.

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On February 14, 2025, we entered into the Arin I Agreement with Arin, pursuant to which the Company sold to Arin $272 thousand of its future accounts receivable for a purchase price of $200 thousand, less fees and expenses of $10,000, for net funds provided of $190 thousand. Pursuant to the Arin I Agreement, the Company is required to pay Arin 10.0% of all funds collected weekly from customers and Arin is expected to withdraw $9,714 a week directly from the Company’s bank account until the $272 thousand due to Arin under the Arin I Agreement is paid in full.

On February 12, 2025, we advanced the Narayan d.o.o. and its subsidiaries (the “Narayan Group”) $193 thousand to support its operations and the Narayan Group issued a promissory note in favor of us in the principal amount of $190 thousand. On February 19, 2025, we agreed to advance Narayan Group an additional $199 thousand that was to be paid in weekly installments and the Narayan Group issued a promissory note in favor of us in the principal amount of $199 thousand (the “second promissory note”). On June 3, 2025, we announced the decision not to proceed with the transaction contemplated under the letter of intent to purchase outstanding shares of Narayan Group and negotiations ceased. Prior to our decision not to proceed with the transaction, we had advanced the Narayan Group $100 thousand under the second promissory note. The promissory notes accrued interest at a rate of 6.0% per annum until June 30, 2025, after which interest accrues at a rate of 10.0% per annum because the parties have not entered into a definitive agreement with respect to the proposed transaction. The Narayan Group is obligated to pay the outstanding principal and accrued interest in 12 equal monthly installments beginning on July 1, 2025. To date, the Narayan Group has not paid amounts due under the promissory notes and has defaulted on the repayment of the promissory notes.

On January 31, 2025, we entered into an Equity Distribution Agreement (the “2025 EDA”) with Maxim, as sales agent, pursuant to which the Company may, from time to time, issue and sell shares of its common stock through Maxim in an at-the-market offering for an aggregate offering price of up to $2.5 million. To date, we have received net proceeds of approximately $1.759 million from the sale of common stock under the 2025 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 June 30, 2025 and December 31, 2024, see Note 8 “Notes Payable.”

Cash Flows

Operating activities

During the six months ended June 30, 2025 and 2024, cash used for operating activities was $6.8 million and $5.6 million, respectively. The increase in cash used for operating activities was primarily driven by the decrease in revenue and the reduction in accounts payable, offset by a reduction in accounts receivables.

Investing activities

During the six months ended June 30, 2025 and 2024, cash used in investing activities was $122 thousand and $167 thousand, respectively. The decrease in cash used in investing activities is attributable to lower normal course of business purchases of property, equipment and leasehold improvements.

Financing activities

During the six months ended June 30, 2025 and 2024, cash provided by financing activities was $6.2 million and $7.5 million, respectively. The $1.3 million decrease in cash provided by financing activities was driven by lower cash flows from debt financing of $2.8 million as we reduced our debt via paydowns and lower borrowings, offset by higher financing cash flows related to the warrant inducement, our issuance of preferred stock and the EDA.

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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 June 30, 2025 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 June 30, 2025, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of June 30, 2025, at the reasonable assurance level.

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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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, 2024. 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.

There can be no assurance that our shares will continue to be listed on the Nasdaq Capital Market, 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 on the closing bid price of our common stock for 30 consecutive business days, we no longer met 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 were not eligible for any compliance period to regain compliance with the Bid Price Rule. On January 14, 2025, we attended our hearing with Nasdaq and on February 12, 2025, we received the Notice from Nasdaq that a Nasdaq Hearings Panel granted an extension for us to regain compliance with the Bid Price Rule until March 31, 2025, subject to additional conditions outlined in the Notice. On April 8, 2025, we received a letter from Nasdaq confirming that we had regained compliance with the Bid Price Rule, however we will remain under a Nasdaq discretionary panel monitor until April 8, 2026.

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According to the Nasdaq Listing Rules, under the Nasdaq discretionary panel monitor, if we fail to satisfy a continued listing requirement during the one-year monitoring period: (i) we will not be permitted to present a compliance plan to the Staff, (ii) the Staff will not be permitted to grant any additional time for us to regain compliance with the deficiency, (iii) we will not be afforded an applicable cure or compliance period pursuant to Nasdaq Listing Rule 5810(c)(3), and (iv) the Staff will promptly issue a delisting determination.

The Nasdaq Capital Market’s continued listing standards for our common stock require, among other things, that we maintain either (i) stockholders’ equity of $2.5 million, (ii) market value of listed securities of $35 million or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. As of June 30, 2025, our stockholders’ equity was below $2.5 million, and we had not achieved the net income standard to date. As of June 30, 2025, based on the price of our common stock, we also do not meet the market value standard required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2).

There can be no assurance that we will ultimately meet all applicable criteria for continued listing on Nasdaq or, if we meet those criteria, that we will be able to maintain compliance with the applicable criteria. Upon the filing of this Quarterly Report on Form 10-Q, the Staff may issue a delisting determination because we failed to satisfy Nasdaq Listing Rule 5550(b) at June 30, 2025. As of August 13, 2025, we believe we meet the stockholders’ equity standard because, after having filed the Updated Certificate, the Series B Preferred Stock should be classified as permanent equity and contribute more than $15.0 million to stockholders’ equity. 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.