Edible Garden AG Inc 10-Q for FY2022 Q2
Edible Garden AG Inc (EDBL)
About this 10-Q
Edible Garden AG Inc filed this 10-Q on August 15, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.99M
- up 7.5% from $2.78M a year earlier
- Net loss
- $4.78M
- compared with a net loss of $1.15M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File Number:
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(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The | ||
Warrants to purchase Common Stock | EDBLW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes
As of August 10, 2022, the registrant had
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| Table of Contents |
EDIBLE GARDEN AG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
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| June 30, |
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| December 31, |
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| 2022 |
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| 2021 |
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ASSETS |
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Current assets: |
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Cash |
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Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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| Property, equipment and leasehold improvements, net |
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| Other assets |
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| TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | ||||||||
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Current liabilities: |
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Accounts payable and other accrued expenses |
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Short-term debt, net of discounts |
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Total current liabilities |
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Long-term liabilities: |
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Long-term debt, net of discounts |
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Long-term lease liabilities |
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Total long-term liabilities |
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Total liabilities |
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| COMMITMENTS AND CONTINGENCIES (Note 10) |
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| STOCKHOLDERS EQUITY (DEFICIT): |
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Common stock ($ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders equity (deficit) |
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| TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
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(1) Adjusted to reflect the stock splits as described in Note 1.
The accompanying notes are an integral part of the consolidated financial statements.
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| Table of Contents |
EDIBLE GARDEN AG, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per-share information)
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| Revenue |
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| Cost of goods sold |
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| Gross profit |
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| Selling, general and administrative expenses |
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Loss from operations |
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| Other expenses |
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Interest expense, net |
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Loss from extinguishment of debt |
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Other income / (loss) |
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Total other expenses |
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| NET LOSS |
| $ | ( | ) |
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| Net Income / (Loss) per common share - basic and diluted (1) |
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| Weighted-Average Number of Common Shares Outstanding Basic and Diluted (1) |
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(1) Adjusted to reflect the stock splits as described in Note 1.
The accompanying notes are an integral part of the consolidated financial statements.
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| Table of Contents |
EDIBLE GARDEN AG, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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| Six Months Ended June 30, |
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| 2022 |
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| 2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Income (Loss) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Amortization of operating lease right of use asset |
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Amortization of debt discount |
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Loss on extinguishment of debt |
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Stock issued as payment for services |
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Expense for modification of warrants |
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Change in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable and accrued expenses |
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Operating lease liabilities |
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NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property, equipment and leasehold improvements |
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NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from debt |
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Payments of debt principal |
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Payment of debt issuance costs |
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Proceeds from common stock issuance |
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Proceeds from issuance of warrants |
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Payment of costs related to initial public offering |
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NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES |
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NET CHANGE IN CASH |
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Cash at beginning of period |
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CASH AT END OF PERIOD |
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SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: |
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Cash paid for interest |
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SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Debt and interest converted into common stock |
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Stock issued for debt extinguishment |
| $ |
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Warrants issued with debt |
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The accompanying notes are an integral part of the consolidated financial statements.
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| Table of Contents |
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(in thousands, except for shares) (1)
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| Additional |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Total |
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| Balance at March 31, 2022 |
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| Issuance of common stock |
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| Conversion of debt to common stock |
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| Modification of warrants |
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| Net Income (Loss) |
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| Balance at June 30, 2022 |
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| Common Stock | Paid-In | Accumulated |
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| Total |
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| Balance at March 31, 2021 |
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| Net Income (Loss) |
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| Balance at June 30, 2021 |
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(1) Adjusted to reflect the stock splits as described in Note 1.
The accompanying notes are an integral part of the consolidated financial statements.
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| Table of Contents |
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(in thousands, except for shares) (1)
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| Balance at December 31, 2021 |
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| Issuance of warrants |
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| Issuance of common stock |
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| Conversion of debt to common stock |
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| Modification of warrants |
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| Net Income (Loss) |
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| Balance at June 30, 2022 |
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| Balance at December 31, 2020 |
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| Net Income (Loss) |
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| Balance at June 30, 2021 |
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(1) Adjusted to reflect the stock splits as described in Note 1.
The accompanying notes are an integral part of the consolidated financial statements.
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| Table of Contents |
EDIBLE GARDEN AG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
Organization and Recent Developments
Edible Garden Corp., a Nevada corporation, was incorporated on
We authorized
Initial Public Offering
On May 5, 2022, the Company’s stock began trading on Nasdaq under the symbol “EDBL”. On May 5, 2022, the Company entered into an underwriting agreement with Maxim Group LLC as representative of the underwriters in a firm commitment initial public offering of an aggregate of
From the net proceeds received from the offering, the Company paid Evergreen Capital Management LLC (the “Holder” or “Evergreen”) an aggregate of $
Nature of Business
Edible Garden is a retail seller of locally grown hydroponic produce, which is distributed throughout the Northeast and Midwest. Currently, Edible Garden’s products are sold at approximately
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| Table of Contents |
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2021, included in the final prospectus dated May 5, 2022 and filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on May 6, 2022. The December 31, 2021 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2021. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of June 30, 2022 and the results of operations for the three- and six-month periods ended June 30, 2022 and 2021, cash flows for the six-month periods ended June 30, 2022 and 2021 and changes in shareholders’ equity for the three and six month periods ended June 30, 2022 and 2021.
Going Concern
The accompanying financial statements have been prepared assuming that we will continue as a going concern. In an effort to achieve liquidity that would be sufficient to meet all of our commitments, we have undertaken a number of actions, including minimizing capital expenditures and reducing recurring expenses. However, we believe that even after taking these actions, we will not have sufficient liquidity to satisfy all of our future financial obligations. The risks and uncertainties surrounding our ability to raise capital and our limited capital resources raise substantial doubt as to our ability to continue as a going concern. See Note 11, “Going Concern” of the Notes to Consolidated Financial Statements for additional information.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reported period. Changes in these estimates and assumptions may have a material impact on the consolidated financial statements and accompanying notes.
Examples of significant estimates and assumptions include provisions for doubtful accounts, accrued liabilities, discount rates used in the measurement and recognition of lease liabilities and valuation of our common stock. These estimates generally involve complex issues and require us to make judgments, involving an analysis of historical and future trends, that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from our estimates.
Trade and other Receivables
The Company extends non-interest-bearing trade credit to its customers in the ordinary course of business which is not collateralized. Accounts receivable are shown on the face of the consolidated balance sheets, net of an allowance for doubtful accounts. The Company analyzes the aging of accounts receivable, historical bad debts, customer creditworthiness and current economic trends, in determining the allowance for doubtful accounts. The Company does not accrue interest receivable on past due accounts receivable. The reserve for doubtful accounts was $
Inventory
We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out method, or its net realizable value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete inventory is based on expected future use. Our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods. The inventory reserve was $
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| Table of Contents |
Prepaid Expenses and Other Current Assets
Prepaid expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include advertising, insurance, and service or other contracts requiring up-front payments.
Property, Equipment and Leasehold Improvements, Net
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 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. See Note 4, “Property, Equipment and Leasehold Improvements, Net” for further information.
Revenue Recognition and Performance Obligations
Revenues are 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.
Disaggregation of Revenue
The following table includes revenue disaggregated by revenue stream for the six months ended June 30, 2022 and 2021:
|
| (in thousands) Six Months Ended, |
| |||||
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
| Herbs & Produce |
| $ |
|
| $ |
| ||
| Vitamins and Supplements |
|
|
|
|
|
| ||
| Total |
| $ |
|
| $ |
| ||
Contract Balances
Due to the nature of the Company’s revenue from contracts with customers, the Company does not have material contract assets or liabilities that fall under the scope of ASC Topic 606.
| 10 |
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Contract Estimates and Judgments
The Company’s revenues accounted for under ASC Topic 606, generally do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or variable consideration.
Cost of Goods Sold
Cost of goods sold includes materials, labor and overhead costs incurred in cultivating, producing, and shipping our products.
Advertising Expenses
The Company expenses advertising costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.” Advertising expenses totaled $
Loss Per Common Share
In accordance with the provisions of ASC 260, “Earnings Per Share,” net loss per share is computed by dividing net loss by the weighted-average shares of common stock outstanding during the period. During a loss period, the effect of the potential exercise of stock options, warrants, convertible preferred stock, and convertible debt are not considered in the diluted loss per share calculation since the effect would be anti-dilutive. The results of operations were a net loss for the year ended December 31, 2021 and six months ended June 30, 2022. Therefore, the basic and diluted weighted-average shares of common stock outstanding were the same for all periods.
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 income 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 June 30, 2022 and December 31, 2021, such net operating losses were offset entirely by a valuation allowance.
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.
Segment reporting
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment. The Company’s principal decision makers are the Chief Executive Officer and its Chief Financial Officer. Management believes that its business operates as one reportable segment because: a) the Company measures profit and loss as a whole; b) the principal decision makers do not review information based on any operating segment; c) the Company does not maintain discrete financial information on any specific segment; d) the Company has not chosen to organize its business around different products and services, and e) the Company has not chosen to organize its business around geographic areas.
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NOTE 3 – INVENTORY
Inventory as of June 30, 2022 and December 31, 2021 consisted of the following:
|
| (in thousands) |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
| Raw materials |
| $ |
|
| $ |
| ||
| Work-in-progress |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Total inventory |
| $ |
|
| $ |
| ||
NOTE 4 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements (net) as of June 30, 2022 and December 31, 2021 consisted of the following:
|
| (in thousands) |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
|
| $ | - |
|
| $ | - |
|
| Furniture and equipment |
|
|
|
|
|
| ||
| Computer hardware |
|
|
|
|
|
| ||
| Leasehold improvements |
|
|
|
|
|
| ||
| Vehicles |
|
|
|
|
|
| ||
| Construction in progress |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Subtotal |
|
|
|
|
|
| ||
| Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property, equipment and leasehold improvements, net |
| $ |
|
| $ |
| ||
Depreciation expense related to property, equipment and leasehold improvements for the six months ended June 30, 2022 and 2021 was $
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NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of June 30, 2022 and December 31, 2021 consisted of the following:
|
| (in thousands) |
| |||||
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
| Accounts payable |
| $ |
|
| $ |
| ||
| Accrued expenses |
|
|
|
|
|
| ||
| Accrued interest payable |
|
|
|
|
|
| ||
| Accrued payroll |
|
|
|
|
|
| ||
| Accrued vacation |
|
|
|
|
|
| ||
| Current lease liability |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Total Accounts Payable and Accrued Expenses |
| $ |
|
| $ |
| ||
NOTE 6 – NOTES PAYABLE
Notes payable as of June 30, 2022 and December 31, 2021 consisted of the following:
|
| (in thousands) |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
| Secured promissory note |
| $ |
|
| $ |
| ||
| Evergreen private placement |
|
|
|
|
|
| ||
| SBA loan |
|
|
|
|
|
| ||
| SAFE agreements |
|
|
|
|
|
| ||
| Related party loans |
|
|
|
|
|
| ||
| Vehicle loans |
|
|
|
|
|
| ||
| Total Gross Debt |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
| Less: Gross short term debt |
|
| ( | ) |
|
| ( | ) |
| Less: Debt discount |
|
| ( | ) |
|
| ( | ) |
| Net Long Term Debt |
| $ |
|
| $ |
| ||
Scheduled maturities of long-term debt as of June 30, 2022, are as follows (in thousands):
| Years Ending December 31, |
|
|
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Thereafter |
|
|
| |
|
| $ |
| |
Secured Promissory Notes
On March 30, 2020, the Company entered into a promissory note (the “First Sament Note”) for $
| 13 |
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On June 2, 2020, the Company entered into a promissory note for $
Evergreen Private Placement
On October 7, 2021, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Evergreen, whereby Evergreen agreed to purchase up to $
On October 7, 2021, upon exercise of the first tranche of the Agreement, the Company entered into a $
On November 8, 2021, upon exercise of the second tranche of the Agreement, the Company entered into a $
On November 22, 2021, upon exercise of the third tranche of the Agreement, the Company entered into a $
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On December 20, 2021, upon exercise of the fourth tranche of the Agreement, the Company entered into a $
On January 14, 2022, upon exercise of the fifth tranche of the Agreement, the Company entered into a $
On February 11, 2022, the Company executed an amendment to the Agreement with Evergreen, which increased the aggregate subscription amount of the Notes to $
On February 18, 2022, the Company executed an amendment to the Agreement with Evergreen, which increased the aggregate subscription amount of the Notes to $
On March 2, 2022, upon exercise of the eighth tranche of the Agreement, the Company entered into a $
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On March 9, 2022, the Company executed an amendment to the Agreement with Evergreen, which increased the aggregate subscription amount of the Notes to $
On March 18, 2022, upon exercise of the tenth tranche of the Agreement, the Company entered into a $
On March 30, 2022, upon exercise of the eleventh tranche of the Agreement, the Company entered into a $
On May 9, 2022, upon completion of the Company’s initial public offering, the Company repaid Evergreen an aggregate of $
On June 30, 2022, the Company issued an amended and restated consolidated secured promissory note (the “Note”) to Evergreen. The Note consolidated $
| 16 |
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The Note bears interest at
Small Business Administration (“SBA”) Loan
On June 22, 2020, the Company entered into a U.S. Small Business Administration Loan Authorization and Agreement pursuant to which the Company received loan proceeds of $
SAFE Agreements
During the year ended December 31, 2020, the Company entered into SAFEs with investors through a Regulation Crowdfunding campaign in exchange for cash investments. Upon a future equity financing of greater than $1,000,000, the SAFE securities were convertible at the option of the Company into securities identical to those issued in the future equity financing (“Shadow Securities”), except (1) they do not have the right to vote except as required by law, (2) they must vote in accordance with the majority of the investors in such future equity financing with respect to any such required vote and (3) they are not entitled to any inspection or information rights. If the Company elected to convert the securities upon the closing of a future equity financing, the investors would have received the number of Shadow Securities equal to the greater the quotient obtained by dividing the amount the investor paid (the “Purchase Amount”) for the securities by:
| (a) | the quotient of $18,500,000 divided by the aggregate number of issued and outstanding shares of capital stock, assuming full conversion or exercise of all convertible and exercisable securities then outstanding, including shares of convertible preferred stock and all outstanding vested or unvested options or warrants to purchase capital stock, but excluding (i) the issuance of all shares of capital stock reserved and available for future issuance under any of the Company’s existing equity incentive plans, (ii) convertible promissory notes issued by the Company, (iii) any SAFEs, and (iv) any equity securities that are issuable upon conversion of any outstanding convertible promissory notes or SAFEs, or |
|
|
|
| (b) | the lowest price per share of the securities sold in such future equity financing. |
The price (either (a) or (b)) determined above shall be deemed the “First Financing Price” and may be used to establish the conversion price of the securities at a later date, even if the Company does not choose to convert the SAFE securities upon the first future equity financing.
Upon the Company’s initial public offering of common shares or a change of control (a “Liquidity Event”) prior to any equity financing, the investors were entitled to receive, at the option of the investors, either (i) a cash payment equal to the purchase amount or (ii) a number of shares of common stock of the Company equal to the purchase amount divided by the quotient of (a) $18,500,000 divided by (b) the number, as of immediately prior to the Liquidity Event, of shares of the Company’s capital stock (on an as-converted basis) outstanding, assuming exercise or conversion of all outstanding, vested and unvested options, warrants and other convertible securities, but excluding (i) shares of common stock reserved and available for future grant under any equity incentive or similar plan; (ii) any SAFEs; and (iii) convertible promissory notes.
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In the case of a Liquidity Event following any equity financing, the investors were entitled to receive, at the option of the investors, either (i) a cash payment equal to the Purchase Amount, or (ii) a number of shares of the most recently issued preferred stock equal to the Purchase Amount divided by the First Financing Price. Shares of preferred stock granted in connection shall have the same liquidation rights and preferences as the shares of preferred stock issued in connection with the Company’s most recent Equity Financing.
From October 2020 through April 2021, the Company raised a total of $
On May 9, 2022, upon the closing of the IPO, the Company converted SAFEs into 153,996 shares of common stock and paid $5,790 to SAFE investors who elected to receive cash upon the close of the offering instead of converting the SAFE into common stock. As of June 30, 2022, the Company does not have any outstanding SAFEs.
Related Party Loans
During 2020, the Company borrowed $25,000 from Michael James, the Company’s Chief Financial Officer and Director, which was repaid during the six months ended June 30, 2022, $
During 2021, the Company issued Convertible Promissory Notes (the “Convertible Notes”) with principal amounts totaling $
During 2021, the Company issued demand notes totaling $
During 2021, the Company issued Promissory Notes (the “Promissory Notes”) totaling $
On January 7, 2022, the Company issued a promissory note totaling $
On March 7, 2022, the Company issued a promissory note totaling $
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| Table of Contents |
Other Loans
During the six months ended June 30, 2022, the Company issued promissory notes with principal amounts totaling $
Vehicle Loans
During 2020, the Company entered into a financing agreement for the purchase of a vehicle. The loan, which accrues interest at a rate of
During 2021, the Company entered into three financing agreements totaling $
NOTE 7 – LEASES
A lease provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets (“Lease Assets”) are included within “Other assets” on the Company’s consolidated balance sheet.
Lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception. Lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.
The discount rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when that is not readily determinable, the Company utilizes its secured borrowing rate. Lease assets include any lease payments required to be made prior to commencement and exclude lease incentives. Both lease assets and lease liabilities exclude variable payments not based on an index or rate, which are treated as period costs. The Company’s lease agreements do not contain significant residual value guarantees, restrictions, or covenants.
We are currently party to an ongoing arrangement with the Predecessor whereby we made lease payments of approximately $
During the six-month period ended June 30, 2022, total operating lease cost was $
|
| (in thousands) |
| |
|
| June 30, |
| |
|
| 2022 |
| |
Operating lease assets |
| $ |
| |
Operating lease liabilities |
| $ |
| |
| 19 |
| Table of Contents |
The table below presents the maturities of operating lease liabilities as of June 30, 2022:
|
| (in thousands) |
| |
|
| Operating |
| |
Leases | ||||
2022 (Remaining) |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
| Total lease payments |
|
|
| |
| Less: discount |
|
| ( | ) |
| Total operating lease liabilities |
| $ |
| |
The table below presents the weighted average remaining lease term for operating leases and weighted average discount rate used in calculating operating lease right-of-use assets:
|
| June 30, |
| |
|
| 2022 |
| |
Remaining lease term (years) |
|
|
| |
Discount rate |
|
| % | |
NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
The Company has authorized
During the six months ended June 30, 2022, the Company issued
|
| Number of Shares |
| |
Issuance of common stock in public offering |
|
|
| |
Issuance of common stock to Evergreen |
|
|
| |
Issuance of common stock for conversion of debt |
|
|
| |
Common stock issued during the six months ended June 30, 2022 |
|
|
| |
|
|
|
|
|
Summary table of common stock share transactions: |
|
|
|
|
Shares outstanding at December 31, 2021 |
|
|
| |
Common stock issuances |
|
|
| |
Shares outstanding at June 30, 2022 |
|
|
| |
On May 5, 2022, the Company’s stock began trading on Nasdaq under the symbol “EDBL”. On May 9, 2022, the Company completed its IPO. The Company sold a total of
| 20 |
| Table of Contents |
On January 14, 2022, the Company issued
On June 30, 2022, the Company issued the Note to Evergreen. See Note 6, “Notes Payable,” for more information. As consideration for accepting the Note, the Company issued
During the six months ended June 30, 2022, the Company issued
Warrants
The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the three months ended June 30, 2022:
|
| Warrants Shares) |
|
| Weighted-Average Exercise Price Per Share |
| ||
|
|
|
|
|
|
| ||
Outstanding December 31, 2021 |
|
|
|
| $ |
| ||
Issuance of Warrants |
|
|
|
| $ |
| ||
Outstanding June 30, 2022 |
|
|
|
| $ |
| ||
On May 5, 2022, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, as representative of the underwriters (the “Representative”), for an underwritten public offering (the “Offering”) of an aggregate of
Pursuant to the Underwriting Agreement, the Company agreed to issue to the Representative, as a portion of the underwriting compensation payable to the Representative, warrants to purchase up to a total of
| 21 |
| Table of Contents |
During the six months ended June 30, 2022, the Company issued warrants to purchase an aggregate of
| Expected term |
|
| ||
| Volatility |
|
| % | |
| Risk-free interest rate |
|
| % | |
| Dividend yield |
|
| % | |
NOTE 9 – COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, there are various threatened and pending legal proceedings against the Company. Management believes that the aggregate liability, if any, arising from such litigation, except for the matter described below, would not have a material adverse effect on the Company’s consolidated financial statements.
The Company is party to an action filed against us on November 29, 2021 by Green City Growers Cooperative in the Court of Common Pleas in Cuyahoga County, Ohio. The plaintiff seeks damages for an alleged breach of a supplier agreement. The Company denies the allegations and has filed a counterclaim against the plaintiff. The Company plans to vigorously defend itself.
If the Company settles this claim or the action is not resolved in its favor, the Company may suffer reputational damage and incur legal costs, settlements or judgments that exceed the amounts covered by our existing insurance policies. The Company can provide no assurances that its insurer will insure the legal costs, settlements or judgments incurred in excess of its deductible. If the Company is unsuccessful in defending itself from this claim or if its insurer does not insure against legal costs incurred in excess of the Company’s deductible, the result may materially adversely affect the Company’s business, results of operations and financial condition.
NOTE 10 – RELATED PARTY TRANSACTIONS
The Company has entered into loan agreements with certain officers, the terms of which are disclosed in Note 6, “Notes Payable.”
The Company is party to an ongoing arrangement with the Predecessor whereby the Company made lease payments of approximately $
NOTE 11 – GOING CONCERN
These financial statements are prepared on a going concern basis. The Company began operating in 2020. For the year ended December 31, 2021 and the six-month period ended June 30, 2022, we incurred net losses of $
We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling securities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that it will be available to us on acceptable terms, on an acceptable schedule, or at all.
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| Table of Contents |
The issuance of additional securities may result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming these loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available for use when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.
The risks and uncertainties surrounding our ability to continue to raise capital and our limited capital resources raise substantial doubt as to our ability to continue as a going concern for twelve months from the issuance of these financial statements.
NOTE 12 – SUBSEQUENT EVENTS
In preparing the unaudited consolidated financial statements, the Company has evaluated subsequent events through August 15, 2022, which is the date the unaudited consolidated financial statements were available for issuance. There were no subsequent events noted that would require adjustment to or disclosure in these consolidated financial statements.
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| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,” “may,” “can,” “estimates,” “expects,” “continues,” “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 continue to access and operate our Belvidere, New Jersey facility; |
| · | our market opportunity; |
| · | 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 effectively manage or sustain our growth; |
| · | our ability to grow the business due to the uncertainty resulting from the COVID-19 pandemic or any future pandemic; |
| · | our expected use of proceeds from our initial public offering; |
| · | our ability to maintain, or strengthen awareness of, our brand; |
| · | 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 potential insufficiency of our disclosure controls and procedures to detect errors or acts of fraud; |
| · | the potential lack of liquidity and trading of our securities; |
| · | the lack of an established market for our securities; and |
| · | our potential ability to obtain additional financing. |
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
Edible Garden is 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 and lettuces. 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.
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| Table of Contents |
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 to 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 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 to a legacy farm business.
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.
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RECENT DEVELOPMENTS
On May 5, 2022, we entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, as representative of the underwriters (the “Representative”), for an underwritten public offering (the “Offering” or “IPO”) of an aggregate of 2,930,000 units (“Units”) consisting of one share (“Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and one warrant to purchase one share of Common Stock (“Warrants”) at an exercise price equal to $5.00 per share of Common Stock. The public offering price was $5.00 per Unit and the underwriters purchased 2,930,000 Units at an 7.0% discount to the public offering price. The Company granted the Representative a 45-day option to purchase up to an additional 439,500 Shares and/or Warrants to purchase up to an additional 439,500 shares of Common Stock to cover over-allotments, if any. The gross proceeds from the Offering were approximately $14.7 million, before deducting underwriting discounts and commissions and other offering expenses. On May 5, 2022, the Representative partially exercised its over-allotment option to purchase 439,500 Warrants for gross proceeds of approximately $4,000. The Shares and Warrants were issued pursuant to the Company’s registration statement on Form S-1 (File No. 333-260655), initially filed by the Company with the SEC on November 1, 2021, as amended, which was declared effective on May 4, 2022. A final prospectus relating to the Offering was filed with the SEC on May 6, 2022. The Shares and Warrants began trading on the Nasdaq Capital Market on May 5, 2022. The Offering closed on May 9, 2022.
Pursuant to the Underwriting Agreement, the Company issued to the Representative, as a portion of the underwriting compensation payable to the Representative, warrants to purchase up to a total of 117,200 shares of Common Stock (“Representative’s Warrants”). The Representative’s Warrants are exercisable at $6.25 per share, are initially exercisable 180 days after the effective date of the Offering and have a term of five years from their initial exercise date.
On May 9, 2022, in connection with the closing of the Offering, the Company entered into a Warrant Agency Agreement with American Stock Transfer & Trust Company, LLC (“AST”) as of May 9, 2022 pursuant to which AST agreed to act as warrant agent with respect to the Warrants.
On May 4, 2022, in connection with the Offering, the Company’s board of directors appointed Mathew McConnell, Tracy Nazzaro and Ryan Rogers as members of the board of directors. On July 27, 2022, Tracy Nazzaro notified the Chairman of the Board of Directors of Edible Garden AG Incorporated (the “Company”) of her decision to resign, effective immediately, from her position as a member of the Boards of Directors of the Company. Ms. Nazzaro’s resignation was not related to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
On June 30, 2022, the Company issued an amended and restated consolidated secured promissory note (the “Note”) to Evergreen Capital Management LLC (“Evergreen”). See “Liquidity and Capital Resources – Capital Resources” below.
CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements in conformity with GAAP 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.
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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 are 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 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 March 31, 2022 and December 31, 2021, such net operating losses were offset entirely by a valuation allowance.
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 JUNE 30, 2022 AND 2021
(in thousands) |
| Three Months Ended June 30, 2022 |
|
| Three Months Ended June 30, 2021 |
| ||
Revenue |
| $ | 2,985 |
|
| $ | 2,777 |
|
Cost of goods sold |
|
| 2,779 |
|
|
| 2,457 |
|
Gross Profit |
|
| 206 |
|
|
| 320 |
|
Selling, general and administrative expenses |
|
| 2,733 |
|
|
| 1,410 |
|
Loss from operations |
|
| (2,527 | ) |
|
| (1,090 | ) |
Other income / (expense) |
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (1,234 | ) |
|
| (62 | ) |
Loss from extinguishment of debt |
|
| (826 | ) |
|
| - |
|
Other income / (Loss) |
|
| (189 | ) |
|
| - |
|
Total other expenses |
|
| (2,249 | ) |
|
|
|
|
NET LOSS |
| $ | (4,776 | ) |
| $ | (1,152 | ) |
Revenues
Revenues were $2.985 million for the three months ended June 30, 2022, compared to $2.777 million for the three months ended June 30, 2021. Revenues increased $208 thousand, or 7.49%, compared to the three months ended June 30, 2021. The increase represents growth from our existing customer base.
Cost of goods sold
Cost of goods sold were $2.779 million for the three months ended June 30, 2022, compared to $2.457 million for the three months ended June 30, 2021. Cost of goods increased $322 thousand, or 13.11% compared to the three months ended June 30, 2021. The increase was due to higher packaging costs due to inflation, higher labor costs due to COVID-19 and higher costs charged by our contract farmers.
Gross profit
Gross profit was $206 thousand or 6.90% of sales for the three months ended June 30, 2022, compared to $320 thousand or 11.52% of sales for the three months ended June 30, 2021. Gross profit declined by $114 thousand or 4.11% of sales for the three months ended June 30, 2022. Our margins dropped due to the increased costs incurred to fulfill the demand by our customers as a result of COVID-19 for our products which we were able to produce and deliver. The increase costs were higher labor due to COVID-19, higher packaging costs due to inflation and higher costs charged by our contract farmers.
Selling, general and administrative
Selling, general and administrative expenses were $2.733 million for the three months ended June 30, 2022, compared to $1.410 million for the three months ended June 30, 2021. Selling, general and administrative expenses increased by $1.323 million or 93.83%, compared to the three months ended June 30, 2021. Compensation expense increased by $1.246 million, driven primarily by $500 thousand transaction bonuses paid to each of our Chief Executive Officer and Chief Financial Officer upon the completion of the IPO pursuant to their employment agreements. The balance of the increase was due to wage increases and hiring additional employees. Payroll taxes increased by $17 thousand due to additional employees hired. Accounting costs increased by $164 thousand due to the completion of the year end audit and review of the quarterly financial statements. Insurance expense increased by $62 thousand due to the new Directors and Officers liability insurance policy which went into effect in connection with the IPO. Natural gas expense increased by $40 thousand due to the increase in the commodity. Director fees increased by $38 thousand since outside directors joined the Board of Directors as part of Nasdaq’s listing requirements. The increases were partially offset by a decrease of $44 thousand in legal expense and other professional fees decreased by $67 thousand since the work has been performed by our employees.
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Loss from operations
Loss from operations was $2.527 million for the three months ended June 30, 2022, compared to $1.090 million for the three months June 30, 2021. The increase in loss from operations was $1.437 million, or 131.83% compared to the three months ended June 30, 2021.
Interest expense
Interest expense was $1.234 million for the three months ended June 30, 2022, versus $62 thousand for the three months ended June 30, 2021. The interest was incurred to the seller financing notes for the Asset Acquisition, loans provided by an officer for working capital and bridge loans for working capital issued prior to the IPO. See Note 6 to our financial statements.
Loss from extinguishment of debt
The company incurred a loss from the extinguishment of debt of $826 thousand due to the modification of the debt issued to Evergreen.
Other income / (loss)
The company incurred a loss of $189 thousand from the revaluation of the warrants issued to Evergreen.
Net loss
Net loss was $4.776 million for the three months ended June 30, 2022, compared to a net loss of $1.152 million for the three months ended June 30, 2021.
Management will continue its efforts to attempt to lower operating expenses and increase revenue. We continue to invest in further expanding our operations and promoting our name and products. Given the fact that most of the operating expenses are fixed or have a quasi-fixed character, management expects that as revenues increases, those expenses, as a percentage of revenue, will significantly decrease. Nevertheless, there can be no assurance that we will be able to increase our revenues in future periods.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(in thousands) |
| Six Months Ended June 30, 2022 |
|
| Six Months Ended June 30, 2021 |
| ||
Revenue |
| $ | 5,722 |
|
| $ | 5,260 |
|
Cost of goods sold |
|
| 5,611 |
|
|
| 4,823 |
|
Gross Profit |
|
| 111 |
|
|
| 437 |
|
Selling, general and administrative expenses |
|
| 4,340 |
|
|
| 2,684 |
|
Loss from operations |
|
| (4,229 | ) |
|
| (2,247 | ) |
Other income / (expense) |
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (1,737 | ) |
|
| (100 | ) |
Loss from extinguishment of debt |
|
| (826 | ) |
|
| - |
|
Other income / (loss) |
|
| (590 | ) |
|
| - |
|
Total other expenses |
|
| (3,153 | ) |
|
| (100 | ) |
NET LOSS |
| $ | (7,382 | ) |
| $ | (2,347 | ) |
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Revenues
Revenues were $5.722 million for the six months ended June 30, 2022, compared to $5.260 million for the six months ended June 30, 2021. Revenues increased $462 thousand, or 8.78%, compared to the six months ended June 30, 2021. The increase represents growth from our existing customer base.
Cost of goods sold
Cost of goods sold were $5.611 million for the six months ended June 30, 2022, compared to $4.823 million for the six months ended June 30, 2021. Cost of goods increased $788 thousand, or 16.34% compared to the six months ended June 30, 2021. The increase was due to higher packaging costs due to inflation, higher labor costs due to COVID-19 and higher costs charged by our contract farmers.
Gross profit
Gross profit was $111 thousand or 1.94% of sales for the six months ended June 30, 2022, compared to $437 thousand or 8.31% of sales for the six months ended June 30, 2021. Gross profit declined by $326 thousand or 6.20% of sales for the six months ended June 30, 2021. Our margins dropped due to the increased costs incurred to fulfill the demand by our customers as a result of COVID-19 for our products which we were able to produce and deliver. The increase costs were higher labor due to COVID-19, higher packaging costs due to inflation and higher costs charged by our contract farmers.
Selling, general and administrative
Selling, general and administrative expenses were $4.340 million for the six months ended June 30, 2022, compared to $2.684 million for the six months ended June 30, 2021. Selling, general and administrative expenses increased by $1.656 million or 61.70%, compared to the six months ended June 30, 2021. Compensation expense increased by $1.189 million , driven primarily by $500 thousand transaction bonuses paid to each of our Chief Executive Officer and Chief Financial Officer upon the completion of the IPO pursuant to their employment agreements. The balance of the increase was due to wage increases and hiring additional employees. Payroll taxes increased by $18 thousand due to additional employees hired. Accounting costs increased by $166 thousand due to the completion of the year end audit and review of the quarterly financial statements. Insurance expense increased by $62 thousand due to the new Directors and Officers liability insurance policy which went into effect in connection with the IPO. Natural gas expense increased by $186 thousand due to the increase in the commodity. Director fees increased by $38 thousand since outside directors joined the Board of Directors as part of Nasdaq’s listing requirements. Commission expense increased by $21 thousand due to higher revenue. Repairs and maintenance increased by $84 thousand. The increases were partially offset by a decrease of $46 thousand in advertising expense and immaterial decreases in various other categories of expenses.
Loss from operations
Loss from operations was $4.229 million for the six months ended June 30, 2022, compared to $2.247 million for the six months June 30, 2021. The increase in loss from operations was $1.982 million, or 88.21% compared to the six months ended June 30, 2021.
Interest expense
Interest expense was $1.737 million for the six months ended June 30, 2022, versus $100 thousand for the six months ended June 30, 2021. The interest was incurred to the seller financing notes for the Asset Acquisition, loans provided by an officer for working capital and bridge loans for working capital issued prior to the IPO. See Note 6 to our financial statements.
Loss from extinguishment of debt
The company incurred a loss from the extinguishment of debt of $826 thousand due to the modification of the debt issued to Evergreen.
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Other income / (loss)
The company incurred a loss of $590 thousand for the six months ended June 30, 2022. $189 thousand of the loss was from the revaluation of the warrants issued to Evergreen and $401,000 was due to a leak out provision on their convertible debt into stock owned by Evergreen.
Net loss
Net loss was $7.382 million for the six months ended June 30, 2022, compared to a net loss of $2.347 million for the six months ended June 30, 2021.
Management will continue its efforts to attempt to lower operating expenses and increase revenue. We continue to invest in further expanding our operations and promoting our name and products. Given the fact that most of the operating expenses are fixed or have a quasi-fixed character, management expects that, as revenue increases, those expenses, as a percentage of revenue, will significantly decrease. Nevertheless, there can be no assurance that we will be able to increase our revenues in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Going Concern Considerations
We have incurred significant losses since our inception. We have experienced net losses of approximately $7.382 million during the six months ended June 30, 2022 and $2.347 million in the year ended December 31, 2021. 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.
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. Although we plan to attempt to raise additional capital through one or more private placements or public offerings, the doubts raised relating to our ability to continue as a going concern may make our shares an unattractive investment for potential investors. 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.
Liquidity
The Company’s primary liquidity requirements are for working capital, continued investments in capital expenditures, 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 are met primarily through cash flows from operations, as well as funds available under our term loan borrowings and related party loans. Our cash flows from operations include cash received from customers, less cash costs to provide services to our customers, which includes general and administrative costs and interest payments.
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As of June 30, 2022 and December 31, 2021, we had $5.70 million and $31 thousand in cash and cash equivalents available, respectively. As of June 30, 2022 and December 31, 2021, we had $5.85 million and $8.09 million of total debt outstanding, respectively. We believe our cash on hand and cash provided by (used in) operating activities are and will continue to be adequate to meet our operational and business needs in the next twelve months. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. In the event that we need access to additional cash, we may not be able to access the credit markets 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 filings with the SEC.
Capital Resources
On May 5, 2022, the Company’s stock began trading on Nasdaq under the symbol “EDBL”. On May 9, 2022, the Company completed its IPO and sold an aggregate of 2,930,000 Units and 439,500 additional Warrants. The total net proceeds to the Company were $13,624,500, after deducting underwriting discounts and commissions and expenses associated with the offering of $1,025,500.
From the net proceeds received from the IPO, the Company paid Evergreen an aggregate of $2,531,006 in accordance with the terms of the convertible notes held by Evergreen. The Company converted SAFEs into 153,996 shares of common stock and paid $5,790 to SAFE investors who elected to receive cash upon the close of the offering instead of converting the SAFE into common stock. The Company also paid the Chief Financial Officer $785,597 upon the maturity of promissory notes he held. Upon the closing of the IPO, the Chief Financial Officer converted $1,317,800 of convertible notes into 284,930 shares of common stock, and the Chief Executive Officer converted $27,821 of a convertible note into 6,015 shares of common stock.
On June 30, 2022, the Company issued the Note to Evergreen. The Note consolidated $1,753,750 in principal amount under convertible notes that were due to mature on July 7, August 8, and August 22, 2022 (the “Prior Notes”). The new principal amount of the Note is $1,841,592, which includes accrued interest and prepayment penalties on the Prior Notes, and takes into account a payment of $500,000 on the Prior Notes. Prior to its IPO, the Company had received $3.2 million from the issuance of convertible notes and warrants to Evergreen. Except for the Prior Notes, these convertible notes were repaid with a portion of the proceeds of the IPO. As consideration for accepting the Note, the Company also issued 200,000 shares of common stock to Evergreen under a letter agreement between the Company and Evergreen.
The Note bears interest at 7.0% per annum and will mature on March 31, 2023. Evergreen may elect to convert, subject to approval of the Company, the outstanding principal and interest under the Note into shares of Common Stock at any time prior to the maturity date at a conversion price of $5.00 per share. If the Company sells Common Stock or securities convertible into Common Stock at a per share price lower than the conversion price of the Note (the “Reset Price”), the conversion price of the notes will be reduced to the lower of (i) the Reset Price or (ii) $1.27 per share. Under the Note, Evergreen has the right to apply the amount due under the Note to a future offering of equity or debt securities and use the amount to purchase the securities sold in that future offering. The Company must repay the Note if it completes an offering of equity or debt securities with gross proceeds of at least $4.0 million. The transaction resulted in a loss on extinguishment of debt charge of $826,203, which was recorded during the three-month period ended June 30, 2022. The outstanding balance on the Note of $1,841,592 is included in “Short-term debt, net of discounts” within the unaudited condensed consolidated balance sheet as of June 30, 2022.
For more information on our outstanding debt as of June 30, 2022 and December 31, 2021, see Note 6 to our financial statements.
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Cash Flows
Operating activities
During the six months ended June 30, 2022 and 2021, cash used in operating activities was $5,600,734 and $899,502, respectively. Cash expenditures for the six months ended June 30, 2022 increased primarily due to the timing of vendor payments and an increase in executive and directors’ compensation.
Financing activities
During the six months ended June 30, 2022 and 2021, cash provided by financing activities was $11,307,045 and $936,463. The increase in cash provided by financing activities was driven by completion of the IPO.
Impact of COVID-19 and Macroeconomic Conditions
The COVID-19 pandemic and resulting worldwide economic conditions have affected, and may continue to affect, our business, financial condition and results of operations. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. We have experienced volatile supply and demand conditions in our retail and food service distribution channels. This volatility has continued amid uncertain global economic conditions related to the COVID-19 pandemic and the Russian invasion of Ukraine. In particular, we have experienced increased costs of certain commodities, such as natural gas. The future extent of the impact of the COVID-19 pandemic and other macroeconomic conditions on our financial performance, including our ability to execute our strategic initiatives, is still uncertain and will depend on future developments as the global economic impacts of continue, fluctuate and/or change. These conditions may also impact our ability to meet our financial obligations. Our operating results have been and may continue to be impacted by the pandemic, and we cannot predict whether future developments will materially adversely affect our long-term liquidity position. In the event of a continued sustained market deterioration or further delayed recovery, we may need additional liquidity which would require us to evaluate available alternative strategies such as seeking additional debt or equity capital, which may be unsuccessful.
In addition, our ability to continue to supply our products is highly dependent on our workforce, including our workers involved in the growing, harvesting, transportation, processing and distribution of our products. Our ability to maintain the safety of our workforce may be significantly impacted by individuals contracting or being exposed to COVID-19, and our operations and financial results may be negatively affected as a result. Workforce disruptions related to COVID-19 may significantly impact our ability to maintain our operations and may adversely affect our financial results. Throughout the pandemic governments have restricted travel and transportation generally, and while these restrictions have not significantly impacted our ability to supply our products to date, there is no guarantee that future restrictions will not have a significant impact on our business. We also incurred costs in relation to safety precautions undertaken in our shipping operations and there can be no assurances that we would not be required to incur such costs or similar costs in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022 pursuant to Rule 13a-15 under the Exchange Act. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that due to material weaknesses in internal control over financial reporting, our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report at the reasonable assurance level.
The material weaknesses related to the few employees in our finance department, we lacked the ability to have adequate segregation of duties in the financial statement preparation process.
Changes in Internal Control Over Financial Reporting
This Quarterly Report does not include a report of management’s assessment regarding internal control over financial reporting due to the transition period established by the SEC for newly public companies.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be party to or otherwise involved in various legal proceedings and claims arising in the ordinary course of business. Management does not believe that there is any pending or threatened proceeding against us, which if determined adversely, would have a material adverse effect on our business, results of operations, or financial condition, except as described in Note 9 to the financial statements.
ITEM 1A. RISK FACTORS
For a discussion of the Company’s potential risks or uncertainties, please see the section titled “Risk Factors” in the final prospectus for our IPO, dated as of May 5, 2022 and filed with the SEC on May 6, 2022, and the additional risks described below.
We currently do not comply with the Nasdaq continued listing requirements. If we are unable to regain compliance with the continued listing requirements of the Nasdaq Capital Market, our common stock could be delisted, which could affect our common stock’s market price and liquidity and reduce our ability to raise capital.
We received notice from Nasdaq on August 1, 2022 that, as a result of the resignation of one of our independent directors, we were no longer in compliance with (i) Nasdaq listing rule 5605(b)(1), which requires the Board to be comprised of a majority of independent directors; and (ii) Nasdaq listing rule 5605(c)(2), which requires the audit committee to consist of at least three members, each of whom is an independent director under the Nasdaq listing rules and who meets heightened independence standards for audit committee members. Consistent with Nasdaq listing rules 5605(b)(1)(A) and 5605(c)(4), the Company intends to take action to satisfy these Nasdaq listing rules prior to the expiration of the cure period at the earlier of the Company’s next annual stockholder meeting or July 27, 2023.
In addition, 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 the quarter ended June 30, 2022, our stockholders’ equity was below $1.5 million, and we had not achieved the net income standard to date. As of August 11, 2022, 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). We cannot assure you that we will be able to regain compliance with Nasdaq listing standards. Our failure to continue to meet these requirements would result in our common stock being delisted from Nasdaq, and if our common stock is delisted, our warrants will also be delisted. If our common stock and warrants were delisted from Nasdaq, the market price and liquidity of our common stock and warrants would likely decrease as a result of the loss of market efficiencies associated with the Nasdaq, the loss of federal preemption of state securities laws, and the potential loss of confidence of institutional investors, and we would have greater difficulty in raising additional capital.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Use of Proceeds
On May 4, 2022, our registration statement on Form S-1 (File No. 333-260655) registering the sale of securities in the Offering was declared effective. We sold an aggregate of 2,930,000 Units consisting of one share of our Common Stock and one Warrant to purchase one share of Common Stock (“Warrants”) at an exercise price equal to $5.00 per share of Common Stock to Maxim Group LLC and Joseph Gunnar & Co. LLC as underwriters in the firm underwritten public offering. The public offering price was $5.00 per Unit and the underwriters agreed to purchase 2,930,000 Units at an 7.0% discount to the public offering price. We granted the underwriters a 45-day option to purchase up to an additional 439,500 shares of Common Stock and/or Warrants to purchase up to an additional 439,500 shares of Common Stock to cover over-allotments, if any. The gross proceeds from the Offering were approximately $14.7 million, before deducting underwriting discounts and commissions and other offering expenses. On May 5, 2022, the underwriters partially exercised their over-allotment option to purchase 439,500 Warrants for additional gross proceeds of approximately $4,000. We also issued to the underwriters Representative’s Warrants to purchase up to a total of 117,200 shares of Common Stock. The Representative’s Warrants are exercisable at $6.25 per share, are initially exercisable 180 days after the effective date of the registration statement, and will expire on May 4, 2027. Upon completion of the sale of securities described in the preceding sentences, the Offering terminated.
We incurred offering expenses of $1,443,188 in the Offering. None of these expenses were paid to our directors or officers or their associates, holders of 10% or more of any class of our equity securities, or to our affiliates. After deducting the expenses incurred in the Offering, the net proceeds were $13,211,202. There has been no material change in the planned use of proceeds as described in the prospectus dated May 5, 2022 relating to the Offering.
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| Table of Contents |
ITEM 6. EXHIBITS
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| Incorportated by Reference |
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Exhibit Number |
| Description |
| Form |
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| Filing Date |
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| 8-K |
| 001-41371 |
| May 10, 2022 |
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| Certificate of Amendment to the Certificate of Incorporation, filed May 3, 2022 |
| 10-Q |
| 001-41371 |
| June 21. 2022 |
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| 8-K |
| 001-41371 |
| May 10, 2022 |
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| 8-K |
| 001-41371 |
| May 10, 2022 |
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| 8-K |
| 001-41371 |
| May 10, 2022 |
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| Amended and Restated Consolidated Secured Promissory Note, dated as of June 30, 2022 |
| 8-K |
| 001-41371 |
| July 5, 2022 |
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| 8-K |
| 001-41371 |
| July 5, 2022 |
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| Filed herewith |
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| Filed herewith |
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| Filed herewith |
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101 |
| Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Extensible Business Reporting Language (XBRL); (i) Unaudited Consolidated Balance Sheet, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Cash Flows, (iv) Unaudited Consolidated Statements of Stockholders’ Equity (Deficit), and (v) related Notes to Consolidated Financial Statements. |
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| Filed herewith |
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104 |
| Cover Page Interactive Data File (included in Exhibit 101) |
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| Filed herewith |
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| 34 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EDIBLE GARDEN AG INCORPORATED |
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By: | /s/ James E. Kras | |
James E. Kras |
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Chief Executive Officer and President (principal executive officer) |
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By: | /s/ Michael James | |
Michael James |
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Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer) |
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Date: August 15, 2022
35 |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James E. Kras, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Edible Garden AG Incorporated; | |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
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| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have: | |
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| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b. | [Paragraph omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)]; |
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| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): | |
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| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 15, 2022
| /s/ James E. Kras |
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| James E. Kras |
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| President and Chief Executive Officer |
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EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael James, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Edible Garden AG Incorporated; | ||
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
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| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have: | ||
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| Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
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| b. | [Paragraph omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)]; | |
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| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
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| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
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| The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): | |
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| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
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| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |
Date: August 15, 2022
| /s/ Michael James |
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| Michael James |
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| Chief Financial Officer, Treasurer and Secretary |
EXHIBIT 32
Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
James E. Kras, President and Chief Executive Officer, and Michael James, Chief Financial Officer, Treasurer and Secretary of Edible Garden AG Incorporated (the “Company”), each certify in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2022 and that:
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| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 15, 2022 | /s/ James E. Kras |
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| James E. Kras |
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| President and Chief Executive Officer |
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| (Principal Executive Officer) |
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| Date: August 15, 2022 | /s/ Michael James |
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| Michael James |
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| Chief Financial Officer, Treasurer and Secretary |
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| (Principal Financial Officer) |
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The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.