Edible Garden AG Inc 10-Q for FY2024 Q1
Edible Garden AG Inc (EDBL)
About this 10-Q
Edible Garden AG Inc filed this 10-Q on May 15, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.13M
- up 27.6% from $2.46M a year earlier
- Net loss
- $3.98M
- compared with a net loss of $2.88M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File Number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) (Zip Code)
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(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 |
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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 May 6, 2024, the registrant had
PART I — FINANCIAL INFORMATION |
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Item 1. | Financial Statements |
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| Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Content |
EDIBLE GARDEN AG INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except shares)
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| March 31, |
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| December 31, |
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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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Intangible assets, net |
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Other assets |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
LIABILITIES: |
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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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Total long-term liabilities |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (Note 10) |
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STOCKHOLDERS’ DEFICIT: |
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Common stock ($ |
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Series A Convertible Preferred stock ($ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ 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.
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| Table of Content |
EDIBLE GARDEN AG INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per-share information)
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| Three Months Ended March 31, |
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Revenue |
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Cost of goods sold |
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Gross profit (loss) |
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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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Gain 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 Content |
EDIBLE GARDEN AG INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except for shares) (1)
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
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Balance at December 31, 2023 |
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Sale of common stock pursuant to Equity Distribution Agreement |
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Issuance of common stock to employees and consultants |
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Net Income (Loss) |
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Balance at March 31, 2024 |
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| Three months ending March 31, 2023 |
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Balance at December 31, 2022 |
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Issuance of common stock and warrants in public offering, net of expenses |
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Issuance of common stock for Directors' fees |
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Issuance of common stock to employees and consultants |
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Series A Preferred dividend |
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Net Income (Loss) |
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Balance at March 31, 2023 |
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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 Content |
EDIBLE GARDEN AG INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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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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Bad debt expense |
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Depreciation and amortization |
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Amortization of operating lease right of use asset |
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Amortization of debt discount |
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Gain from extinguishment of debt |
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Stock-based compensation |
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Stock issued to Directors |
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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 USED FOR 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 USED FOR INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from debt, including related parties |
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Payment of debt issuance costs |
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Payments of debt principal, including related parties |
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Proceeds from sales of common stock from Equity Distribution Agreement |
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Payment of commissions related to sale of common stock |
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Proceeds from common stock and warrants issued in public offering |
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Payment of costs related to public offering |
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Payment of preferred stock dividends |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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NET CHANGE IN CASH |
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CASH AT END OF PERIOD |
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SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: |
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SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Trucks acquired with debt |
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The accompanying notes are an integral part of the consolidated financial statements.
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| Table of Content |
EDIBLE GARDEN AG, INCORPORATED
NOTES TO UNAUDITED 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 April 9, 2013. On March 28, 2020, Edible Garden Inc., a Wyoming corporation, was incorporated for the purpose of acquiring substantially all of the operating assets of Edible Garden Corp., which was a separately identified reportable segment of its parent company Blum Holdings, Inc. (formerly known as Terra Tech Corporation). The acquisition was completed on March 30, 2020. Prior to March 30, 2020 Edible Garden AG Incorporated had no operations. Hereafter, Edible Garden AG Incorporated and its subsidiaries will collectively be referred to as “Edible Garden,” “we,” “us,” “our,” or the “Successor.” Edible Garden Corp., a wholly owned subsidiary of Blum Holdings, Inc. will be referred to as the “Predecessor.” Throughout these financial statements, the Successor and the Predecessor are also referred to as “the Company” and used interchangeably, unless otherwise noted.
We authorized
On November 10, 2023, we increased the total number of authorized shares of capital stock of the Company from
All historical share and per share amounts reflected throughout this report have been adjusted to reflect the stock splits described above.
Nature of Business
Edible Garden is a retail seller of locally grown hydroponic produce, nutraceuticals and hot sauce, which is distributed throughout the Northeast and Midwest. Currently, Edible Garden’s products are sold at over 5,000 supermarkets. Our target customers are those individuals seeking fresh produce locally grown using environmentally sustainable methods.
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 Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934. The December 31, 2023 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2023. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
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All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial position as of March 31, 2024 and December 31, 2023, and the unaudited condensed consolidated results of operations and cash flows for the three-month periods ended March 31, 2024 and 2023 have been included.
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, the Company may seek funding through additional debt or equity financing arrangements, implement incremental expense reduction measures or a combination thereof to continue financing its operations.
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 continue our business with limited capital resources raise substantial doubt as to our ability to continue as a going concern. See Note 11, “Going Concern” for additional information.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Issued Accounting Pronouncements to Be Adopted in Future Periods
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). The amendments in ASU 2023-07 primarily require entities to disclose certain significant segment expenses and other segment items on both an annual and interim basis. ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact this ASU will have on our financial statement disclosures for the year ended December 31, 2025.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is permitted. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the impact of this ASU and expect to adopt this ASU for the year ending December 31, 2025.
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 warrants. 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.
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| Table of Content |
Trade 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 credit losses was $
Concentration of Credit Risk
During the three months ended March 31, 2024 and 2023, three customers accounted for approximately
This concentration of customers leaves us exposed to the risks associated with the loss of one or more of these significant customers, which would materially and adversely affect our revenues and results of operations.
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 reserve for excess and obsolete inventory was not material as of March 31, 2024 and December 31, 2023.
Prepaid Expenses
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.
Intangible Assets
Intangible assets continue to be subject to amortization, and any impairment is determined in accordance with ASC 360, “Property, Plant, and Equipment.” Intangible assets are stated at historical cost and amortized over their estimated useful lives. The Company uses a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined.
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The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the carrying value down to the fair value in the period the impairment is identified.
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 three months ended March 31, 2024 and 2023:
|
| (in thousands) |
| |||||
|
| Three Months Ended, |
| |||||
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||
| 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.
Contract Estimates and Judgments
On January 1, 2024, the Company and Meijer Distribution, Inc. (“Buyer”) entered into two agreements pursuant to which the Company will supply and sell products to Buyer (the “Agreements”). Under the Agreements, the Company will sell (i) fresh cut herbs, including basil, bay leaves, chives, cilantro, dill, mint, oregano, rosemary, sage, thyme; (ii) hydroponic basil; and (iii) potted herbs, including basil, chives, cilantro, mint, oregano, parsley, rosemary, sage, thyme, wheatgrass; in quantities and delivery schedule requested by the Buyer at prices per unit set in advance by the Company and the Buyer. Under the Agreements, the Company and the Buyer will renegotiate the prices for each unit annually, provided that the price per unit will not increase or decrease at a rate greater than the change in the relevant Consumer Price Index in that year. Once set, the pricing terms will remain fixed for the remainder of the year. Any price increases will take effect after sixty days and any price decrease will be effective immediately. If the Company and the Buyer are unable to mutually agree on price increases, the Company will have the power to terminate the Agreements immediately.
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In addition, under the agreement governing the purchase of potted herbs, the Company has agreed to fund the installation of fixtures in each of the Buyer’s stores to display the potted herbs in an aggregate amount estimated to be approximately $
The Agreements became effective as of January 1, 2024 and expire on
Management has determined the payments for the fixtures should be treated as a reduction in revenue under the guidance of ASC 606. As we do not
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.” During the three months ended March 31, 2024 and 2023, 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 three months ended March 31, 2024 and 2023. 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 March 31, 2024 and December 31, 2023, 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.
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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 Interim 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.
NOTE 3 – INVENTORY
The following table summarizes inventory as of March 31, 2024 and December 31, 2023:
|
| (in thousands) |
| |||||
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Raw materials |
| $ |
|
| $ |
| ||
Work-in-progress |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total inventory |
| $ |
|
| $ |
| ||
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NOTE 4 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
The following table summarizes property, equipment and leasehold improvements as of March 31, 2024 and December 31, 2023:
|
| (in thousands) |
| |||||
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Furniture and equipment |
| $ |
|
| $ |
| ||
Computer hardware |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Land |
|
|
|
|
|
| ||
Construction in progress |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
|
|
|
| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property, equipment and leasehold improvements, net |
| $ |
|
| $ |
| ||
Depreciation expense related to property, equipment and leasehold improvements for the three months ended March 31, 2024 and 2023 was $
NOTE 5 – INTANGIBLE ASSETS
The following table summarizes intangible assets as of March 31, 2024 and December 31, 2023:
|
|
|
| (in thousands) |
| |||||||||||||||||||||||
|
|
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||||||||||||
|
| Estimated |
|
| Gross |
|
|
|
| Net |
|
| Gross |
|
|
|
|
| Net |
| ||||||||
|
| Useful Life in Years |
|
| Carrying Value |
|
| Accumulated Amortization |
|
| Carrying Value |
|
| Carrying Value |
|
| Accumulated Amortization |
|
| Carrying Value |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Amortizing Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Pulp brand recipes |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
|
| ( | ) |
| $ |
| |||||
Non-compete agreement |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets, net |
|
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Amortization expense for the three months ended March 31, 2024 and 2023 was $
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NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table summarizes accounts payable and accrued expenses as of March 31, 2024 and December 31, 2023:
|
| (in thousands) |
| |||||
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Accounts payable |
| $ |
|
| $ |
| ||
General accrued expenses |
|
|
|
|
|
| ||
Employee retention credit funds |
|
|
|
|
|
| ||
Accrued interest payable |
|
|
|
|
|
| ||
Accrued payroll |
|
|
|
|
|
| ||
Accrued severance and Director's fees |
|
|
|
|
|
| ||
Accrued vacation |
|
|
|
|
|
| ||
Current lease liability |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total Accounts Payable and Accrued Expenses |
| $ |
|
| $ |
| ||
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NOTE 7 – NOTES PAYABLE
The following table summarizes notes payable as of March 31, 2024 and December 31, 2023:
|
| (in thousands) |
| |||||
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Secured promissory note |
| $ |
|
| $ |
| ||
Future receivables financing agreement with Cedar Advance, LLC |
|
|
|
|
|
| ||
NJD Investments, LLC promissory note |
|
|
|
|
|
| ||
SBA loan |
|
|
|
|
|
| ||
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 March 31, 2024, are as follows (in thousands):
Years Ending December 31, |
| Secured Promissory Notes |
|
| Cedar Advance, LLC loan |
|
| NJD Investments, LLC Promissory Note |
|
| SBA Loan |
|
| Vehicle Loans |
|
| Total |
| ||||||
2024 (remaining) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Secured Promissory Note
On March 30, 2020, the Company entered into a promissory note (the “First Sament Note”) for $
| 15 |
| Table of Content |
On June 2, 2020, the Company entered into a promissory note for $
Future Receivables Financing Agreement with Cedar Advance, LLC
On March 14, 2024, the Company entered into a standard merchant cash advance agreement (the “Cedar Agreement”) with Cedar Advance LLC (“Cedar”), dated as of March 12, 2024, pursuant to which the Company sold to Cedar $
Pursuant to the Cedar Agreement, Cedar is expected to withdraw $
As of March 31, 2024, the total outstanding balance of $
NJD Investments, LLC Promissory Note
On August 30, 2022, the Company entered into a promissory note (the “NJDI Note”) for $
In addition, the Company’s obligation to repay the amounts due under the NJDI Note, or up to $
During the year ended December 31, 2022, accrued interest of $
| 16 |
| Table of Content |
Small Business Administration (“SBA”) Loans
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 $
Vehicle Loans
During the year ended December 31, 2020, the Company entered into a financing agreement for the purchase of a vehicle. The loan, which accrues interest at a rate of
During the year ended December 31, 2021, the Company entered into three financing agreements totaling $
During the year ended December 31, 2022, the Company entered into two financing agreements totaling $
During the year ended December 31, 2023, the Company entered into three financing agreements totaling $
As of March 31, 2024, $
As of December 31, 2023, $
NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT)
2024 Equity Distribution Agreement
On February 7, 2024, we entered into an Equity Distribution Agreement with Maxim Group LLC (“Maxim” or the “sales agent”), relating to shares of our common stock. In accordance with the terms of the Equity Distribution Agreement, we may offer and sell shares of our common stock, $
| 17 |
| Table of Content |
2023 Public Offering
On February 7, 2023,
Common Stock
The Company has authorized
During the three months ended March 31, 2024, the Company issued
|
| Number of Shares |
| |
|
|
|
| |
Sale of common stock pursuant to Equity Distribution Agreement |
|
|
| |
Issuances of common stock to employees and consultants |
|
|
| |
Total of common stock issuances during the three months ended March 31, 2024 |
|
|
| |
|
|
|
|
|
Summary table of common stock share transactions: |
|
|
|
|
Shares outstanding at December 31, 2023 |
|
|
| |
Common stock issuances |
|
|
| |
Shares outstanding at March 31, 2024 |
|
|
| |
| 18 |
| Table of Content |
Stock-Based Compensation
On January 18, 2022 in connection with the IPO, the board of directors (the “Board”) approved the Edible Garden AG Incorporated 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan provides for equity incentive compensation for employees, non-employee directors, and any other individuals who perform services for the Company. The number of shares initially available for grant under the 2022 Plan was
On June 8, 2023 the stockholders of the Company approved the First Amendment to the 2022 Plan, which increased the number of shares of common stock reserved for issuance thereunder by
During the three months ended March 31, 2024, the Company issued
Shares available for future stock compensation grants totaled
Warrants
There was no warrant activity during the three months ended March 31, 2024. Total outstanding warrants of
NOTE 9 – 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 our predecessor company, Edible Garden Corp., whereby we make lease payments of approximately $
During the three months ended March 31, 2024, total operating lease cost was $
| 19 |
| Table of Content |
The table below presents total operating lease assets and lease liabilities as of March 31, 2024 and December 31, 2023:
|
| (in thousands) |
| |||||
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Operating lease assets |
| $ |
|
| $ |
| ||
Operating lease liabilities |
| $ |
|
| $ |
| ||
The table below presents the maturities of operating lease liabilities as of March 31, 2024:
|
| (in thousands) |
| |
|
| Operating |
| |
|
| Leases |
| |
2024 (remaining) |
|
|
| |
Total lease payments |
|
|
| |
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:
|
| March 31, |
| |
|
| 2024 |
| |
Remaining lease term (months) |
|
|
| |
Discount rate |
|
| % | |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Effective January 25, 2024, Michael James retired from his positions as Chief Financial Officer, Treasurer, Secretary and Director of the Company. In connection with Mr. James’s retirement, on January 24, 2024, the Company and Mr. James entered into a separation agreement (the “Separation Agreement”). Pursuant to the terms of the Separation Agreement, the Company agreed to pay Mr. James a severance payment of $
As described in detail in Note 2, "Summary of Significant Accounting Policies,” on February 8, 2024, the Company entered into two agreements with the Buyer to supply and sell products over a three-year period. Pursuant to the agreement, the Company will pay approximately $
From time to time, we may be party to or otherwise involved in legal proceedings 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.
| 20 |
| Table of Content |
NOTE 11 – GOING CONCERN
These financial statements are prepared on a going concern basis. The Company began operating in 2020. For the three months ended March 31, 2024, we incurred a net loss 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 revenue and reduce costs 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.
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 raise capital and to continue our business with 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
On May 7, 2024, the Company entered into an amended and restated standard merchant cash advance agreement (the “Restated Agreement”) with Cedar, dated as of May 3, 2024, that amends and restates the Cedar Agreement. Under the Restated Agreement, the Company sold to Cedar an additional $
| 21 |
| Table of Content |
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,” “would,” “could,” “should,” “may,” “can,” “estimates,” “expects,” “anticipates,” “projections,” “plans,” “potential,” “intends,” “believes,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs, estimates, and projections will occur or can be achieved. Actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including:
| · | our history of losses and our ability to continue as a going concern; |
| · | our ability to obtain additional financing to fund our operations; |
| · | the departure of members of our management team; |
| · | our ability to continue to access and operate our Belvidere, New Jersey facility; |
| · | our ability to regain compliance with the listing standards of Nasdaq; |
| · | our market opportunity; |
| · | our ability to effectively manage our growth; |
| · | our ability to integrate business acquisitions; |
| · | the effects of increased competition as well as innovations by new and existing competitors in our market; |
| · | our ability to retain our existing customers and to increase our customer base; |
| · | the future growth of the indoor agriculture industry and demands of our customers; |
| · | our ability to maintain, or strengthen awareness of, our brand; |
| · | our ability to expand the product lines we offer; |
| · | our ability to maintain, protect, and enhance our intellectual property; |
| · | future revenue, hiring plans, expenses and capital expenditures; |
| · | our ability to comply with new or modified laws and regulations that currently apply or become applicable to our business; |
| · | our ability to recruit and retain key employees and management personnel; |
| · | our financial performance and capital requirements; |
| · | the material weaknesses in our internal control over financial reporting and the potential insufficiency of our disclosure controls and procedures to detect errors or acts of fraud; and |
| · | the potential lack of liquidity and trading of our securities; |
The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report and our other reports filed with the Securities and Exchange Commission (“SEC”).
| 22 |
| Table of Content |
OVERVIEW
We are a controlled environment agriculture (“CEA”) farming company. We use traditional agricultural growing techniques together with technology to grow fresh, organic food, sustainably and safely while improving traceability. We use the controlled environment of traditional greenhouse structures, such as glass greenhouses, together with hydroponic and vertical greenhouses to sustainably grow organic herbs, lettuces and floral products. In our hydroponic greenhouse, we grow plants without soil. Instead of planting one row of lettuce in the ground, by using a vertical greenhouse, we can grow many towers of lettuce in the same area by planting up instead of planting across. Growing these products sustainably means that we avoid depleting natural resources in order to maintain an ecological balance, such as by renewing, reusing and recycling materials in order to lower the overall one-time use of materials.
Our controlled greenhouse facilities allow us to grow consistent quality herbs and lettuces year-round, first by eliminating some of the variability of outdoor farming with our CEA techniques, and second by leveraging our proprietary software, GreenThumb. In addition to using hydroponic and vertical greenhouse systems, we use a “closed loop” system in our greenhouses. Generally, in a “closed loop” system, drain water is recollected and reused for irrigation. In our closed loop system, we also cycle water back into the system that has been collected through reverse osmosis. When compared with conventional agriculture, our closed looped systems and hydroponic methods use less land, less energy and less water (than legacy farms), thus conserving some of the planet’s limited natural resources. Our advanced systems are also designed to help mitigate contamination from harmful pathogens, including salmonella, e-coli and others.
We have also developed patented software called GreenThumb that assists in tracking plants through our supply chain. Utilizing our GreenThumb software to track the status of our plants as they grow and move throughout the greenhouse allows us to add a layer of quality control due to the frequent monitoring of the growing process, leading to improved traceability. In this context, traceability means being able to track a plant through all stages of production and distribution. In addition to improving traceability, GreenThumb helps us better manage the day-to-day operations of our business. GreenThumb is a web-based greenhouse management and demand planning system that does the following:
| • | integrates in real-time with our cloud business software suite for monitoring daily sales data; |
| • | generates reports by category, product, customer, and farm to allow us to analyze sales, trends, margins and retail shrink (spoiled product); |
| • | provides dynamic pallet mapping for packout, which enables us to more efficiently ship our products; |
| • | utilizes a proprietary algorithm that uses year-over-year and trending sales data to develop customer specific and aggregate product specific forecasting for our greenhouses; |
| • | aggregates all greenhouse activity input to provide real-time inventory and availability reports of all products in our greenhouses; |
| • | manages our online ordering system with user controlled product availability based upon greenhouse inventory; |
| • | provides a route management system for coordinating the logistics of our direct store delivery program; and |
| • | tracks all production activities at greenhouses, including sowing, spacing, dumping, spraying, picking and packing, using 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 with a legacy farm business.
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We believe our focus on our brand “Edible Garden” is a significant differentiator. The brand not only lends itself to our current portfolio of products but allows us to develop other products in the “Consumer Brands” category. Our focus on sustainability, traceability, and social contribution, which we define as an ongoing effort to improve employee relations, working conditions, and local communities, presents our value proposition to our customers and supermarket partners and distributors.
RECENT DEVELOPMENTS
Departure of Chief Financial Officer
Effective January 25, 2024, Michael James retired from his positions as Chief Financial Officer, Treasurer, Secretary and Director of the Company. In connection with Mr. James’s retirement, on January 24, 2024, the Company and Mr. James entered into a separation agreement (the “Separation Agreement”). Pursuant to the terms of the Separation Agreement, the Company agreed to pay Mr. James a severance payment of $300,000 in the form of salary continuation until January 2025. In addition, Mr. James is eligible to earn milestone payments under the Separation Agreement in an aggregate amount up to $300,000 if he completes certain transitional deliverables for the Company. The Company granted Mr. James a restricted stock award with a fair value equal to $25,000 as of April 2, 2024.
Equity Distribution Agreement
On February 6, 2024, the Company entered into an Equity Distribution Agreement (the “EDA”) with Maxim Group LLC, as sales agent (the “Agent”), pursuant to which the Company may, from time to time, issue and sell shares of common stock through the Agent in an at-the-market offering for an aggregate offering price of up to $1,146,893. To date, the Company has received net proceeds of $1.1 million after deducting the Agent’s commission of 3.5% of the gross proceeds and other offering expenses from the sale of 181,710 shares of common stock under the EDA.
Supply Agreements
On February 8, 2024, the Company and Meijer Distribution, Inc. (“Buyer”) entered into two agreements pursuant to which the Company will supply and sell products to Buyer until December 2026 (the “Supply Agreements”). Under the Supply Agreements, the Company will sell (i) fresh cut herbs, including basil, bay leaves, chives, cilantro, dill, mint, oregano, rosemary, sage, thyme; (ii) hydroponic basil; and (iii) potted herbs, including basil, chives, cilantro, mint, oregano, parsley, rosemary, sage, thyme, wheatgrass; in quantities and delivery schedule requested by the Buyer at prices per unit set in advance. Under the Supply Agreements, the Company and the Buyer will renegotiate the prices for each unit annually, provided that the price per unit will not increase or decrease at a rate greater than the change in the relevant Consumer Price Index in that year. Once set, the pricing terms will remain fixed for the remainder of the year. Any price increases will take affect after sixty days and any price decrease will be effective immediately. If the Company and the Buyer are unable to mutually agree on price increases, the Company will have the power to terminate the Supply Agreements immediately.
Under the Supply Agreements, the Company agreed to fund the installation of fixtures in each of the Buyer’s stores to display potted herbs in an aggregate amount estimated to be $806,947. These payments will be made as a weekly deduction from the Company’s receivables from the Buyer. The Supply Agreements will expire on December 31, 2026. The Supply Agreements may be renewed for an additional two-year term upon the mutual agreement but may be terminated by the Buyer without cause upon sixty days’ prior notice.
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Cedar Cash Advance Agreement
On March 14, 2024, the Company entered into a standard merchant cash advance agreement (the “Advance Agreement” with Cedar Advance LLC (“Cedar”), pursuant to which the Company agreed to sell $1,491,000 of trade receivables to Cedar in exchange for $1,000,000 of cash proceeds, after deducting $50,000 for underwriting fees and other transaction expenses. On May 7, 2024, the Company entered into an amended and restated standard merchant cash advance agreement (the “Restated Agreement”) with Cedar that amends and restates the Advance Agreement. Except as amended by the Restated Agreement, the remaining terms of the Advance Agreement remain in full force and effect. Under the Restated Agreement, the Company sold to Cedar an additional $994,000 of its future accounts receivable for a purchase price of $700,000, less aggregate fees and expenses of $87,500, for additional net funds provided of $544,250, bringing the total financing with Cedar to $2,485,000 in accounts receivable sold for $1,544,250 of net funds provided. Pursuant to the Restated Agreement, the Company is required to pay Cedar 35.0% of all funds collected from customers for the sale of goods and services. Weekly, Cedar is authorized to withdraw $65,000 of funds from Edible Garden’s bank account until such time a reconciliation is provided calculating the 35.0% of collections owed to Cedar, until such time the total balance of $2,485,000 is repaid. The Restated Agreement is collateralized by the Company’s cash and receivable accounts. In the event of a default (as defined in the Restated Agreement), Cedar, among other remedies, can enforce its security interest in the collateral and demand payment in full of the uncollected amount of receivables purchased plus all fees due under the Restated Agreement.
Reverse Stock Split
As of April 5, 2024, we effected a 1-for-20 reverse stock split of our outstanding common stock. The conversion or exercise prices of our issued and outstanding stock options and warrants were adjusted in connection with the reverse stock split.
Nasdaq Compliance
On April 11, 2024, we received letters from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that we do not comply with the minimum stockholders’ equity requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Rule”) and Nasdaq Listing Rule 5550(a)(4), which requires us to have a minimum of 500,000 publicly held shares (the “Publicly Held Shares Rule”). These notices of noncompliance have no immediate impact on the continued listing or trading of our securities on Nasdaq, which will continue to be listed and traded on Nasdaq, subject to our compliance with the other Nasdaq continued listing requirements. By May 28, 2024, we must submit a plan to Nasdaq showing how we intend to regain compliance with the Stockholders’ Equity Rule. Because there are 549,392 shares of common stock outstanding as of May 6, 2024, (of which 3,360 are held by our officers and directors), we believe we are in compliance with the Publicly Held Shares Rule.
We intend to take all reasonable measures available to regain compliance under Nasdaq’s listing rules and remain listed on Nasdaq. There can be no assurance that we will ultimately regain compliance with all applicable requirements for continued listing. If we do not regain compliance with Nasdaq’s listing rules within the time period permitted by Nasdaq, then our securities will be delisted from Nasdaq.
On April 19, 2024, we received a letter from the Listing Qualifications Staff of Nasdaq indicating that we had regained compliance with the minimum bid price requirement under Nasdaq Rule 5550(a)(2).
CRITICAL ACCOUNTING ESTIMATES
The preparation of the unaudited 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 is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company does not offer returns, discounts, loyalty programs or other sales incentive programs that are material to revenue recognition. Payments from our customers are due upon delivery or within a short period after delivery.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Our fixed assets, which are comprised of leasehold improvements, equipment and vehicles, have useful lives of five years. Expenditures for major renewals and improvements are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon sale or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
The Company continually monitors events and changes in circumstances that could indicate that the carrying balances of its property, equipment and leasehold improvements may not be recoverable in accordance with the provisions of 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, 2024 and December 31, 2023, 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.
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RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(in thousands): |
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Revenue |
| $ | 3,132 |
|
| $ | 2,455 |
|
Cost of goods sold |
|
| 3,109 |
|
|
| 2,479 |
|
Gross profit |
|
| 23 |
|
|
| (24 | ) |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 3,884 |
|
|
| 2,691 |
|
Loss from operations |
|
| (3,861 | ) |
|
| (2,715 | ) |
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
Interest expenses, net |
|
| (117 | ) |
|
| (234 | ) |
Gain from extinguishment of debt |
|
| - |
|
|
| 70 |
|
Other income / (loss) |
|
| 1 |
|
|
| - |
|
Total other expenses |
|
| (116 | ) |
|
| (164 | ) |
NET LOSS |
| $ | (3,977 | ) |
| $ | (2,879 | ) |
Revenue
Revenue was $3.132 million for the three months ended March 31, 2024, compared to $2.455 million for the three months ended March 31, 2023. The increase in revenue of $677 thousand, or 27.6%, was primarily attributed to an increase in customer demand for our cut herbs and potted herbs products. Revenue from cut herbs increased from $412 thousand in the three months ended March 31, 2023 to $997 thousand in the three months ended March 31, 2024. Revenue from potted herbs increased from $1.1 million in the three months ended March 31, 2023 to $1.4 million in the three months ended March 31, 2024. Offsetting these increases was a decrease in vitamins and supplements revenue of $190 thousand, from $589 thousand in the three months ended March 31, 2023 to $399 thousand in the three months ended March 31, 2024.
During the three months ended March 31, 2024, total revenue was reduced by approximately $67 thousand as we adjusted the transaction price of our sales to a customer to account for funds we agreed to pay to the customer for the installation of fixtures in their stores. See Note 2, "Summary of Significant Accounting Policies.”
Cost of goods sold
Cost of goods sold were $3.109 million for the three months ended March 31, 2024, compared to $2.479 million for the three months ended March 31, 2023. Cost of goods sold increased $630 thousand, or 25.4%, in line with the increase in revenue for the same period.
Selling, general and administrative
Selling, general and administrative expenses (“SG&A”) were $3.884 million for the three months ended March 31, 2024, compared to $2.691 million for the three months ended March 31, 2023. SG&A increased $1.193 million, or 44.3%, due to a one-time severance charge of $0.6 million and higher audit, accounting and legal fees related to the departure of our Chief Financial Officer.
Loss from operations
Higher SG&A expense resulted in a loss from operations of $3.861 million for the three months ended March 31, 2024, compared to $2.715 million for the three months ended March 31, 2023. The increase in net loss from operations was $1.146 million, or 42.2% compared with the three months ended March 31, 2023.
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Interest expense
Interest expense was $117 thousand for the three months ended March 31, 2024, compared to $234 thousand for the three months ended March 31, 2023. Lower interest expense was related to paying off debt previously outstanding with proceeds from public offerings.
Gain from extinguishment of debt
During the three months ended March 31, 2023, the Company recognized a gain from the extinguishment of debt of $70 thousand by prepaying a promissory note owed to our Predecessor company.
Net loss
Net loss was $3.977 million for the three months ended March 31, 2024, compared to a net loss of $2.879 million for the three months ended March 31, 2023. The reasons for the increase in net loss are explained above.
LIQUIDITY AND CAPITAL RESOURCES
Going Concern Considerations
We have incurred significant losses since our inception. We recognized net losses of approximately $3.977 million during the three months ended March 31, 2024 and $10.188 million during the twelve months ended December 31, 2023. We expect our capital expenses and operational expenses to increase in the future due to expected increased sales and marketing expenses, operational costs, and general and administrative costs. Therefore, we believe our operating losses will continue or even increase at least through the near term.
The risks and uncertainties surrounding our ability to continue our business with limited capital resources raises substantial doubt as to our ability to continue as a going concern for twelve months from the issuance of these financial statements. Our financial statements have been prepared on a “going concern” basis, which implies we may not continue to meet our obligations and continue our operations for the next twelve months. Our consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern. If we are unable to continue as a going concern, holders of our securities might lose their entire investment. These factors, among others, may make it difficult to raise any additional capital and may cause us to be unable to continue to operate our business.
There is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity or equity-linked securities by us would result in significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business as planned and as a result may be required to scale back or cease operations, which could cause our stockholders to lose some or all of their investment in us. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.
Liquidity
The Company’s primary liquidity requirements are for working capital, continued investments in capital expenditures, repayment of indebtedness, and other strategic investments. Although income taxes are not currently a significant use of funds, after the benefits of our net operating loss carryforwards are fully recognized, they could become a material use of funds, depending on our future profitability and future tax rates. The Company’s liquidity needs have been met primarily through public equity offerings, term loan borrowings, accounts receivable financing, convertible notes, and related party loans.
As of March 31, 2024 and December 31, 2023, we had $388 thousand and $510 thousand in cash and cash equivalents available, respectively. During the three months ended March 31, 2024, we used $1.06 million of cash for operating activities. As of March 31, 2024 and December 31, 2023, we had a working capital deficit of $6.966 million and $257 thousand, respectively. As of March 31, 2024 and December 31, 2023, we had $5.290 million and $4.427 million of total debt outstanding, respectively. To meet our cash needs, we entered into the Advance Agreement and the Restated Agreement, raised approximately $1.1 million in an at-the-market offering and are implementing cost savings strategies. See “Capital Resources” below for additional details.
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We may not be able to access the capital markets in the future on commercially acceptable terms or at all. Our ability to fund future operating expenses and capital expenditures and our ability to meet future debt service obligations or refinance our indebtedness will depend on our future operating performance, which will be affected by general economic, financial and other factors beyond our control, including those described under “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on April 1, 2024.
Capital Resources
On February 6, 2024, we entered into the EDA with Maxim as sales agent, pursuant to which we may, from time to time, issue and sell shares of common stock through Maxim in an at-the-market offering for an aggregate offering price of up to $1,146,893. To date, we have received net proceeds of approximately $1.1 million from the sale of common stock under the EDA after deducting Maxim’s commission of 3.5% of the gross proceeds and other offering expenses.
On March 14, 2024, we entered into the Advance Agreement with Cedar, pursuant to which we agreed to sell $1,491,000 of trade receivables to Cedar in exchange for $1,000,000 of cash proceeds, after deducting $50,000 for underwriting fees and other transaction expenses. On May 7, 2024, we entered into the Restated Agreement with Cedar, pursuant to which we sold Cedar an additional $994,000 of our future accounts receivable for a purchase price of $700,000, less aggregate fees and expenses of $87,500, for additional net funds provided of $544,250, bringing the total financing with Cedar to $2,485,000 in accounts receivable sold for $1,544,250 of net funds provided. Pursuant to the Restated Agreement, we are required to pay Cedar 35.0% of all funds collected weekly from customers for the sale of goods and services. Weekly, Cedar is authorized to withdraw $65,000 of funds from our bank account until such time a reconciliation is provided calculating the 35.0% of collections owed to Cedar, until such time the total balance of $2,485,000 is repaid. The Restated Agreement is collateralized by our cash and receivable accounts. In the event of a default (as defined in the Restated Agreement), Cedar, among other remedies, can enforce its security interest in the collateral and demand payment in full of the uncollected amount of receivables purchased plus all fees due under the Restated Agreement.
For more information on our outstanding debt as of March 31, 2024 and December 31, 2023, see Note 7 to our financial statements.
Cash Flows
Operating activities
During the three months ended March 31, 2024 and 2023, cash used for operating activities was $1.059 million and $3.319 million, respectively. Cash expenditures for the three months ended March 31, 2024 decreased primarily due to a decrease in payments to vendors, higher collections and the impact of depreciation, offset by a higher operating loss.
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Investing activities
During the three months ended March 31, 2024 and 2023, cash used in investing activities was $55 thousand and $361 thousand, respectively. The decrease was due to lower purchases of property, equipment and leasehold improvements.
Financing activities
During the three months ended March 31, 2024 and 2023, cash provided by financing activities was $992 thousand and $7.518 million, respectively. The decrease in cash provided by financing activities was primarily driven by completion of the February 2023 public offering, which resulted in a net cash inflow after offering expenses of $9.26 million in the prior period. The decrease was offset by an increase in net proceeds from debt of $2.59 million in the three months ended March 31, 2024 versus the prior period, as proceeds from debt issuances were higher and payments of debt principal were lower in the current versus the prior period. The decrease was also offset by $134 thousand of proceeds from the EDA, net of commissions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024 pursuant to Rule 13a-15 under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of March 31, 2024, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were ineffective as of March 31, 2024, due to the existence of material weaknesses in our internal control over financial reporting that we have yet to fully remediate.
Because we are a small company with few employees in our finance department, we lacked the ability to have adequate segregation of duties in the financial statement preparation process. Since these entity level controls have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. In addition, we have a material weakness in our internal control over financial reporting because we lack maintenance of appropriate documentation to support our internal controls and we have insufficiently reviewed reports identifying user entity controls.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be party to or otherwise involved in legal proceedings 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.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should consider the risks described in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023. Except as set forth below, there have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K. Any of these risks and uncertainties, including those discussed below, could materially and adversely affect our business, results of operations, financial condition, and/or the market price of our common stock. The risks described below and in our Annual Report on Form 10-K, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our financial condition and/or operating results.
We are currently not in compliance with the Nasdaq continued listing requirements. If we are unable to regain compliance with Nasdaq’s listing requirements, our securities could be delisted, which could affect our common stock’s market price and liquidity and reduce our ability to raise capital.
On April 11, 2024, we received a letter from the Listing Qualifications Department of Nasdaq indicating that we do not comply with the minimum stockholders’ equity requirement for continued listing on Nasdaq under the Stockholders’ Equity Rule because: (i) our stockholders’ equity was less than the required minimum of $2,500,000; and (ii) as of August 19, 2022, we did not meet the alternative compliance standards of market value of listed securities of $35 million or 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 March 31, 2024, our stockholders’ deficit is $4,088,000 and, we have not regained compliance with the Stockholders’ Equity Rule.
In addition, on April 11, 2024, we received a letter from the Listing Qualifications Staff of Nasdaq indicating that we were not in compliance with the Publicly Held Shares Rule, which requires us to have a minimum of 500,000 publicly held shares. This notice of noncompliance has no immediate impact on the continued listing or trading of our securities on Nasdaq, which will continue to be listed and traded on Nasdaq, subject to our compliance with the other Nasdaq continued listing requirements. We have until May 28, 2024 to submit a letter to Nasdaq with our plan to regain compliance with the Stockholders’ Equity Rule and the Publicly Held Shares Rule. If Nasdaq does not accept our plan, Nasdaq will provide notice that our common stock will be subject to delisting, and we would then be entitled to appeal that determination to a Nasdaq hearings panel.
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. We and holders of our securities could be materially adversely impacted if our securities are delisted from Nasdaq. In particular:
| • | we may be unable to raise equity capital on acceptable terms or at all; |
| • | we may lose the confidence of our customers, which would jeopardize our ability to continue our business as currently conducted; |
| • | the price of our common stock will likely decrease as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws; |
| • | holders may be unable to sell or purchase our securities when they wish to do so; |
| • | we may become subject to stockholder litigation; |
| • | we may lose the interest of institutional investors in our common stock; |
| • | we may lose media and analyst coverage; |
| • | our common stock could be considered a “penny stock,” which would likely limit the level of trading activity in the secondary market for our common stock; and |
| • | we would likely lose any active trading market for our common stock, as it may only be traded on one of the over-the-counter markets, if at all. |
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ITEM 6. EXHIBITS
|
|
|
| Incorporated by Reference |
|
| ||
Exhibit Number |
| Description |
| Form |
| File No. |
| Filing Date |
|
| 8-K |
| 001-41371 |
| January 26, 2024 | ||
|
| 8-K |
| 001-41371 |
| January 26, 2024 | ||
|
| 8-K |
| 001-41371 |
| February 7, 2024 | ||
|
| 8-K |
| 001-41371 |
| February 12, 2024 | ||
|
| 8-K |
| 001-41371 |
| February 12. 2024 | ||
|
| 8-K |
| 001-41371 |
| March 20, 2024 | ||
|
| 8-K |
| 001-41371 |
| May 8, 2024 | ||
|
|
|
|
|
| Filed herewith | ||
|
|
|
|
|
| Filed herewith | ||
|
|
|
|
|
| Furnished herewith | ||
101 |
| Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, 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’ Deficit, and (v) related Notes to Consolidated Financial Statements. |
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| Filed herewith |
104 |
| Cover Page Interactive Data File (included in Exhibit 101). |
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| Filed herewith |
+ | Management contract or compensatory arrangement. |
± | Certain information has been omitted from this exhibit in reliance upon Item 601(a)(5) of Regulation S-K and will be furnished to the Securities and Exchange Commission upon request. |
# | Certain portions of this exhibit have been omitted (indicated by asterisks) pursuant to Item 601(b) of Regulation S-K because the omitted information is (i) not material and (ii) the type of information that the Company treats as private or confidential. |
| 32 |
| Table of Content |
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/ Kostas Dafoulas | |
Kostas Dafoulas |
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Interim Chief Financial Officer (principal financial and accounting officer) |
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Date: May 15, 2024
| 33 |
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 internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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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: May 15, 2024
| /s/ James E. Kras |
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| James E. Kras 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, Kostas Dafoulas, 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 internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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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: May 15, 2024
| /s/ Kostas Dafoulas |
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| Kostas Dafoulas Interim Chief Financial Officer |
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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 Kostas Dafoulas, Interim Chief Financial Officer 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 March 31, 2024 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. |
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| Date: May 15, 2024 | /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: May 15, 2024 | /s/ Kostas Dafoulas |
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| Kostas Dafoulas |
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| Interim Chief Financial Officer |
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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.