Edible Garden AG Incorporated — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 1, 2024. This is an annual report, not a standalone fourth-quarter report. Edible Garden operates controlled-environment farms and sells herbs, produce, floral products, vitamins and supplements.
Financial results and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $14.049 million | $11.552 million |
| Gross profit | $822,000; 5.85% margin | $364,000; 3.15% margin |
| Operating loss | $9.873 million | $9.004 million |
| Net loss | $10.188 million | $12.453 million |
| Cash used in operating activities | $8.531 million | $9.185 million |
| Cash at year-end | $510,000 | $110,000 |
| Working capital | Deficit of $257,000 | Deficit of $2.966 million |
| Debt carrying value | $4.427 million | $6.324 million |
Revenue increased 21.6%, led by $2.17 million of additional herb, produce and floral sales and $324,000 of growth in vitamins and supplements. Gross margin improved as the company relied less on contract growers. However, Heartland facility operating costs contributed to higher cost of goods sold and SG&A; operating loss widened by $869,000. Net loss narrowed mainly because interest expense and prior-year debt-extinguishment and other charges declined.
Cash used in investing activities was $1.022 million, while financing activities provided $9.953 million, primarily through equity offerings. Stockholders’ deficit was $288,000 at year-end. The company reported $1.249 million of net receivables and $678,000 of inventory.
Material changes and business developments
- Heartland, the company’s five-acre Michigan greenhouse, transitioned to growing herbs and lettuce during 2023; it also began shipping fall ornamentals. Management expects the facility to reduce reliance on contract growers and support improved margins over time.
- The company recorded a $686,000 impairment charge on predecessor-acquired fixed assets after concluding expected cash flows would not recover their carrying value.
- Five customers generated 83.1% of 2023 revenue, including one customer at 44.4%. Four customers represented 80.4% of year-end gross receivables.
- In February 2024, the company entered into Meijer supply agreements extending through December 2026. Meijer may terminate without cause on 60 days’ notice; the company agreed to fund store fixtures estimated at approximately $800,000, deducted weekly from receivables.
- In February 2024, the company established an at-the-market equity program for up to $1,146,893. The filing gives inconsistent figures for net proceeds received to date: $122,118 in one section and $112,118 in another.
- In March 2024, the company received $1 million by selling $1.491 million of receivables to Cedar. Cedar is entitled to 25% of customer collections, with weekly withdrawals and cash and receivables pledged as collateral.
Outlook, risks and unusual items
Management provided no quantified revenue, earnings or cash-flow guidance. It expects operating losses to continue or potentially increase in the near term and says existing cash, without additional financing, was expected to fund operations only into the second quarter of 2024. The auditor and management concluded that substantial doubt exists about the company’s ability to continue as a going concern; the statements contain no adjustments for a possible failure to continue operations.
- Financing and debt: Additional capital is needed and may be unavailable or dilutive. Secured debt includes a lien on New Jersey operating assets; the Michigan facility and its assets secure the NJD note. Cedar’s advance is secured by cash and receivables.
- Facilities: The Belvidere flagship facility operates under an informal, month-to-month arrangement; the company has no direct written lease with the landowner. The planned packhouse requires approximately $1.1 million of additional capital expenditures; $272,000 had been paid to date.
- Customer and supplier concentration: Major customers generally buy through purchase orders rather than firm long-term commitments. Contract growers likewise are not bound by formal long-term contracts.
- Nasdaq listing: The company had received a minimum-bid-price deficiency notice, with a compliance deadline of April 22, 2024. It also disclosed that it was below the stockholders’ equity standard and did not meet the market-value standard as of March 25, 2024.
- Controls and leadership: Disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses involving segregation of duties and control documentation/review. The CFO retired in January 2024; an interim CFO was appointed. The former CFO’s separation agreement includes $300,000 in salary continuation, possible milestone payments up to $300,000, and a $25,000 restricted-stock award.
- Contingency: The company collected approximately $865,000 in Employee Retention Credit funds and recorded the amount as a liability because eligibility remains uncertain. The IRS may review and reverse the credits, potentially with penalties and interest.
- Other unusual item: The 2023 impairment charge was $686,000. The company reported no pending or threatened legal proceeding expected by management to have a material adverse effect.
Most important facts for investors to verify
- Current cash, operating cash burn, financing availability and the company’s ability to meet obligations after the stated second-quarter 2024 cash runway.
- Progress on Nasdaq compliance and continued listing, including bid price, stockholders’ equity and market value requirements.
- Actual economics and termination exposure under the Meijer agreements, including fixture deductions and order volumes.
- The correct amount of ATM net proceeds disclosed ($122,118 versus $112,118) and the ongoing cost and repayment burden of Cedar’s receivables transaction.
- Whether the company can remediate its material weaknesses and retain access to the Belvidere facility under its informal arrangement.
- Whether the ERC claims are sustained and whether customer concentration and Heartland’s costs improve enough to support durable gross-margin gains.