Edible Garden AG Incorporated — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with fiscal 2021. This is an annual report, not a standalone fourth-quarter report. Edible Garden operates controlled-environment greenhouses and sells fresh herbs, lettuce, vitamins and supplements.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $11.552 million | $10.507 million |
| Cost of goods sold | $11.188 million | $9.859 million |
| Gross profit | $364,000 | $648,000 |
| SG&A | $9.368 million | $5.611 million |
| Operating loss | $9.004 million in the financial statements; MD&A narrative states $8.904 million | $4.963 million |
| Net loss | $12.453 million | $5.538 million |
| Cash used in operating activities | $9.185 million | $4.078 million |
| Cash used in investing activities | $2.033 million | $151,000 |
| Cash provided by financing activities | $11.297 million | $4.255 million |
Revenue grew 10.0%, but cost of goods sold rose 13.5%. Gross profit fell 43.8%. The filing reports 2022 gross margin as 2.46% in MD&A, although $364,000 of gross profit on $11.552 million of revenue implies approximately 3.2%; the filing does not provide a consistent margin figure. Increased packaging, labor and contract-grower costs pressured margins. SG&A rose 67.0%, including executive IPO bonuses, public-company costs, repairs, professional fees and acquisition-related depreciation.
At year-end, cash was $110,000, working capital deficit was $2.966 million, and total liabilities were $9.145 million. Debt is reported as $6.324 million in the liquidity discussion, while the notes show gross debt of $6.354 million; the notes report $2.042 million current and $4.282 million net long-term debt. Stockholders’ deficit was $2.180 million. The filing does not report a cash-flow margin metric.
Business developments and changes
- Revenue growth came from the existing customer base. Herbs and produce generated $9.882 million, compared with $9.693 million in 2021; vitamins and supplements generated $1.670 million, compared with $814,000.
- Three customers represented approximately 76% of revenue in both 2022 and 2021, and 61% of year-end 2022 gross receivables, versus 79% in 2021.
- The company acquired a five-acre Grand Rapids greenhouse in August 2022 for $2.886 million, including $1.136 million of seller financing. Full transition to its crops was expected in the first half of 2023.
- It acquired Pulp’s sauces and chili-product assets in November 2022; the filing said sales were expected to begin in summer 2023.
- The May 2022 IPO generated approximately $13.2 million net proceeds. Subsequent to year-end, a February 2023 offering generated approximately $9.5 million net proceeds after expenses, and the company repaid its Evergreen debt and a Sament note.
Outlook, risks and unusual items
Management expected operating losses to continue or increase in the near term as operating, sales and marketing expenses and capital needs rise. It estimated that the remaining February 2023 offering proceeds would fund operations through December 2023; this is not a profitability forecast. The independent auditor’s report and management’s disclosures identify substantial doubt about the company’s ability to continue as a going concern, notwithstanding the subsequent offering and debt repayments.
- Cash used in operations more than doubled year over year. The company remains dependent on external financing and may face dilution or difficulty obtaining financing.
- Customer concentration, purchase-order-based sales without long-term commitments, dependence on contract growers, perishability and low margins create revenue and operating risks.
- The Belvidere flagship facility is operated under an informal month-to-month arrangement, not a direct written lease. Packhouse completion depends on permits; estimated company capital spending was $700,000–$900,000 after permits.
- Debt is secured by company assets and the Michigan greenhouse. Nasdaq continued to monitor compliance with the stockholders’ equity requirement after the company regained compliance in February 2023.
- Disclosure controls were ineffective at year-end due to material weaknesses involving segregation of duties and control documentation/review. The auditor did not express an opinion on internal-control effectiveness.
- A supplier, Green City Growers Cooperative, sought approximately $600,000 in damages; the company accrued $120,000 at year-end and disputes the claim. A separate former-officer matter was settled for $235,000 and dismissed in February 2023.
- Reported 2022 results include $2.033 million of net interest expense, an $826,000 loss on extinguishment of debt, and $590,000 of other losses, including warrant revaluation and a leak-out provision.
Important facts for investors to verify
- Reconcile the operating-loss figures ($9.004 million in the statements versus $8.904 million in MD&A), the gross-margin percentage, and the reported debt totals.
- Assess liquidity after the February 2023 offering, debt repayments and expected cash use; verify whether the stated funding runway was achieved.
- Monitor progress toward transitioning and operating the Michigan facility, including retrofit costs, production and expected margin benefits.
- Track customer concentration, gross margins and input costs, and the outcome and any additional accruals related to the Green City Growers litigation.
- Check remediation of internal-control weaknesses and continued Nasdaq listing compliance.