Edible Garden AG Incorporated — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Amounts below are in U.S. dollars, generally millions unless stated. Edible Garden sells locally grown produce, nutraceuticals and hot sauce, with products distributed across the Northeast and Midwest and sold in more than 5,000 supermarkets.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $3.132 million | $2.455 million |
| Gross profit (loss) | $23,000 | $(24,000) |
| Gross margin | 0.7% | (1.0%) |
| SG&A | $3.884 million | $2.691 million |
| Operating loss | $(3.861) million | $(2.715) million |
| Net loss | $(3.977) million | $(2.879) million |
| Cash used in operating activities | $(1.059) million | $(3.319) million |
- Revenue grew 27.6%, primarily on increased demand for cut and potted herbs. Herbs and produce revenue rose to $2.754 million from $1.943 million; vitamins and supplements declined to $378,000 from $512,000.
- Cost of goods sold increased 25.4% to $3.109 million, leaving a narrow positive gross profit. SG&A rose 44.3%, principally due to a one-time $600,000 severance charge and higher audit, accounting and legal costs associated with the CFO’s departure. Operating loss increased 42.2%.
- Interest expense declined to $117,000 from $234,000. The prior-year period included a $70,000 debt-extinguishment gain; there was no such gain in Q1 2024.
- Cash was $388,000 at quarter-end, down from $510,000 at year-end 2023. Current assets were $2.617 million against current liabilities of $9.583 million, resulting in a $6.966 million working-capital deficit. Stockholders’ deficit was $4.088 million.
- Gross debt was $5.355 million; debt net of discounts was $5.290 million, of which $4.438 million was current and $852,000 long-term. Accounts payable and accrued expenses rose to $5.145 million from $2.517 million.
- Cash used in investing activities was $55,000. Financing activities provided $992,000, including debt proceeds and Q1 net proceeds from the at-the-market equity sale. Cash declined by $122,000 overall.
Material changes, outlook and risks
- Going concern: Management states that substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from issuance. It expects further significant losses and says liquidity is insufficient to satisfy all future obligations, even after contemplated actions. Additional funding, cost reductions or both will be needed; financing may not be available on acceptable terms or at all.
- Financing and cash demands: In March, the Company obtained a Cedar receivables advance with $1.0 million net proceeds in exchange for $1.491 million of receivables, secured by receivables and related collateral. On May 7, 2024, it amended and restated the arrangement, adding $544,250 of net proceeds and increasing total receivables sold to $2.485 million. Cedar is authorized to withdraw $65,000 weekly pending reconciliation, and the arrangement requires payment of 35% of customer collections. These terms may materially pressure liquidity.
- Equity financing and dilution: The February 2024 at-the-market agreement permits up to $1,146,893 in gross sales. The filing reports approximately $1.1 million of net proceeds to date from 181,710 shares sold under the agreement; Q1 statements separately report $139,000 gross proceeds from 16,538 shares. Further equity issuance could dilute existing shareholders.
- Meijer agreements: Supply agreements run through December 2026, with the buyer able to terminate without cause on 60 days’ notice. The Company committed approximately $806,947 for store fixtures; $329,290 was funded in Q1. Fixture payments reduce revenue over the contract term; Q1 revenue was reduced by approximately $67,000 for this commitment.
- Management and Nasdaq: CFO Michael James retired effective January 25, 2024. The Company agreed to $300,000 of salary-continuation severance and possible milestone payments up to an additional $300,000; it also granted a $25,000 restricted-stock award in April. Nasdaq notified the Company in April that it did not meet the stockholders’ equity requirement and publicly held shares requirement. The Company said it would submit a compliance plan; it subsequently regained compliance with the minimum bid-price rule. Delisting remains a risk if other requirements are not met.
- Controls and concentration: Management concluded disclosure controls were ineffective because material weaknesses in internal control remain, including inadequate segregation of duties and deficiencies in control documentation and review. Three customers represented 78.7% of Q1 revenue; three customers accounted for 76.0% of gross receivables at quarter-end, with one customer representing 41.0%.
- Other outlook and contingencies: The filing provides no specific revenue or earnings guidance. Management expects continuing losses and identifies financing availability, customer retention, competition, facility access, management departures and Nasdaq compliance among key risks. Management reported no pending or threatened legal proceeding expected to have a material adverse effect.
Important facts for investors to verify
- Whether the Company can secure sufficient financing and manage near-term obligations given its $388,000 cash balance, working-capital deficit and going-concern warning.
- The cash-flow impact and repayment mechanics of the Cedar advance, including weekly withdrawals and the security interest in cash and receivables.
- Whether Meijer sales scale enough to support the fixture commitment, and the effect of termination rights and fixture deductions on revenue and cash collections.
- Progress in remediating material weaknesses and meeting Nasdaq listing requirements; the filing also reports a 1-for-20 reverse stock split effective April 5, 2024.
- Customer concentration, the CFO transition and the reconciliation of reported ATM share sales and proceeds across the quarter and subsequent filing disclosures.