Edible Garden AG Inc - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-41371

EDIBLE GARDEN AG INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware		85-0558704
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

283 County Road 519

Belvidere, NJ 07823

(Address of principal executive offices) (Zip Code)

(908) 750-3953

(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

Common Stock, par value $0.0001 per share

EDBL

The Nasdaq Stock Market LLC

Warrants to purchase Common Stock

EDBLW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		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 ☐ No ☒

As of November 7, 2023, the registrant had 5,705,643 shares of Common Stock, $0.0001 par value per share, outstanding.

PART I — FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 6.	Exhibits	33

Signatures		34

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EDIBLE GARDEN AG, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)

	September 30,			December 31,
	2023			2022
	(unaudited)
ASSETS

Current assets:
Cash	$	2,578		$	110
Accounts receivable, net		1,691			1,105
Inventory		549			586
Prepaid expenses and other current assets		361			62

Total current assets		5,179			1,863

Property, equipment and leasehold improvements, net		4,752			4,891
Intangible assets, net		47			50
Other assets		93			161

TOTAL ASSETS	$	10,071		$	6,965

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
LIABILITIES:
Current liabilities:
Accounts payable and other accrued expenses	$	1,604		$	2,787
Short-term debt, net of discounts		382			2,042

Total current liabilities		1,986			4,829

Long-term liabilities:
Long-term debt, net of discounts		4,135			4,282
Long-term lease liabilities		-			34

Total long-term liabilities		4,135			4,316

Total liabilities		6,121			9,145

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS’ EQUITY (DEFICIT):
Common stock ($0.0001 par value, 10,000,000 shares authorized, 5,702,808 and 362,716 shares outstanding as of September 30, 2023 and December 31, 2022, respectively (1))		1			-
Series A Convertible Preferred stock ($0.0001 par value, 10,000,000 shares authorized; nil shares outstanding as of September 30, 2023 and December 31, 2022)		-			-
Additional paid-in capital		29,969			17,892
Accumulated deficit		(26,020	)		(20,072	)


Total stockholders’ equity (deficit)		3,950			(2,180	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	10,071		$	6,965

⁽¹⁾ Adjusted to reflect the stock splits as described in Note 1.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EDIBLE GARDEN AG, INCORPORATED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per-share information)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue	$	3,289		$	2,754		$	9,965		$	8,476
Cost of goods sold		3,277			2,572			9,425			8,183

Gross profit		12			182			540			293

Selling, general and administrative expenses		2,387			1,928			7,458			6,268

Loss from operations		(2,375	)		(1,746	)		(6,918	)		(5,975	)

Other income (expenses)
Interest expense, net		(57	)		(88	)		(334	)		(1,825	)
Gain (Loss) from extinguishment of debt		-			-			70			(826	)
Employee retention credit		-			-			1,233			-
Other income / (loss)		1			(235	)		1			(825	)
Total other income (expenses)		(56	)		(323	)		970			(3,476	)

NET LOSS	$	(2,431	)	$	(2,069	)	$	(5,948	)	$	(9,451	)

Less: Series A Preferred Dividend		-			-			(4	)		-

NET LOSS ATTRIBUTABLE TO COMMON STOCK	$	(2,431	)	$	(2,069	)	$	(5,952	)	$	(9,451	)

Net Income / (Loss) per common share - basic and diluted (1)	$	(0.69	)	$	(7.13	)	$	(2.38	)	$	(40.84	)

Weighted-Average Number of Common Shares Outstanding Basic and Diluted (1)		3,515,245			290,380			2,494,658			231,427

(1) Adjusted to reflect the stock splits as described in Note 1.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EDIBLE GARDEN AG, INCORPORATED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(in thousands, except for shares) ⁽¹⁾

					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at June 30, 2023		2,827,082	$	-	$	27,249	$	(23,589	)	$	3,660

Issuance of common stock and warrants in public offering, net of expenses		2,850,726		1		2,720		-			2,721
Cashless exercise of common stock warrants		25,000		-		-		-			-
Net Income (Loss)		-		-		-		(2,431	)		(2,431	)
Balance at September 30, 2023		5,702,808	$	1	$	29,969	$	(26,020	)	$	3,950

					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at June 30, 2022		288,498	$	1	$	16,548	$	(15,001	)	$	1,548

Issuance of common stock		5,586		-		141		-			141
Net Income (Loss)		-		-		-		(2,069	)		(2,069	)
Balance at September 30, 2022		294,084	$	1	$	16,689	$	(17,070	)	$	(380	)

⁽¹⁾ Adjusted to reflect the stock splits as described in Note 1.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EDIBLE GARDEN AG, INCORPORATED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)

(in thousands, except for shares) ⁽¹⁾

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

	Common Stock				Preferred Series A				Additional Paid-In			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance at December 31, 2022		362,716	$	-		-	$	-	$	17,892		$	(20,072	)	$	(2,180	)

Issuance of common stock and warrants in public offerings, net of expenses		4,469,726		1		-		-		11,978			-			11,979
Cashless exercise of common stock warrants		861,040		-		-		-		-			-			-
Issuance of common stock for Directors' fees		6,985		-		-		-		73			-			73
Issuance of common stock to employees and consultants		2,341		-		-		-		30			-			30
Series A Preferred dividend		-		-		-		-		(4	)		-			(4	)
Net Income (Loss)		-		-		-		-		-			(5,948	)		(5,948	)
Balance at September 30, 2023		5,702,808	$	1		-	$	-	$	29,969		$	(26,020	)	$	3,950

	Common Stock				Preferred Series A				Additional Paid-In		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2021		166,667	$	1		-	$	-	$	511	$	(7,619	)	$	(7,107	)

Issuance of warrants		-		-		-		-		101		-			101
Issuance of common stock		112,586		-		-		-		14,010		-			14,010
Conversion of debt to common stock		14,831		-		-		-		1,878		-			1,878
Modification of warrants		-		-		-		-		189		-			189
Net Income (Loss)		-		-		-		-		-		(9,451	)		(9,451	)
Balance at September 30, 2022		294,084	$	1		-	$	-	$	16,689	$	(17,070	)	$	(380	)

⁽¹⁾ Adjusted to reflect the stock splits as described in Note 1.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EDIBLE GARDEN AG, INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Nine Months Ended September 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(5,948	)	$	(9,451	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,093			597
Amortization of operating lease right of use asset		68			57
Amortization of debt discount		8			890
(Gain) / Loss on extinguishment of debt		(70	)		826
Stock-based compensation		30			-
Stock issued as payment for fees and services		-			400
Stock issued to Directors		73			141
Expense for modification of warrants		-			189
Other non-cash expenses		5			235
Change in operating assets and liabilities:
Accounts receivable		(586	)		(51	)
Inventory		36			(90	)
Prepaid expenses and other current assets		(299	)		(122	)
Other assets		-
Accounts payable and accrued expenses		(1,120	)		(1,104	)
Operating lease liabilities		(68	)		(57	)
NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES		(6,778	)		(7,540	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements		(800	)		(1,813	)
NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES		(800	)		(1,813	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, including related parties		175			1,565
Payments of debt principal, including related parties		(2,103	)		(3,299	)
Payment of debt issuance costs		-			(180	)
Proceeds from common stock and warrants issued in public offering, net of underwriting discounts		12,237			14,650
Payment of costs related to public offerings		(259	)		4
Payment of preferred stock dividends		(4	)		(1,443	)
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES		10,046			11,297

NET CHANGE IN CASH		2,468			1,944
Cash at beginning of period		110			31

CASH AT END OF PERIOD	$	2,578		$	1,975

SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES:
Cash paid for interest	$	328		$	97

SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES:
Trucks acquired with debt	$	152		$	1,878
Debt and interest converted into common stock	$	-		$	258
Stock issued for debt extinguishment	$	-		$	1,294
Warrants issued with debt	$	-		$	101

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EDIBLE GARDEN AG, INC.

NOTES TO UNAUDITED CONDENSED 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 Unrivaled Brands, 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 Unrivaled Brands, 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 100,000 shares of common stock, par value $0.0001 per share (“common stock”), at formation. On October 14, 2020, we simultaneously declared a 20-for-1 forward stock split of our common stock and increased the number of authorized common shares to 20,000,000. On June 30, 2021, we simultaneously (1) converted Edible Garden from a Wyoming into a Delaware corporation, (2) declared a 1-for-2 reverse stock split of our common stock, and (3) increased the total number of authorized common shares to 50,000,000. On September 8, 2021, we simultaneously declared a 20-for-1 forward stock split of our common stock and increased the number of authorized common shares to 200,000,000. On January 18, 2022, the Company’s board of directors and stockholders approved a 1-for-5 reverse stock split of its outstanding common stock, which became effective on May 3, 2022. On January 26, 2023, we effected a reverse stock split of 1-for-30 and decreased the total number of authorized common shares to 6,666,667.

On June 8, 2023, our stockholders approved an amendment (the “Certificate of Amendment”) to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 6,666,667 shares to 10,000,000 shares. Following this approval, the Company filed the Certificate of Amendment with the Secretary of State of the State of Delaware and it became effective on June 8, 2023.

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, which is distributed throughout the Northeast and Midwest. Currently, Edible Garden’s products are sold at approximately 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, 2022 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, 2022 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2022. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position as of September 30, 2023 and December 31, 2022, and the unaudited condensed consolidated results of operations and cash flows for the nine-month periods ended September 30, 2023 and 2022 have been included.

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Going Concern

The accompanying financial statements have been prepared assuming that we will continue as a going concern. In an effort to achieve liquidity that would be sufficient to meet all of our commitments, we have undertaken a number of actions, including minimizing capital expenditures and reducing recurring expenses.

However, we believe that even after taking these actions, we will not have sufficient liquidity to satisfy all of our future financial obligations. The risks and uncertainties surrounding our ability to 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

Adoption of New Accounting Standards

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the “incurred loss” credit losses framework with a new accounting standard that requires management's measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates. This amendment was adopted effective January 1, 2023 with no impact to our financial statements.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reported period. Changes in these estimates and assumptions may have a material impact on the consolidated financial statements and accompanying notes.

Examples of significant estimates and assumptions include provisions for doubtful accounts, accrued liabilities, discount rates used in the measurement and recognition of lease liabilities and valuation of our common stock. These estimates generally involve complex issues and require us to make judgments, involving an analysis of historical and future trends, that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from our estimates.

Trade and Other Receivables

The Company extends non-interest-bearing trade credit to its customers in the ordinary course of business which is not collateralized. Accounts receivable are shown on the face of the consolidated balance sheets, net of an allowance for doubtful accounts. The Company analyzes the aging of accounts receivable, historical bad debts, customer creditworthiness and current economic trends, in determining the allowance for doubtful accounts. The Company does not accrue interest receivable on past due accounts receivable. The reserve for doubtful accounts was $98,858 as of September 30, 2023 and December 31, 2022.

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The following table presents a summary of our receivables as of September 30, 2023 and December 31, 2022:

	(in thousands)
	September 30,		December 31,
	2023		2022

Trade receivables, net of reserves	$	1,323	$	1,105
Other receivables		368		-

Total accounts receivable, net	$	1,691	$	1,105

The Employee Retention Credit, as originally enacted on March 27, 2020 by the CARES Act, is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. The Taxpayer Certainty and Disaster Tax Relief Act (the “Relief Act”), enacted on December 27, 2020, amended, and extended the Employee Retention Credit. On March 1, 2021, the IRS released Notice 2021-20 to provide guidance on the original Employee Retention Credit, as modified by the Relief Act. During the second quarter of 2023, we filed Forms 941-X to claim total credits of $1,145,707 plus accrued interest on qualified wages paid during 2020 and 2021, of which $367,697 was outstanding as of September 30, 2023 and appears on the unaudited condensed consolidated balance sheet within “Accounts Receivable, Net.” The associated income is reported as “Employee retention credit” within the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2023.

Concentrations of Credit Risk

The Company maintains a cash balance in a financial institution that is insured by the Federal Deposit Insurance Corporation up to certain federal limitations. At times, the Company’s cash balance exceeds these federal limitations. The amount in excess of insured limitations was $2,313,527 and nil as of September 30, 2023 and December 31, 2022, respectively.

During the nine months ended September 30, 2023, five customers accounted for approximately 83% of our total revenue. During the nine months ended September 30, 2022, four customers accounted for 83% of our total revenue. 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. As of September 30, 2023 and December 31, 2022, approximately 80% and 61% of our gross outstanding trade receivables were attributed to four and three customers, respectively.

Inventory

We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out method, or its net realizable value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete inventory is based on expected future use. Our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods. The inventory reserve was nil as of September 30, 2023 and December 31, 2022.

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.

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Property, Equipment and Leasehold Improvements, Net

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.

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 and nine months ended September 30, 2023 and 2022:

	(in thousands)				(in thousands)
	Three Months Ended,				Nine Months Ended,
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Herbs, Produce & Floral	$	2,901	$	2,363	$	8,731	$	7,504
Vitamins and Supplements		388		391		1,234		972
Total	$	3,289	$	2,754	$	9,965	$	8,476

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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

The Company’s revenues accounted for under ASC Topic 606, generally do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or variable consideration.

Cost of Goods Sold

Cost of goods sold includes materials, labor and overhead costs incurred in cultivating, producing, and shipping our products.

Advertising Expenses

The Company expenses advertising costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.” Advertising expenses totaled $39,265 and $35,783 during the nine months ended September 30, 2023 and 2022, respectively.

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 is not considered in the diluted loss per share calculation since the effect would be anti-dilutive. The results of operations were a net loss for the year ended December 31, 2022 and nine months ended September 30, 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 September 30, 2023 and December 31, 2022, such net operating losses were offset entirely by a valuation allowance.

The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50.0% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations.

Segment reporting

The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment. The Company’s principal decision makers are the Chief Executive Officer and its Chief Financial Officer. Management believes that its business operates as one reportable segment because: a) the Company measures profit and loss as a whole; b) the principal decision makers do not review information based on any operating segment; c) the Company does not maintain discrete financial information on any specific segment; d) the Company has not chosen to organize its business around different products and services, and e) the Company has not chosen to organize its business around geographic areas.

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NOTE 3 – INVENTORY

Inventory as of September 30, 2023 and December 31, 2022 consisted of the following:

	(in thousands)
	September 30,		December 31,
	2023		2022

Raw materials	$	215	$	298
Work-in-progress		287		288
Finished goods		47		-

Total inventory	$	549	$	586

NOTE 4 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

The following table summarizes property, equipment and leasehold improvements as of September 30, 2023 and December 31, 2022:

	(in thousands)
	September 30,			December 31,
	2023			2022
	$	-		$	-
Furniture and equipment		2,198			1,408
Computer hardware		6			4
Leasehold improvements		5,200			5,192
Vehicles		456			304
Land		202			202
Construction in progress		4			4

Subtotal		8,066			7,114
Less accumulated depreciation		(3,314	)		(2,223	)

Property, equipment and leasehold improvements, net	$	4,752		$	4,891

Depreciation expense related to property, equipment and leasehold improvements for the nine months ended September 30, 2023 and 2022 was $1,090,778 and $597,113 respectively.

NOTE 5 – INTANGIBLE ASSETS

The following table summarizes intangible assets as of September 30, 2023 and December 31, 2022:

			(in thousands)
			September 30, 2023							December 31, 2022
	Estimated Useful Life in Years		Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value

Amortizing Intangible Assets:
Pulp brand recipes		15	$	50	$	(3	)	$	47	$	50	$	-		$	50
Non-compete agreement		2		62		(62	)		-		62		(62	)		-

Total Intangible Assets, net			$	112	$	(65	)	$	47	$	112	$	(62	)	$	50

Amortization expense for the nine months ended September 30, 2023 and 2022 was $2,500 and nil, respectively. Annual amortization expense for each of the next five years is estimated to be $3,333 and thereafter $33,333.

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NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of September 30, 2023 and December 31, 2022 consisted of the following:

	(in thousands)
	September 30, 2023		December 31, 2022

Accounts payable	$	1,102	$	1,728
Accrued expenses		147		542
Accrued interest payable		30		185
Accrued payroll		120		187
Accrued vacation		146		53
Current lease liability		59		92

Total Accounts Payable and Accrued Expenses	$	1,604	$	2,787

NOTE 7 – NOTES PAYABLE

Notes payable as of September 30, 2023 and December 31, 2022 consisted of the following:

	(in thousands)
	September 30,			December 31,
	2023			2022
Secured promissory note	$	3,106		$	3,783
NJD Investments, LLC promissory note		937			1,155
Evergreen private placement		-			1,022
SBA loan		150			150
Vehicle loans		346			244
Total Gross Debt	$	4,539		$	6,354

Less: Gross short term debt		(382	)		(2,042	)
Less: Debt discount		(22	)		(30	)
Net Long Term Debt	$	4,135		$	4,282

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Scheduled maturities of long-term debt as of September 30, 2023, are as follows (in thousands):

Years Ending December 31,	Secured Promissory Note		NJD Investments, LLC Promissory Note		SBA Loan		Vehicle Loans		Total
2023 (remaining)	$	-	$	73	$	-	$	20	$	93
2024		-		301		-		86		387
2025		3,106		316		-		92		3,514
2026		-		247		-		82		329
2027		-		-		-		59		59
Thereafter		-		-		150		7		157
Total	$	3,106	$	937	$	150	$	346	$	4,539

Secured Promissory Notes

On March 30, 2020, the Company entered into a promissory note (the “First Sament Note”) for $3,000,000 with Sament Capital Investments, Inc., a wholly owned subsidiary of the Predecessor, (“Sament”) in connection with the acquisition of the Predecessor’s assets. The Sament Note accrues interest at a rate of 3.5% per annum on a 360-day year basis and matures March 30, 2025. The Sament Note is secured by the Company’s operating assets purchased from the Predecessor. As of September 30, 2023 and December 31, 2022, the total outstanding balance of $3,106,458 is included in “Long-term debt, net of discounts” on the consolidated balance sheets. As of September 30, 2023 and December 31, 2022, the unamortized discount related to the promissory note was $22,533 and $30,321, respectively. Total accrued interest as of September 30, 2023 and December 31, 2022 was $9,061 and $110,236, respectively.

On June 2, 2020, the Company entered into a promissory note for $653,870 with Sament (the “Second Sament Note,” together with the First Sament Note, the “Sament Notes”), which accrued interest at a rate of 3.50% per annum and was due to mature on June 3, 2023. The promissory note was secured by the Company’s operating assets purchased from the Predecessor. During the year ended December 31, 2021, accrued interest of $23,203 was added to the principal of the promissory note. On February 17, 2023, the Company prepaid the principal and accrued interest due under the Second Sament Note in exchange for Sament agreeing to reduce the principal amount of the Second Sament Note by approximately 10%. As a result of the agreement, the Company repaid $606,653 of outstanding principal, and $27,125 of accrued interest, and recognized a gain from extinguishment of the debt of $70,420 during the nine months ended September 30, 2023. The remaining outstanding balance of principal and accrued interest on the Second Sament Note was nil as of September 30, 2023. As of December 31, 2022, the total outstanding balance of $677,073 is included in “Short-term debt, net of discounts” on the consolidated balance sheet. As of December 31, 2022, interest accrued on the promissory note was $23,966.

NJD Investments, LLC Promissory Note

On August 30, 2022, the Company entered into a promissory note (the “NJDI Note”) for $1,136,000 with NJD Investments, LLC (“NJDI”) in connection with its purchase of the assets of Greenleaf Growers, Inc. in Grand Rapids, Michigan (the “Property”) through the Company’s wholly owned subsidiary, 2900 Madison Ave Holdings, LLC (the “Subsidiary”). The NJDI Note accrues interest at a rate of 5% per annum and will mature on September 1, 2026. The Company may prepay the outstanding amount due at any time without penalty. The Company makes monthly payments of principal and interest of $28,089. The NJDI Note is secured by a mortgage on the Property (the “Mortgage”) and a security interest in the assets owned by the Subsidiary in favor of NJDI (the “Security Agreement”).

In addition, the Company’s obligation to repay the amounts due under the NJDI Note, or up to $1,136,000 plus any accrued interest, is guaranteed by the Company under a guaranty in favor of NJDI (the “Guaranty”) entered into on August 30, 2022. Under the Guaranty, in the event that the Company defaulted on the NJDI Note, the Company would be responsible for any sum remaining due after NJDI foreclosed on the Mortgage and exercised its rights under the Security Agreement.

During the year ended December 31, 2022, accrued interest of $19,210 was added to the principal of the NJDI Note. As of September 30, 2023 and December 31, 2022, $298,193 and $290,417 of the outstanding balance is included in “Short-term debt, net of discounts” and $639,031 and $864,638 is included in “Long-term debt, net of discounts” within the consolidated balance sheets, respectively. As of September 30, 2023 and December 31, 2022, total accrued interest on the NJDI Note was $3,905 and nil, respectively.

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Evergreen Private Placement

On October 7, 2021, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Evergreen Capital Management, LLC (“Evergreen”) pursuant to which the Company issued Evergreen a series of secured convertible notes and warrants to purchase shares of the Company’s common stock. From October 7, 2021 to March 30, 2022, the Company raised $3.2 million by issuing secured convertible notes with an aggregate principal amount of $3.68 million to Evergreen (the “Notes”) and warrants to purchase an aggregate of 9,079 shares at an exercise price of $150.00 per share. The warrants will expire five years from their respective dates of issuance.

On May 9, 2022, upon completion of the Company’s initial public offering (“IPO”), the Company repaid Evergreen an aggregate of $1,926,250 of principal and $26,881 of accrued interest in accordance with the terms of the Notes. Additionally, the Company paid a prepayment penalty of $577,875, which was recognized as interest expense during the year ended December 31, 2022.

On June 30, 2022, the Company issued an amended and restated consolidated secured promissory note (the “A&R Note”) to Evergreen. The A&R Note consolidated $1,753,750 in principal amount under the Notes that were due to mature on July 7, August 8, and August 22, 2022 (the “Prior Notes”). The new principal amount of the A&R Note was $1,841,592, which included accrued interest and prepayment penalties on the Prior Notes and takes into account a payment of $500,000 on the Prior Notes. The A&R Note was issued pursuant to an exemption from registration under Section 3(a)(9) of the Securities Act of 1933, as amended. As consideration for accepting the A&R Note, the Company issued 6,667 shares of common stock to Evergreen under a letter agreement between the Company and Evergreen and pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The A&R Note bore interest at 7.0% per annum and was scheduled to mature on March 31, 2023. The transaction resulted in a loss on extinguishment of debt charge of $826,203, which was recorded during the year ended December 31, 2022.

On October 26, 2022, the Company entered into an exchange agreement (the “Exchange Agreement”) with Evergreen, pursuant to which a portion of the principal and accrued interest of the A&R Note was converted into shares of a newly created series of preferred stock of the Company, the Series A Convertible Preferred Stock, par value $0.0001 per share (“Preferred Stock”). The Company and Evergreen exchanged approximately $962,000, consisting of $820,000 in principal and approximately $142,000 of accrued interest and prepayment premium thereon, for 1,526,183 shares of Preferred Stock issued to Evergreen. Other than reducing the principal balance of the A&R Note, the terms of the A&R Note remained unchanged. The outstanding balance on the A&R Note of $1,021,592 was included in “Short-term debt, net of discounts” within the consolidated balance sheet as of December 31, 2022. During the nine months ended September 30, 2023, the Company repaid the A&R Note in full and recognized a penalty of $153,239 for early repayment, which was recognized as interest expense during the period.

Small Business Administration (“SBA”) Loan

On June 22, 2020, the Company entered into a U.S. Small Business Administration Loan Authorization and Agreement pursuant to which the Company received loan proceeds of $150,000 (the “SBA Loan”). The SBA Loan was made under, and is subject to the terms and conditions of, the Economic Injury Disaster Loan Program, which was a program expanded for COVID-19 relief under the CARES Act and is administered by the U.S. Small Business Administration. The term of the SBA Loan is thirty (30) years with a maturity date of June 22, 2050 and the annual interest rate of the SBA Loan is a fixed rate of 3.75%. Under the terms of the CARES Act, the use of loan proceeds for the SBA Loan is limited to alleviating economic injury caused by the COVID-19 pandemic. The outstanding balance on the SBA Loan of $150,000 is included in “Long-term debt, net of discounts” within the consolidated balance sheets as of September 30, 2023 and December 31, 2022. As of September 30, 2023 and December 31, 2022, total accrued interest on the SBA Loan was $17,415 and $13,437, respectively.

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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 17.51%, matures on April 26, 2024. The loan is secured by the vehicle purchased and is personally guaranteed by the Company’s chief executive officer and chief financial officer.

During the year ended December 31, 2021, the Company entered into three financing agreements totaling $102,681 for the purchase of vehicles. The loans, which accrue interest at rates of 16.84% - 18.66%, mature in 2026. The loans are secured by the vehicles purchased and are personally guaranteed by the Company’s chief executive officer and chief financial officer.

During the year ended December 31, 2022, the Company entered into two financing agreements totaling $158,214 for the purchase of vehicles. The loans, which accrue interest at a rate of 7.64%, mature in 2027. The loans are secured by the vehicles purchased are personally guaranteed by the Company’s chief executive officer.

During the nine months ended September 30, 2023, the Company entered into three financing agreements totaling $151,850 for the purchase of vehicles. The loans, which accrue interest at a rate of 10.49%, mature in 2028. The loans are secured by the vehicles purchased are personally guaranteed by the Company’s chief executive officer.

NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT)

2023 Public Offerings

On February 7, 2023, the Company issued an aggregate of 1,619,000 shares of common stock and warrants (“February Follow-On Warrants”) to purchase an aggregate of 1,861,850 shares of common stock pursuant to an underwriting agreement between the Company and Maxim Group LLC, as representative of the underwriters (the “Representative”), and raised approximately $10.2 million in gross proceeds. The February Follow-On Warrants became exercisable on February 7, 2023 to purchase one share of common stock at an exercise price equal to $6.30 per share and will expire on February 7, 2028. In addition to customary cashless exercise, a holder of a February Follow-On Warrant may also effect an “alternative cashless exercise” on or after April 10, 2023. In an “alternative cashless exercise,” the aggregate number of shares of common stock issuable is equal to the product of (i) the aggregate number of shares of common stock that would be issuable upon exercise of the February Follow-On Warrant if it was exercised for cash and (ii) 0.5. Also on February 7, 2023, the Company issued warrants to the Representative to purchase up to 80,950 shares of Common Stock at an exercise price of $6.93 per share. These warrants became exercisable on August 2, 2023 and will expire on February 2, 2028.

During the nine months ended September 30, 2023, the Company issued 861,040 shares of common stock to the holders who exercised 1,772,080 of the February Follow-On Warrants via the alternative cashless exercise option.

On September 8, 2023, the Company issued an aggregate of 2,850,726 shares of common stock and warrants (“September Follow-On Warrants”) to purchase an aggregate of 3,105,834 shares of common stock pursuant to an underwriting agreement between the Company and the Representative, and raised approximately $3.1 million of gross proceeds. The September Follow-On Warrants became exercisable on September 8, 2023 to purchase one share of common stock at an exercise price of $1.10 per share and will expire on September 8, 2028. Also on September 8, 2023, the Company issued warrants to the Representative to purchase up to 135,036 shares of common stock at an exercise price of $1.21 per share (the “Representative’s Warrants”). These warrants are initially exercisable on the later to occur of (i) the effective date of an increase in our authorized shares of common stock in an amount sufficient to permit the exercise in full of the Representative’s Warrants or (ii) March 6, 2024 and will expire on September 7, 2028.

Common Stock

The Company has authorized 10,000,000 shares of common stock with $0.0001 par value. As of September 30, 2023 and December 31, 2022, 5,702,808 and 362,716 shares were issued and outstanding, respectively.

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During the nine months ended September 30, 2023, the Company issued 5,340,092 shares of common stock, as summarized below:

	Number of Shares
Issuances of common stock in public offerings		4,469,726
Issuance of common stock for Directors' fees		6,985
Issuances of common stock to employees and consultants		2,341
Issuances of common stock for warrant exercises		861,040

Common stock issued during the nine months ended September 30, 2023		5,340,092

Summary table of common stock share transactions:
Shares outstanding at December 31, 2022		362,716
Common stock issuances		5,340,092

Shares outstanding at September 30, 2023		5,702,808

Series A Convertible Preferred Stock

As of October 26, 2022, 1,526,183 shares of our preferred stock, par value $0.0001 per share, were designated as Series A Convertible Preferred Stock and issued to Evergreen (the “Preferred Stock”). The Preferred Stock was entitled to a cumulative dividend at a rate of 7.0% per annum, paid in cash on a quarterly basis on the stated value of the Preferred Stock. During the year ended December 31, 2022, all of the shares of Preferred Stock were converted into 50,873 shares of common stock, and no Preferred Stock remains outstanding as of September 30, 2023. During the nine months ended September 30, 2023, the Company paid cash dividends of $3,544 to the holder of the Preferred Stock. Accrued dividends as of September 30, 2023 were nil.

Stock-Based Compensation

On January 18, 2022 in connection with the IPO, the board of directors of the Company (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 50,000. A variety of discretionary awards are authorized under the 2022 Plan, including stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. The vesting of such awards may be conditioned upon either a specified period of time or the attainment of specific performance goals as determined by the administrator of the 2022 Plan. The option price and terms are also subject to determination by the administrator with respect to each grant. The 2022 Plan is administered by the Board.

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 300,000 shares and extended the term of the 2022 Plan until June 8, 2033.

During the nine months ended September 30, 2023, the Company recorded time-vesting restricted stock awards to the Company’s non-employee directors as compensation for director fees, with 6,985 shares of common stock underlying the awards in the aggregate. The shares underlying the award will vest on the one-year anniversary of the date of grant.

Shares available for future stock compensation grants totaled 315,227 at September 30, 2023.

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Warrants

The following table summarizes transactions involving the Company’s outstanding warrants to purchase common stock for the nine months ended September 30, 2023:

	Warrants (Underlying Shares)			Weighted-Average Exercise Price Per Share

Outstanding December 31, 2022		125,299		$	151.17
Warrants issued in public offerings		5,183,670		$	3.06
Warrants exercised		(1,722,080	)	$	0.91
Outstanding September 30, 2023		3,586,889		$	6.68

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 the Predecessor, whereby we make lease payments of approximately $21,860 per month to the lessor of the land on which our flagship facility is built and for which the Predecessor is the lessee. Our month-to-month arrangement meets the definition of a short-term lease and is therefore excluded from the recognition requirements of ASC 842, “Leases”.

During the nine-month period ended September 30, 2023, total operating lease cost was $218,472, of which $138,192 was associated with short-term leases. During the nine months ended September 30, 2022, total operating lease cost was $172,856, of which $92,576 was associated with short-term leases. As of September 30, 2023 and December 31, 2022, short-term lease liabilities of $58,949 and $92,051 are included in “Accounts Payable and Accrued Expenses” on the condensed consolidated balance sheets, respectively.

The table below presents total operating lease assets and lease liabilities as of September 30, 2023 and December 31, 2022:

	(in thousands)
	September 30,		December 31,
	2023		2022
Operating lease assets	$	59	$	126
Operating lease liabilities	$	59	$	126

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The table below presents the maturities of operating lease liabilities as of September 30, 2023:

	(in thousands)
	Operating
	Leases
2023 (remaining)		27
2024		36
Total lease payments		63
Less: discount		(4	)
Total operating lease liabilities	$	59

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:

	September 30,
	2023
Remaining lease term (months)		7
Discount rate		17.5	%

NOTE 10 – RELATED PARTY TRANSACTIONS

The Company is party to an ongoing arrangement with the Predecessor whereby the Company makes lease payments of approximately $21,860 per month to the lessor of land for which the Predecessor is the lessee. The lease agreement is associated with land the Company utilizes for its ongoing operations.

The Company has entered into several vehicle loan agreements that are personally guaranteed by the Company’s chief executive officer and chief financial officer. See Note 7, “Notes Payable” for details.

During the nine months ended September 30, 2023, the Company issued promissory notes totaling $175,000 to Michael James, the Company’s chief financial officer and director, which were paid in full at the closing of the February 7, 2023 public offering.

NOTE 11 – GOING CONCERN

These financial statements are prepared on a going concern basis. The Company began operating in 2020. For the years ended December 31, 2022 and 2021, we incurred net losses of $12.5 million and $5.5 million, respectively. For the nine months ended September 30, 2023, we incurred a net loss of $5.9 million. We expect to experience further significant net losses in the foreseeable future. At September 30, 2023, we had cash available for operations of $2.6 million. We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through our issuance of debt and equity securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations.

We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling securities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that it will be available to us on acceptable terms, on an acceptable schedule, or at all.

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The issuance of additional securities may result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming these loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available for use when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.

The risks and uncertainties surrounding our ability to continue to raise capital and our limited capital resources raise substantial doubt as to our ability to continue as a going concern for twelve months from the issuance of these financial statements.

NOTE 12 – SUBSEQUENT EVENTS

On October 6, 2023, the Company issued 2,835 shares of common stock to employees upon vesting of previously awarded time-vesting restricted stock units pursuant to the Edible Garden AG Incorporated 2022 Equity Incentive Plan.

On October 24, 2023, the Company received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company no longer meets Nasdaq Listing Rule 5550(a)(2), which requires listed companies to maintain a minimum bid price of at least $1 per share. Nasdaq Listing Rule 5810(c)(3)(A) provides a compliance period of 180 calendar days, or until April 22, 2024, in which to regain compliance with the minimum bid price requirement. The notification has no immediate effect on the listing of the common stock on Nasdaq.

On November 6, 2023, the Company held a special meeting of its stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders approved an amendment (the “Certificate of Amendment”) to the Company’s Certificate of Incorporation to increase the total number of authorized shares of capital stock of the Company from 20,000,000 to 110,000,000 and to increase the total authorized shares of the Company’s common stock from 10,000,000 shares to 100,000,000 shares. Following this approval, the Company filed the Certificate of Amendment with the Secretary of State of the State of Delaware on November 7, 2023 and it became effective on November 10, 2023. The effectiveness of the Certificate of Amendment does not have any effect on the voting power or other rights of stockholders, and it will not have any dilutive effect on the proportionate voting power of existing stockholders unless additional shares are issued.

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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 regain compliance with the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”);
	·	our ability to continue to access and operate our Belvidere, New Jersey facility;
	·	our financial performance and capital requirements;
	·	our market opportunity;
	·	our ability to effectively manage our growth;
	·	our ability to integrate business acquisitions;
	·	our ability to recruit and retain key employees and management personnel;
	·	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;

	·	our ability to comply with new or modified laws and regulations that currently apply or become applicable to our business;
	·	the potential insufficiency of our disclosure controls and procedures to detect errors or acts of fraud;
	·	the potential lack of liquidity and trading of our securities; and
	·	our potential ability to obtain additional financing.

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report and our other reports filed with the Securities and Exchange Commission (“SEC”).

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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 and lettuces. In our hydroponic greenhouse, we grow plants without soil. Instead of planting one row of lettuce in the ground, by using a vertical greenhouse, we can grow many towers of lettuce in the same area by planting up instead of planting across. Growing these products sustainably means that we avoid depleting natural resources in order to maintain an ecological balance, such as by renewing, reusing and recycling materials in order to lower the overall one-time use of materials.

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

Public Offering

On September 8, 2023, we closed on an underwritten public offering of 2,850,726 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price equal to $1.10 per share. Each unit was sold at a public offering price of $1.10 per unit. Gross proceeds, before deducting underwriting discounts and commissions and estimated offering expenses, were approximately $3.1 million.

Nasdaq Deficiency Notice

On October 24, 2023, we received a letter from the Listing Qualifications Staff of Nasdaq indicating that, based on the closing bid price of our common stock for 30 consecutive business days, we no longer meet Nasdaq Listing Rule 5550(a)(2), which requires listed companies to maintain a minimum bid price of at least $1 per share (the “Bid Price Rule”). The Nasdaq Listing Rules provide a compliance period of 180 calendar days, or until April 22, 2024, in which to regain compliance with the Bid Price Rule. If we evidence a closing bid price of at least $1 per share for a minimum of 10 consecutive business days during the 180-day compliance period, we will automatically regain compliance. If we fail to regain compliance with the Bid Price Rule, Nasdaq will provide notice that our common stock will be subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel. This notification has no immediate effect on the listing of our common stock on Nasdaq.

We intend to take all reasonable measures available to regain compliance under the Nasdaq Listing Rules and remain listed on Nasdaq. On November 6, 2023, we held a special meeting of our stockholders at which our stockholders approved an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock in a range of 1-for-5 to 1-for-50, at the discretion of the board of directors (“Reverse Stock Split”).

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 the Nasdaq Listing Rules within the time periods permitted by Nasdaq, then our securities will be delisted from Nasdaq.

CRITICAL ACCOUNTING POLICIES

The preparation of the consolidated financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. The following accounting policies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management’s estimates are based on historical experience, the relevant information available at the end of each period, and their judgment. Although management believes the judgment applied in preparing estimates is reasonable based on circumstances and information known at the time, actual results could differ materially from these estimates under different assumptions or market conditions.

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.

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Revenue Recognition

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 September 30, 2023 and December 31, 2022, such net operating losses were offset entirely by a valuation allowance.

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RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(in thousands)	Three Months Ended September 30, 2023			Three Months Ended September 30, 2022
Revenue	$	3,289		$	2,754
Cost of goods sold		3,277			2,572
Gross Profit		12			182
Selling, general and administrative expenses		2,387			1,928
Loss from operations		(2,375	)		(1,746	)
Other income / (expense)
Interest expense, net		(57	)		(88	)
Other income (expense)		1			(235	)
Total other income / (expense)		(56	)		(323	)

NET LOSS	$	(2,431	)	$	(2,069	)

Revenue

Revenue was $3.289 million for the three months ended September 30, 2023, compared with $2.754 million for the three months ended September 30, 2022. Revenue increased $535 thousand, or 19.43%, compared with the three months ended September 30, 2022. Compared with the prior period, the herbs, produce and floral revenue increased by $538 thousand or 22.77% while the vitamins and supplements revenue decreased by $3 thousand or 0.77%. The increase in the herbs, produce and floral business represents a net increase in orders received from our existing customer base based on demand from the retail consumer and a slight increase in orders for herbs received from new distribution partners.

Cost of goods sold

Cost of goods sold were $3.277 million for the three months ended September 30, 2023, compared with $2.572 million for the three months ended September 30, 2022. Cost of goods sold increased $705 thousand, or 27.41% compared with the three months ended September 30, 2022. We continued to use contract growers to grow herbs for our customers as we ramped up production in Edible Garden Heartland, which resulted in higher costs of goods sold. Additional labor and materials costs required to grow the products sold into the retail channel also contributed to the increase.

Gross profit

Gross profit was $12 thousand or 0.36% of sales for the three months ended September 30, 2023, compared with $182 thousand or 6.61% of sales for the three months ended September 30, 2022. Gross profit decreased by $170 thousand or 93.41% for the three months ended September 30, 2023. Lower margins for herbs, produce and floral in the current quarter reflect the impact of additional labor and materials incurred at the Edible Garden Heartland facility as production ramps up and retail shrink in floral sales. During the period, we sold through lower margin inventory in vitamins and supplements, which had a negative impact on gross profit.

Selling, general and administrative

Selling, general and administrative expenses (“SG&A”) were $2.387 million for the three months ended September 30, 2023, compared with $1.928 million for the three months ended September 30, 2022. SG&A expenses increased by $459 thousand or 23.81%, compared with the three months ended September 30, 2022. Approximately $191 thousand of the increase in SG&A expenses relates to the costs incurred to operate the Edible Garden Heartland facility. The facility was acquired in August 2022 and has been retrofitted to grow and supply our customers in the local region. Shipments began in April 2023. We also increased production of cut herbs at Edible Garden Heartland and our Belvidere, New Jersey facility, for which we purchased equipment intended to increase our efficiency. Depreciation expense also increased by $174 thousand due to the acquisition of Edible Garden Heartland and the purchase of additional trucks.

Loss from operations

Lower gross profit and higher SG&A expenses resulted in a loss from operations of $2.375 million for the three months ended September 30, 2023, compared with $1.746 million for the three months September 30, 2022. The increase in loss from operations was $629 thousand, or 36.03% compared with the three months ended September 30, 2022.

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Interest expense

Interest expense was $57 thousand for the three months ended September 30, 2023, versus $88 thousand for the three months ended September 30, 2022. Lower interest expense was related to paying off debt previously outstanding with proceeds from our public offerings. See Note 7 to our financial statements.

Other income / (expense)

The Company recognized $1 thousand of other income during the three months ended September 30, 2023, versus $235 thousand of other expenses in the three months ended September 30, 2022. The Company recognized expense of $235 thousand in the prior period due to recognition of an accrual for a loss contingency related to a lawsuit that has since been settled.

Net loss

Net loss was $2.431 million for the three months ended September 30, 2023, compared with a net loss of $2.069 million for the three months ended September 30, 2022. The reasons for the increase in net loss are explained above.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(in thousands)	Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022
Revenue	$	9,965		$	8,476
Cost of goods sold		9,425			8,183
Gross Profit		540			293
Selling, general and administrative expenses		7,458			6,268
Loss from operations		(6,918	)		(5,975	)
Other income / (expense)
Interest expense, net		(334	)		(1,825	)
Gain (loss) from extinguishment of debt		70			(826	)
Employee retention credit		1,223			-
Other income / (loss)		1			(825	)
Total other income / (expense)		970			(3,476	)

NET LOSS	$	(5,948	)	$	(9,451	)

Revenue

Revenue was $9.965 million for the nine months ended September 30, 2023, compared with $8.476 million for the nine months ended September 30, 2022. Revenue increased $1.489 million, or 17.57%, compared with the nine months ended September 30, 2022. Compared with the prior period, the herbs, produce and floral revenue increased by $1.227 million or 16.35% while the vitamins and supplements revenue increased by $262 thousand or 26.95%. The increase in the herb, produce and floral business represents a net increase in orders received from our existing customer base based on the demand from the retail consumer and a slight increase in orders for herbs received from new distribution partners. The increase in vitamins and supplements revenue was resulted from an additional SKU ordered by a customer for every store in their chain.

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Cost of goods sold

Cost of goods sold were $9.425 million for the nine months ended September 30, 2023, compared with $8.183 million for the nine months ended September 30, 2022. Cost of goods sold increased $1.242 million, or 15.18% compared with the nine months ended September 30, 2022. We continued to use contract growers to grow herbs for our customers as we ramped up production in Edible Garden Heartland, which resulted in higher costs of goods sold due to the increase in revenue.

Gross profit

Gross profit was $540 thousand or 5.42% of sales for the nine months ended September 30, 2023, compared with $293 thousand or 3.46% of sales for the nine months ended September 30, 2022. Gross profit increased by $247 thousand or 2.48% of sales for the nine months ended September 30, 2023 compared to the prior period. Higher margins in the current period reflect the impact of price increases implemented with our customers during the nine months and shipments out of the Edible Garden Heartland facility, partially offset by retail shrink in floral sales. During the period, we sold through lower margin inventory in vitamins and supplements, which had a negative impact on gross profit.

Selling, general and administrative

SG&A expenses were $7.458 million for the nine months ended September 30, 2023, compared with $6.268 million for the nine months ended September 30, 2022. Selling, general and administrative expenses increased by $1.190 million or 18.99%, compared with the nine months ended September 30, 2022. Approximately $647 thousand of the increase in SG&A expenses relate to the costs incurred to operate the Edible Garden Heartland facility. The facility was acquired in August 2022 and has been retrofitted to grow and supply the customers in the local region. Shipments began in April 2023. We also increased production of cut herbs at Edible Garden Heartland and our Belvidere, New Jersey facility, for which we purchased equipment intended to increase our efficiency. Depreciation expense also increased by $494 thousand due to the acquisition of Edible Garden Heartland and the purchase of additional trucks. Approximately $559 thousand of the increase in SG&A expenses was associated with becoming a public company. Compensation and benefits expense decreased by $838 thousand, due primarily to $500 thousand of one-time bonuses paid to each of our Chief Executive Officer and Chief Financial Officer upon the completion of our initial public offering in 2022.

Loss from operations

Higher SG&A expense relative to the increase in gross profit resulted in a loss from operations of $6.918 million for the nine months ended September 30, 2023, compared with $5.975 million for the nine months September 30, 2022. The increase in loss from operations was $943 thousand, or 15.78% compared with the nine months ended September 30, 2022.

Interest expense

Interest expense was $334 thousand for the nine months ended September 30, 2023, versus $1.825 million for the nine months ended September 30, 2022. Lower interest expense was related to paying off debt previously outstanding with proceeds from our public offerings. See Note 7 to our financial statements.

Gain (Loss) from extinguishment of debt

During the nine months ended September 30, 2023, the Company recognized a gain from the extinguishment of debt of $70 thousand by prepaying a promissory note owed to Sament Capital Investments (“Sament”). During the nine months ended September 30, 2022, the Company incurred a loss from the extinguishment of debt of $826 thousand due to the modification of the debt issued to Evergreen Capital Management LLC (“Evergreen”). See Note 7 to our financial statements.

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Employee retention credit

During the nine months ended September 30, 2023, the Company recognized $1.233 million of income from the Employee Retention Credit. See Note 2 to our financial statements.

Other income / (expense)

The Company recognized $1 thousand of other income during the nine months ended September 30, 2023, versus $825 thousand of other expenses in the nine months ended September 30, 2022. In the prior period, $189 thousand of the loss was from the revaluation of the warrants issued to Evergreen, $401 thousand was due to a leak out provision for stock owned by Evergreen and $235 thousand was due to recognition of an accrual for a loss contingency for a lawsuit that has since been settled.

Net loss

Net loss was $5.948 million for the nine months ended September 30, 2023, compared with a net loss of $9.451 million for the nine months ended September 30, 2022. 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 $5.948 million during the nine months ended September 30, 2023 and $12.453 million during the twelve months ended December 31, 2022. 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 raise 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, convertible notes, and related party loans.

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As of September 30, 2023 and December 31, 2022, we had $2.578 million and $110 thousand in cash and cash equivalents available, respectively. During the nine months ended September 30, 2023, we used $6.778 million of cash for operating activities. Unless we are able to reduce the amount of cash we use in operating activities, we will need to raise additional capital through debt or equity financing. As of September 30, 2023 and December 31, 2022, we had working capital of $3.193 million and a working capital deficit of $2.966 million, respectively. As of September 30, 2023 and December 31, 2022, we had $4.539 million and $6.354 million of total debt outstanding, respectively. To resolve our working capital deficit and meet our cash needs, we have implemented cost savings programs in addition to having raised $10.2 million from the sale of securities in February 2023 and $3.1 million in September 2023. In February 2023, we paid off a secured promissory note in the amount of $677 thousand held by Sament and a secured promissory note in the amount of $1.022 million held by Evergreen. See Note 7 to our financial statements. We believe that the remaining offering proceeds will be sufficient to fund our operations through December 2023. 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 part II, Item 1A below and in our Annual Report on Form 10-K, filed with the SEC on March 22, 2023.

Capital Resources

On September 8, 2023, we closed on an underwritten public offering of 2,700,726 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price equal to $1.10 per share. Each unit was sold at a public offering price of $1.10 per unit. Gross proceeds, before deducting underwriting discounts and commissions and estimated offering expenses, were approximately $3.1 million. After offering expenses, the Company retained approximately $2.8 million in net proceeds. The Company paid additional costs related to the public offering of $103 thousand.

On February 7, 2023, we closed on an underwritten public offering of 1,619,000 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price equal to $6.30 per share. Each unit was sold at a public offering price of $6.30 per unit. Gross proceeds, before deducting underwriting discounts and commissions and estimated offering expenses, were approximately $10.2 million. After offering expenses, the Company retained approximately $9.4 million in net proceeds. With the net proceeds from the offerings, the Company used approximately $2.166 million to fund our operations, paid off debt of $1.9 million, paid down accounts payable of $497 thousand, acquired inventory of $436 thousand, purchased equipment of $361 thousand, and paid costs relating to the public offering of $140 thousand.

From time to time, the Company enters into loans to purchase vehicles that are secured by the vehicle purchased. Some of these loans are also personally guaranteed by the Company’s chief executive officer and/or chief financial officer. These loans accrue interest at annual rates ranging from 7.64% to 18.66% and mature on dates between April 2024 and February 2028. See Note 7 to our financial statements.

For more information on our outstanding debt as of September 30, 2023 and December 31, 2022, see Note 7 to our financial statements.

Cash Flows

Operating activities

During the nine months ended September 30, 2023 and 2022, cash used for operating activities was $6.778 million and $7.540 million, respectively. Cash used for operating activities for the nine months ended September 30, 2023 decreased primarily due to the smaller net loss and higher depreciation expense, offset by lower amortization of debt discount, lower collections of receivables and an increase in payments made to vendors.

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Investing activities

During the nine months ended September 30, 2023 and 2022, cash used in investing activities was $800 thousand and $1.813 million, respectively. The decrease in cash used for investing activities was primarily driven by our prior year purchase of Greenleaf Growers Inc.’s assets. Cash used for investing activities during the current year was primarily used to purchase furniture and equipment for the Edible Garden Heartland facility.

Financing activities

During the nine months ended September 30, 2023 and 2022, cash provided by financing activities was $10.046 million and $11.297 million, respectively. The decrease in cash provided by financing activities was primarily driven by completion of the February 2023 and September 2023 offerings, which in total were smaller than the Company’s initial public offering during the first nine months of 2022. The decrease was partially offset by the repayment of indebtedness; the debt paid down in the nine months ended September 30, 2023 was lower than the prior year.

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 Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023 pursuant to Rule 13a-15 under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were ineffective as of September 30, 2023, 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, 2022. 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.

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.

We cannot assure you that the proposed Reverse Stock Split will increase the price of our common stock.

We expect that the Reverse Stock Split, if effected, will increase the market price of our common stock. However, the effect of the Reverse Stock Split on the market price of our common stock cannot be predicted with any certainty, and the history of reverse stock splits for other companies of similar size to us is varied, particularly because investors may view a reverse stock split negatively. It is possible that the per share price of our common stock after the Reverse Stock Split will not increase in the same proportion as the reduction in the number of outstanding shares of common stock following the Reverse Stock Split, and the Reverse Stock Split may not result in a per share price that would attract investors who do not trade in lower-priced securities. In addition, we cannot assure you that our common stock will be more attractive to investors. Even if we implement the Reverse Stock Split, the market price of our common stock may decrease due to factors unrelated to the Reverse Stock Split, including our future performance, similar to the prior reverse stock split by the Company. If the Reverse Stock Split is consummated and the trading price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split.

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The proposed Reverse Stock Split may decrease the liquidity of our common stock and result in higher transaction costs.

The Reverse Stock Split may decrease the liquidity of our common stock because fewer shares would be outstanding after the Reverse Stock Split. In addition, if the Board implements the Reverse Stock Split, more stockholders may own “odd lots” of fewer than 100 shares of common stock, which may be more difficult to sell. Brokerage commissions and other costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares or multiples of 100 shares of common stock. Accordingly, the Reverse Stock Split may not achieve the desired results of increasing marketability of the common stock as described above.

If the Reverse Stock Split is approved and effected, the resulting per-share market price may not attract institutional investors or investment funds and may not satisfy the investing guidelines of such investors and, consequently, the trading liquidity of our common stock may not improve.

While the Board believes that a higher stock price may help generate investor interest, there can be no assurance that the Reverse Stock Split will result in a per-share market price that will attract institutional investors or investment funds or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not necessarily improve.

A decline in the market price of our common stock after the Reverse Stock Split is approved and effected may result in a greater percentage decline than would occur in the absence of the Reverse Stock Split.

If the Reverse Stock Split is approved and effected and the market price of our common stock declines, the percentage decline may be greater than would occur in the absence of the Reverse Stock Split. The market price of our common stock will, however, also be based upon our performance and other factors, which are unrelated to the number of shares of common stock outstanding.

ITEM 6. EXHIBITS

		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Filing Date
4.1	Form of Warrant dated September 8, 2023.	8-K	001-41371	September 11, 2023
4.2	Form of Representative’s Warrant dated September 8, 2023.	8-K	001-41371	September 11, 2023
4.3	Warrant Agency Agreement dated as of September 7, 2023 between the Company and Equiniti Trust Company, LLC.	8-K	001-41371	September 11, 2023
10.1	Underwriting Agreement dated September 7, 2023 between the Company and Maxim Group LLC, as representative of the underwriters.	8-K	001-41371	September 11, 2023
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			Filed herewith
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			Filed herewith
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			Furnished herewith
101	Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Extensible Business Reporting Language (XBRL); (i) Unaudited Consolidated Balance Sheet, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, (iv) Unaudited Condensed Consolidated Statements of Stockholders’ Deficit, and (v) related Notes to the Unaudited Consolidated Financial Statements.			Filed herewith
104	Cover Page Interactive Data File (included in Exhibit 101)			Filed herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EDIBLE GARDEN AG INCORPORATED

By:	/s/ James E. Kras
	James E. Kras
	Chief Executive Officer and President (principal executive officer)

By:	/s/ Michael James
	Michael James
	Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer)

Date: November 13, 2023