EDBL.NASDAQEdible Garden AG INC
10-Q: Edible Garden AG Reports Q3 2024 Results, Navigates Financial Challenges
Sentiment:
Quarterly Report
Edible Garden AG reported a net loss for Q3 2024, while also navigating ongoing financial challenges and working to regain Nasdaq compliance.
Capital raiseThe company completed a public offering in September 2024, raising net proceeds of approximately $4.797 million.The company entered into an Equity Distribution Agreement with Maxim Group LLC, through which it sold shares of common stock for net proceeds of approximately $1.1 million during the nine months ended September 30, 2024.The company may need to raise additional funds through public or private financing, additional collaborative relationships or other arrangements to continue operations.
Worse than expectedThe company's net loss for the nine months ended September 30, 2024, increased compared to the same period in 2023, excluding a one-time credit.The company's revenue decreased in Q3 2024 compared to Q3 2023.The company is facing challenges in maintaining Nasdaq listing compliance and is at risk of delisting.
Summary
- Edible Garden AG reported a net loss of $2.063 million for the three months ended September 30, 2024, compared to a net loss of $2.431 million for the same period in 2023.
- Revenue for the quarter was $2.584 million, down from $3.289 million in the prior year, due to a strategic shift away from lower-margin products and some delayed shipments.
- The company's cost of goods sold decreased to $1.885 million from $3.277 million year-over-year, primarily due to reduced reliance on third-party growers.
- Selling, general, and administrative expenses decreased slightly to $2.189 million from $2.387 million.
- For the nine months ended September 30, 2024, the company's net loss was $7.972 million, compared to $5.948 million in 2023, with the 2023 figure including a one-time employee retention credit of $1.233 million.
- Revenue for the nine-month period was $9.985 million, a slight increase from $9.965 million in the prior year, driven by increased demand for core products.
- The company's cost of goods sold for the nine-month period decreased to $7.696 million from $9.425 million, due to increased production capacity at their Michigan facility.
- Selling, general, and administrative expenses increased to $8.823 million from $7.458 million, due to a one-time severance charge and higher professional fees.
- The company's cash balance was $2.214 million as of September 30, 2024, compared to $510 thousand at the end of 2023.
- The company has raised capital through public offerings and debt financing, including a recent offering in September 2024 that generated net proceeds of approximately $4.797 million.
- The company is facing challenges in maintaining Nasdaq listing compliance and has requested a hearing to appeal a delisting notice.
Sentiment
Score: 4
Explanation: The document presents a mixed picture. While there are some positive developments, such as improved gross margins and successful capital raising, the company is facing significant challenges, including a net loss, going concern issues, and Nasdaq delisting risk. The overall sentiment is cautiously negative.
Positives
- The company's net loss decreased in Q3 2024 compared to Q3 2023.
- Cost of goods sold decreased significantly in both the three and nine-month periods, indicating improved efficiency.
- The company successfully raised capital through a public offering in September 2024.
- The company acquired Edible Garden Corp., simplifying its operational structure and securing its New Jersey facility lease.
- Revenue for the nine-month period was slightly up year-over-year, driven by increased demand for core products.
Negatives
- The company experienced a decrease in revenue in Q3 2024 compared to Q3 2023.
- The company's net loss for the nine months ended September 30, 2024, increased compared to the same period in 2023, excluding a one-time credit.
- The company is facing challenges in maintaining Nasdaq listing compliance and is at risk of delisting.
- The company incurred a loss from the extinguishment of debt related to the prepayment of a secured promissory note.
- The company has a history of losses and is facing going concern issues.
Risks
- The company's ability to continue as a going concern is in doubt due to its history of losses and limited capital resources.
- The company is facing challenges in maintaining Nasdaq listing compliance and is at risk of delisting, which could negatively impact its ability to raise capital.
- The company's indebtedness could limit its ability to obtain additional financing and could place it at a competitive disadvantage.
- The company's reliance on a few key customers exposes it to the risk of losing one or more of these significant customers.
- The company has material weaknesses in its internal control over financial reporting, which could lead to errors or fraud.
Future Outlook
The company expects to experience further significant net losses in the foreseeable future and is evaluating options to reduce cash requirements and raise additional funds. The company's future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities.
Management Comments
- Management believes that its business operates as one reportable segment.
- Management has determined the payments for the fixtures should be treated as a reduction in revenue under the guidance of ASC 606.
- 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.
Industry Context
The company operates in the controlled environment agriculture (CEA) sector, which is focused on sustainable and traceable food production. The company's focus on hydroponic and vertical farming aligns with industry trends towards resource efficiency and reduced environmental impact. The company's brand differentiation and focus on sustainability are key factors in a competitive market.
Comparison to Industry Standards
- The company's gross profit margin of 27% for the three months ended September 30, 2024, is a significant improvement compared to the 0.4% margin for the same period in 2023, indicating progress in operational efficiency.
- The company's shift away from lower-margin products like lettuce and floral is a strategic move to improve profitability, which is a common practice in the industry.
- The company's use of proprietary software, GreenThumb, for tracking and managing its supply chain is a competitive advantage, as traceability is becoming increasingly important in the food industry.
- The company's focus on sustainability and reduced carbon footprint aligns with the growing consumer demand for environmentally friendly products, which is a key trend in the food industry.
- The company's challenges in maintaining Nasdaq listing compliance and its going concern issues are significant concerns that need to be addressed to ensure long-term viability, which is a common challenge for smaller companies in the industry.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Chief Financial Officer, Treasurer, Secretary and Director | Michael James | Kostas Dafoulas (Interim) | 2024-01-25 | Retirement |
Stakeholder Impact
- Shareholders face the risk of potential delisting from Nasdaq, which could negatively impact the value of their investment.
- Employees may be affected by the company's financial challenges and potential restructuring.
- Customers may be impacted by any changes in the company's operations or product offerings.
- Creditors face the risk of non-payment if the company is unable to continue as a going concern.
Next Steps
- The company will seek a hearing before a Nasdaq Hearings Panel to appeal the delisting notice.
- The company will evaluate options to further reduce cash requirements and raise additional funds.
- The company will continue to focus on improving operational efficiency and profitability.
- The company will continue to monitor and address the material weaknesses in its internal control over financial reporting.
Key Dates
| Date | Description |
|---|---|
| 2013-04-09 | Edible Garden Corp., a Nevada corporation, was incorporated. |
| 2020-03-28 | Edible Garden Inc., a Wyoming corporation, was incorporated. |
| 2020-03-30 | Edible Garden Inc. acquired substantially all of the operating assets of Edible Garden Corp. |
| 2020-06-22 | The company entered into a U.S. Small Business Administration Loan Authorization and Agreement. |
| 2020-10-14 | The company declared a 20-for-1 forward stock split and increased the number of authorized common shares to 20,000,000. |
| 2021-06-30 | The company converted from a Wyoming to a Delaware corporation, declared a 1-for-2 reverse stock split, and increased the total number of authorized common shares to 50,000,000. |
| 2021-09-08 | The company declared a 20-for-1 forward stock split and increased the number of authorized common shares to 200,000,000. |
| 2022-01-18 | The company's board of directors and stockholders approved a 1-for-5 reverse stock split. |
| 2022-05-03 | The 1-for-5 reverse stock split became effective. |
| 2022-08-30 | The company entered into a promissory note with NJD Investments, LLC. |
| 2023-01-26 | The company effected a reverse stock split of 1-for-30 and decreased the total number of authorized common shares to 6,666,667. |
| 2023-02-07 | The company issued common stock and warrants in a public offering. |
| 2023-06-08 | The company increased the number of authorized shares of common stock from 6,666,667 shares to 10,000,000 shares. |
| 2023-09-08 | The company issued common stock and warrants in a public offering. |
| 2023-11-10 | The company increased the total number of authorized shares of capital stock from 20,000,000 to 110,000,000 and increased the total authorized shares of common stock from 10,000,000 shares to 100,000,000 shares. |
| 2024-01-25 | Michael James retired from his positions as Chief Financial Officer, Treasurer, Secretary and Director of the Company. |
| 2024-02-07 | The company entered into an Equity Distribution Agreement with Maxim Group LLC. |
| 2024-03-14 | The company entered into a standard merchant cash advance agreement with Cedar Advance LLC. |
| 2024-04-05 | The company declared a 1-for-20 reverse stock split of its outstanding common stock. |
| 2024-05-07 | The company entered into an amended and restated standard merchant cash advance agreement with Cedar Advance LLC. |
| 2024-05-23 | The company completed a public offering. |
| 2024-06-22 | The exercise price of the May Warrants was reset to $1.49. |
| 2024-08-21 | The stockholders of the Company approved the Second Amendment to the 2022 Plan. |
| 2024-09-30 | The company closed a public offering and prepaid the First Sament Note. |
| 2024-10-01 | The company acquired Edible Garden Corp. |
| 2024-10-21 | The company received a letter from Nasdaq indicating it no longer met the minimum bid price requirement. |
| 2024-10-28 | The company submitted a request for a hearing before a Nasdaq Hearings Panel to appeal the delisting notice. |
| 2024-11-11 | The company had 18,905,058 shares of Common Stock outstanding. |
| 2024-11-13 | The date of the filing of the 10-Q report. |
Keywords
Edible Garden, hydroponic produce, controlled environment agriculture, financial results, net loss, revenue, cost of goods sold, Nasdaq, public offering, debt, going concern, internal control, warrants, stock split
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