Borealis Foods Inc. Files Q1 2024 10-Q

Ticker: BRLSW · Form: 10-Q · Filed: May 21, 2024 · CIK: 1852973

Sentiment: neutral

Topics: 10-Q, quarterly-report, company-information

TL;DR

Borealis Foods (fka Oxus Acquisition) filed its Q1 2024 10-Q. Based in Oakville, ON.

AI Summary

Borealis Foods Inc. filed its quarterly report for the period ended March 31, 2024. The company, formerly known as Oxus Acquisition Corp. until March 23, 2021, is incorporated in Ontario and operates in the food products sector. Its principal executive offices are located at 1540 Cornwall Rd. #104, Oakville, Ontario, L6J 7W5.

Why It Matters

This filing provides investors with an update on Borealis Foods Inc.'s financial performance and operational status for the first quarter of 2024.

Risk Assessment

Risk Level: low — This is a routine quarterly filing and does not contain immediate red flags or significant new risks.

Key Players & Entities

FAQ

What is the primary business of Borealis Foods Inc.?

Borealis Foods Inc. operates in the FOOD & KINDRED PRODUCTS sector, SIC code 2000.

When did Borealis Foods Inc. change its name from Oxus Acquisition Corp.?

The company changed its name from Oxus Acquisition Corp. on March 23, 2021.

What is the filing date of this 10-Q report?

This 10-Q report was filed on May 21, 2024.

Where are Borealis Foods Inc.'s principal executive offices located?

The principal executive offices are located at 1540 Cornwall Rd. #104, Oakville, Ontario, L6J 7W5.

What is the fiscal year end for Borealis Foods Inc.?

The fiscal year end for Borealis Foods Inc. is December 31.

Filing Stats: 4,373 words · 17 min read · ~15 pages · Grade level 16.4 · Accepted 2024-05-20 17:52:31

Filing Documents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION 1 Item 1. Condensed Consolidated Financial Statements (unaudited) 1 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 28 Item 4.

Controls and Procedures

Controls and Procedures 30

OTHER INFORMATION

PART II. OTHER INFORMATION 31 Item 1.

Legal Proceedings

Legal Proceedings 31 Item 1A.

Risk Factors

Risk Factors 31 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities 39 Item 3. Defaults Upon Senior Securities 39 Item 4. Mine Safety Disclosures 39 Item 5. Other Information 39 Item 6. Exhibits 39

SIGNATURES

SIGNATURES 40 i CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (this " Quarterly Report ") filed by Borealis Foods Inc. contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations. These statements constitute projections, forecasts, and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report, words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "strive," "would" and similar expressions may identify forward-looking we are making projections, forecasts, or forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available to, Borealis' management.

Forward-looking statements may include, for example, statements about

Forward-looking statements may include, for example, statements about: our limited operating history makes it difficult to evaluate our business and prospects; we may be unable to execute our business plan or maintain our competitive position and high-level customer satisfaction if we fail to maintain adequate operational and financial resources, particularly if we continue to grow rapidly; a significant portion of our revenue is concentrated with a limited number of customers; adverse climate conditions may have an adverse effect on our business. We may take various actions to mitigate our business risks associated with climate change, which may require us to incur substantial costs and may not be successful, due to, among other things, the uncertainty associated with the longer-term projections associated with managing climate risks; our dependence on suppliers may materially adversely affect our operating results and financial position; manufacturing and production forecasts are based on multiple assumptions. We must adequately estimate our manufacturing capacity and inventory supply. If we overestimate our demand and overbuild our capacity or inventory, we may have significantly underutilized assets. Underutilization of our manufacturing facilities can adversely affect our gross margin and other operating results; we may experience volatility in costs for ingredients and packaging due to conditions that are difficult to predict; our future success will depend, in part, on our ability to maintain our technological leadership, enhance our current food products, develop new food products that meet changing customer needs and preferences, advertise and market our food products, and influence and respond to emerging industry standards and other technological changes on a timely and cost-effective basis; our business depends on our use of proprietary technology relying heavily on laws to protect such technology; our management team has limited exper

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. Borealis Foods, Inc. and Subsidiaries Condensed Consolidated Balance Sheets March 31, 2024 December 31, (Unaudited) 2023 Assets Current assets: Cash $ 8,211,050 $ 7,615,630 Accounts receivable, net of allowance for credit losses of $ 530,433 and $ 224,433 as of March 31, 2024 and December 31, 2023, respectively 4,770,512 1,775,756 Inventories, net 6,803,482 6,945,028 Prepaid expenses 2,397,475 845,878 Total current assets 22,182,519 17,182,292 Property, plant and equipment, net 45,965,322 46,408,540 Right-of-use asset, net 98,083 108,469 Goodwill 1,917,356 1,917,356 Other non-current assets 169,685 169,685 Total assets $ 70,332,965 $ 65,786,342 Liabilities and Stockholders' equity (deficit) Current liabilities: Accounts payable and accrued expenses $ 7,240,197 $ 10,887,730 Due to related parties 7,825,790 7,825,790 Convertible notes payable, current portion - 47,300,000 Notes payable, current portion, net of unamortized loan costs 13,118,707 681,121 Operating lease liability, current portion 53,338 43,794 Finance leases payable, current portion 575,426 565,353 Total current liabilities 28,813,458 67,303,788 Line of credit 5,000,000 - Convertible note payable 3,000,000 3,000,000 Notes payable, net of current portion 14,184,293 13,509,189 Operating lease liability, net of current portion 43,794 71,119 Finance leases payable, net of current portion 1,525,497 1,683,308 Deferred tax liability 1,566,233 1,566,233 Total liabilities 54,133,275 87,133,637 Stockholders' equity (deficit): Common stock -- -- Additional paid-in capital 90,096,688 44,118,081 Accumulated deficit ( 73,896,998 ) ( 65,465,376 ) Total stockholders' equity (deficit) 16,199,690 ( 21,347,295 ) Total liabilities and stockholders' equity (deficit) $ 70,332,965 $ 65,786,342 See accompanying notes. 1 Borealis Foods, Inc. and Subsidiaries C

Financial Statements

Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies Overview These unaudited condensed consolidated financial Foods Inc. (" PGF "), Palmetto Gourmet Foods Real Estate I, Inc. (" PGF RE I "), and Palmetto Gourmet Foods Real Estate II, Inc. (" PGF RE II ") (collectively the " Company "). Borealis is a food technology company that has developed a high-quality, affordable, sustainable, and nutritious range of plant-based, ready-to-eat meals, which are sold in the U.S., Canada, and Europe. Borealis has a mission to address global food security challenges by developing highly nutritious and functional food products that are both affordable and sustainable. Borealis' focus on affordability and sustainability reflects its commitment to making a positive impact on both human life and the planet. Borealis, a Canadian corporation, is a food technology integrator that focuses on the development and commercialization of functional foods. PGF is an early growth stage food manufacturing company and has spent significant time and resources developing its recipes and fabricating production equipment to meet its product specifications. PGF is the first American producer of sustainable, nutritious, and affordable ramen noodles. PGF RE I and PGF RE II are holding companies that rent their fixed assets to PGF. Intercompany balances and transactions have been eliminated in consolidation. Reverse Recapitalization Transaction On February 23, 2023, Borealis Foods Inc., a corporation incorporated under the laws of Canada (" Legacy Borealis "), entered into a Business Combination Agreement (as amended, amended and restated, supplemented, or otherwise modified from time to time) with Oxus Acquisition Corp. (" Oxus "), and 1000397116 Ontario Inc., an Ontario corpora

Financial Statements

Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Reverse Recapitalization Transaction (continued) Corporations Act (Ontario)), with Borealis surviving the Borealis Amalgamation. Borealis will continue under the name "Borealis Foods Inc." Accounting Impact of the Reverse Recapitalization The Reverse Recapitalization was accounted for as a reverse recapitalization. Oxus Acquisition Corp. was deemed the accounting predecessor and Borealis is the successor Securities and Exchange Commission (" SEC ") registrant. Under this method of accounting, Oxus was treated as the acquired company for financial statement reporting purposes. For accounting purposes, Legacy Borealis was deemed to be the accounting acquiror in the transaction and, consequently, the transaction was treated as a recapitalization of Legacy Borealis. Accordingly, the consolidated balance sheets and results of operations of Legacy Borealis became the historical financial statements of Borealis, and Oxus' assets, liabilities, and results of operations were consolidated with Legacy Borealis' beginning on February 7, 2024. The net assets of Oxus were recognized at carrying value, with no goodwill or other intangible assets recorded. Transaction costs incurred and unpaid by Oxus were converted into debt (Note 4) and accounted for as a reduction in Additional Paid-In Capital. Going Concern The unaudited condensed consolidated financial through March 31, 2024 that raise substantial doubt about its ability to continue as a going concern. The Company was in a net loss position and had negative cash flows from operations for the periods ended March 31, 2024 and 2023. The Company expects lower operating costs for the remainder of 2024 as the Company in

financial statements were available to be issued

financial statements were available to be issued. 6 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated

Financial Statements

Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Basis of Presentation The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (" US GAAP ") and the Company's functional currency is the US Dollar. We have condensed certain categories of information in our consolidated financial statements to enhance the readability and understanding of those statements by making them more succinct. As a result, certain footnote disclosures we normally include in our annual consolidated financial statements have been omitted but remain prepared in accordance with US GAAP and the rules and regulations of the Securities and Exchange Commission. In management's opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our unaudited condensed consolidated balance sheet and unaudited condensed consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2023 contained in Form 8-K/A filed by Borealis April 15, 2024. Certain prior period amounts have been reclassified to conform to current period presentation. Estimates The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities

Financial Statements

Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Prepaid Expenses Prepaid expenses include approximately $ 2,397,000 and $ 846,000 composed primarily of prepaid insurance, deposits on inventory purchases and property, plant and equipment purchases as of March 31, 2024 and December 31, 2023, respectively. Property, Plant and Equipment, net Property, plant and equipment are stated at cost. For financial statement purposes, depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Buildings and improvements 10 - 30 years Furniture, fixtures and equipment 3 - 12 years Construction in progress includes the cost of property, plant and equipment being constructed or otherwise not yet in service. Costs include materials, labor, capitalized interest, engineering and testing costs, and other costs necessary to get the assets ready for their intended use. Loan Costs The costs of obtaining equipment leases and debt issuance costs are amortized over the term of the respective obligations, using the straight-line method. US GAAP requires that the effective yield method be used to amortize debt issuance costs; however, the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method. Amortization of loan costs is included as a component of interest expense in the accompanying consolidated statements of operations. Loan costs are shown as reduction of related debt balances for financial statement presentation. Goodwill The Company's goodwill resulted from a prior year acquisition. Goodwill is not amortized but is reviewed annually for impairment or more frequently as events or circumstances indicate its carrying amount may not be recoverable. No impairment losses were recorded for the three-month period ended March 3

Financial Statements

Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Revenue and Cost Recognition and Accounts Receivable The Company's revenue is primarily generated from the sale of food products. These sales contain a single performance obligation. Revenue is recognized at a point in time and the Company recognizes revenue upon shipment of goods when ownership, risk, and rewards transfer to the customer. Certain of the Company's contracts with customers include variable consideration consisting of payment discounts and promotions. These programs include rebates, temporary on-shelf price reductions, off-invoice discounts, retailer advertisements, product coupons, slotting fees and other trade activities. Provision for discounts and incentives are recorded in the same period in which the related revenues are recognized. Gross revenues for the three months ended March 31, 2024 and 2023 were approximately $ 8,484,000 and $ 8,779,000 , respectively. Total payment discounts and promotions were approximately $ 589,000 and $ 424,000 resulting in net revenues of approximately $ 7,895,000 and $ 8,355,000 for the three month periods ended March 31, 2024 and 2023, respectively. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets

Financial Statements

Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Revenue and Cost Recognition and Accounts Receivable (continued) Accounts receivable related to product sales typically have payment terms of 30 days. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The allowance for credit losses reflects the Company's estimate of probable losses related to its accounts receivable. Collections from customers are continuously monitored and an allowance for credit losses is maintained based on historical experience adjusted for current conditions and reasonable forecasts taking into account geographical and industry-spec

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