Borealis Foods Inc. 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 March 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Borealis Foods Inc. (Exact name of registrant as specified in its charter) Ontario 001-40778 98-1638988 (State or other jurisdiction of incorporation or organization) (Commission File Number) (I.R.S. Employer Identification Number) 1540 Cornwall Rd . #104 Oakville , Ontario L6J 7W5 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (905) 278-2200 Not Applicable (Former name, former address, and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Trading Symbol: Name of Each Exchange on Which Registered: Common Shares BRLS Nasdaq Capital Market Warrants BRLSW Nasdaq Capital Market 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, smaller reporting company, or an emerging growth company. See the 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 financial 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 May 17, 2024, 21,378,852 Common Shares of the registrant, no par value, were issued and outstanding. Table of Contents PAGE 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 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 Item 4. Controls and Procedures 30 PART II. OTHER INFORMATION 31 Item 1. Legal Proceedings 31 Item 1A. 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 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 statements, but the absence of these words does not mean that a statement is not forward-looking. When we discuss our strategies or plans, 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: ● 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 experience managing a public company; ● we will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives; and ● other factors detailed in Part II. Item 1A. “ Risk Factors ” in this Quarterly Report. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report. These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts, and assumptions, and involve a number of judgments, risks, and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the “ Securities Act ”, and Section 21E of the Securities Exchange Act of 1934, as amended, or the “ Exchange Act ”. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements. ii PART I – FINANCIAL INFORMATION 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 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2024 2023 Gross Revenues $ 8,484,021 $ 8,778,540 Discounts and allowances ( 588,588 ) ( 423,767 ) Revenues, net 7,895,433 8,354,773 Cost of goods sold: Raw materials 4,770,469 5,658,101 Labor and overhead 1,877,803 2,079,203 Depreciation 1,004,588 961,956 Total Cost of goods sold 7,652,860 8,699,260 Gross profit (loss) 242,573 ( 344,487 ) Selling, general and administrative expenses 7,215,588 4,219,631 Loss from operations ( 6,973,015 ) ( 4,564,118 ) Other income (expense): South Carolina grant revenue -- 158,995 Interest expense, net ( 1,458,607 ) ( 1,530,581 ) Total other income (expense) ( 1,458,607 ) ( 1,371,586 ) Net loss before income taxes ( 8,431,622 ) ( 5,935,704 ) Income tax benefit -- 124 Net loss $ ( 8,431,622 ) $ ( 5,935,580 ) Earnings per share from net loss Basic $ ( 0.49 ) $ ( 0.55 ) Diluted $ ( 0.49 ) $ ( 0.55 ) Weighted average shares outstanding Basic 17,079,576 10,731,583 Diluted 17,079,576 10,731,583 See accompanying notes. 2 Borealis Foods, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited) Three Months Ended March 31, 2024 and 2023 Class A Common Stock Class B Common Stock Class C Common Stock Class D Common Stock Additional Number of Shares Common Stock Number of Shares Common Stock Number of Shares Common Stock Number of Shares Common Stock Paid-In Capital Accumulated Deficit Total Balance at January 1, 2023 100,000,000 -- 56,008,749 -- 6,345,000 -- -- -- 42,625,786 ( 37,986,129 ) 4,639,657 Expense related to stock options (Note 8) -- -- -- -- -- -- -- -- 193,554 -- 193,554 Net loss -- -- -- -- -- -- -- -- -- ( 5,935,580 ) ( 5,935,580 ) Balance at March 31, 2023 100,000,000 -- 56,008,749 -- 6,345,000 -- -- -- 42,819,340 ( 43,921,709 ) ( 1,102,369 ) Balance at January 1, 2024 100,000,000 -- 56,008,749 -- 6,345,000 -- -- -- 44,118,081 ( 65,465,376 ) ( 21,347,295 ) Expense related to stock options (Note 8) -- -- -- -- -- -- -- -- 1,273,053 -- 1,273,053 Convertible debt converted to equity from reverse recapitalization -- -- -- -- -- -- -- -- 54,991,472 -- 54,991,472 Assumption of debt from reverse recapitalization -- -- -- -- -- -- -- -- ( 10,285,918 ) -- ( 10,285,918 ) Conversion to Newco shares from reverse recapitalization ( 78,621,110 ) -- ( 56,008,749 ) -- ( 6,345,000 ) -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- -- ( 8,431,622 ) ( 8,431,622 ) Balance at March 31, 2024 21,378,890 $ -- -- $ -- -- $ -- -- $ -- $ 90,096,688 $ ( 73,896,998 ) $ 16,199,690 See accompanying notes. 3 Borealis Foods, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2024 2023 Cash flows from operating activities Net loss $ ( 8,431,622 ) $ ( 5,935,580 ) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash compensation expense related to stock options 1,273,053 193,554 Depreciation and amortization 994,202 961,956 Amortization of loan costs 77,316 -- Provision for credit losses 306,000 -- Provision for inventory reserve 42,449 -- Changes in operating assets and liabilities: Accounts receivable ( 3,300,756 ) ( 450,618 ) Inventories 99,097 ( 726,369 ) Prepaid expenses and other ( 1,551,597 ) 251,260 Operating lease ( 7,395 ) -- Accounts payable and accrued expenses 3,729,820 ( 208,807 ) Net cash used in operating activities ( 6,769,433 ) ( 5,914,604 ) Cash flows from investing activities Proceeds from reverse capitalization 63,575 -- Purchases of property, plant and equipment, net ( 550,984 ) ( 922,041 ) Net cash used in investing activities ( 487,409 ) ( 922,041 ) Cash flows from financing activities Net payments to related parties -- ( 500,000 ) Proceeds from convertible notes payable 3,000,000 15,000,000 Payments on finance leases payable ( 147,738 ) ( 128,708 ) Borrowings on line of credit 5,000,000 -- Net cash provided by financing activities 7,852,262 14,371,292 Net change in cash 595,420 7,534,647 Cash, beginning of period 7,615,630 5,146,616 Cash, end of period $ 8,211,050 $ 12,681,263 Supplemental cash flow data Cash paid during the period for: Interest $ 651,208 $ 623,447 Non-cash investing and financing activities Conversion of notes payable into Class A shares (Note 4) ( 54,991,472 ) - Note payable supplier finance (Note 4) 10,349,494 - See accompanying notes. 4 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated 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 statements include the financial statements of Borealis Foods, Inc. (“ Borealis ”), and its subsidiaries: Palmetto Gourmet 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 corporation and a wholly owned subsidiary of Oxus (“ Newco ”). On February 7, 2024, Legacy Borealis, Oxus, and Newco consummated the transactions (collectively, the “ Reverse Recapitalization ”) contemplated by the Business Combination Agreement by means of a statutory arrangement under the Canada Business Corporations Act and the Business Corporations Act (Ontario), implemented in accordance with the terms and conditions set forth in the Business Combination Agreement and the related plan of arrangement (as amended, amended and restated, supplemented, or otherwise modified from time to time, the “ Plan of Arrangement ”) following the approval at an extraordinary general meeting of the shareholders of Oxus held on February 2, 2024. Pursuant to the terms of the Business Combination Agreement, among other things: (i) Oxus domesticated and continued as a corporation under the laws of Ontario, Canada (“ New Oxus ”); and (ii) pursuant to the Plan of Arrangement, (a) Newco and Legacy Borealis amalgamated (the “ Legacy Borealis Amalgamation ”, and the amalgamated corporation resulting therefrom, “ Amalco ”), with Amalco surviving the Legacy Borealis Amalgamation as a wholly-owned subsidiary of New Oxus; and (b) following the Legacy Borealis Amalgamation, New Oxus and Amalco amalgamated (the “ Borealis Amalgamation ,” and together with the Legacy Borealis Amalgamation, the “Amalgamations,” and the corporation resulting therefrom, “Borealis,” as a corporation amalgamated under the Business 5 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated 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 statements have been prepared assuming that the Company will continue as a going concern. The Company suffered recurring losses from operations 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 incurred approximately $ 1,506,000 of transaction expenses, and $ 1,273,000 of employee stock compensation expenses related to the Reverse Recapitalization. As a result, substantial doubt continues to exist about the ability of the Company to continue as a going concern within one year from May 20, 2024, the date that the condensed consolidated financial statements were available to be issued. 6 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated 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 at the date of the unaudited condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Company classifies all highly liquid securities with stated maturities of three months or less from the date of purchase as cash equivalents. There were no cash equivalents as of March 31, 2024 and December 31, 2023. Inventories, net Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined using the first-in, first-out method or net realizable value. The cost of finished goods is measured at weighted average cost. A reserve is recorded for any food inventory that is expired (or expected to expire before sale) and any raw materials for projects that have been discontinued. 7 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated 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 31, 2024 or for the year ended December 31, 2023. Amounts Due to Related Parties Amounts due to related parties (Company stockholders and entities controlled by Company stockholders) at March 31, 2024 and December 31, 2023 totaling $ 7,325,790 , respectively, are due on demand and bear interest at 10 % annually. In addition, a note payable to a stockholder totaled $ 500,000 at March 31, 2024 and December 31, 2023, respectively, bearing interest at 10 % annually due December 31, 2024. 8 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated 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 that the Company otherwise would have recognized is one year or less. The incremental cost to obtain contracts was not material. 9 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated 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-specific economic factors. The Company also considers specific customer collection issues. Since the Company’s accounts receivable are largely similar, the Company evaluates its allowance for credit losses as one portfolio segment. At origination, the Company evaluates credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit ratings, probabilities of default, industry trends and other internal metrics. On a continuing basis, data for each major customer is regularly reviewed based on past-due status to evaluate the adequacy of the allowance for credit losses; actual write-offs are charged against the allowance. The Company incurred significant production training expenses for the three-month periods ended March 31, 2024 and 2023, totaling approximately $ 482,000 and $ 780,000 , respectively, due to PGF adding production capabilities during both periods. These costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations as it was not directly attributable to finished goods production. The Company’s cost of goods sold represent materials, direct labor costs, and allocated overheads associated with the sale of finished goods to customers. Advertising Costs associated with advertising are expensed as incurred and are included in selling, general and administrative expenses. Advertising costs expensed for the three-month periods ended March 31, 2024 and 2023 were approximately $ 1,526,000 and $ 39,000 , respectively. In April 2023, the Company entered into a multi-year agreement for a marketing representative to assist in the recipes for three co-branded private label ramen noodles as well to be utilized in marketing of the Company for their name, image, likeness and voice. This agreement includes a service fee, an investment stake in the Company, and a royalty agreement on future co-branded sales. The service fee under this agreement is expensed on a straight-line basis under the terms of the contract. Prepayments made under the agreement are included in prepaid expenses. No sales subject to the royalty agreement were made for the three months ended March 31, 2024. The marketing representative has a world-wide reputation within the gourmet food industry. We believe this agreement will assist us to increase our presence in the ramen noodle market. 10 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Research and Development Costs Research and development costs have been expensed in the period incurred. Research and development costs consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, share-based compensation, scale-up expenses, depreciation and amortization expenses on research and development assets, and facility lease costs. Scale-up expenses include material waste costs, production personnel costs, and related expenses. Research and development efforts are focused on enhancements to our existing product formulations and production processes in addition to the development of new products. The Company expects to continue investing in research and development over time, as research and development and innovation are core elements of our business strategy, and the Company believes they represent a critical competitive advantage. The Company believes continued innovation will capture a larger share of consumers through additional revenue streams. Research and development expenses for the three months ended March 31, 2024 and 2023 were approximately $ 37,000 and $ 200,000 , respectively, and are included in selling, general, and administrative expenses in the accompanying condensed consolidated statement of operations. Business Development Costs Business development expenses include all costs associated with directly growing and expanding a business segment, such as advertising, market research, and training. These costs include staff salaries, travel expenses, and consulting expenses that the Company incurs while searching for new opportunities and maintaining current relationships. Business development expenses for the three month periods ended March 31, 2024 and 2023 were approximately $ 759,000 and $ 199,000 , respectively, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. Transaction Costs On February 23, 2023, the Company signed a definitive business combination agreement with Oxus which was consummated on February 7, 2024 and described further in Note 1. In connection with this agreement, the Company incurred transaction costs of approximately $ 1,506,000 and $ 1,455,000 for the three months ended March 31, 2024 and 2023 respectively. Transaction costs have been expensed as incurred and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. 11 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Concentration of Risk The Company maintains cash balances at financial institutions in excess of federally insured limits as of March 31, 2024 and December 31, 2023. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $ 250,000 per depositor at each financial institution. The Company holds cash at well-known banks and does not believe that it is exposed to any significant credit risks on its cash. The Company extends unsecured credit to its customers in the ordinary course of business. Payment terms are generally net 30 days with discounts amounting up to 2 % for early payments. Accounts receivables are written off when they are determined to be uncollectible based on the financial stability of its customers and existing economic conditions. Sales to two customers accounted for approximately 58 % and sales to three customers accounted for approximately 73 % of net revenues for the three month periods ended March 31, 2024 and 2023, respectively. Accounts receivable from two customers amounted to approximately 74 % and 70 % of total accounts receivable as of March 31, 2024 and 2023, respectively. Substantially all of the Company’s sales for the three month periods ended March 31, 2024 and 2023 occurred in the United States and Canada. Purchases from 10 vendors accounted for approximately 57 % and 61 % of purchases during the three month periods ended March 31, 2024 and 2023, respectively. Accounts payable to these vendors totaled approximately $ 1,880,000 and $ 1,802,000 as of March 31, 2024 and 2023, respectively. Fair Value Measurements In accordance with US GAAP, the Company defines fair value as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available. 12 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Fair Value Measurements (continued) The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1: Observable inputs, such as quoted market prices in active markets for the identical asset or liability that are accessible at the measurement date. Level 2: Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability. Level 3: Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date. The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company does not have assets measured at fair value on a recurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, and accounts payable approximate their fair values due to the short-term nature of these instruments. There is no material difference between the carrying amounts and fair values of the Company’s debt obligations, including due to related parties, notes payable, line of credit and convertible notes payable, as interest rates approximate current market rates for similar types of debt instruments (Level 2). Disclosures about the fair value of financial instruments are based on pertinent information available to management as of March 31, 2024 and December 31, 2023. Although management is not aware of any factors that would significantly affect the reasonableness of the fair value amounts, such amounts were not comprehensively revalued for purposes of these unaudited condensed consolidated financial statements and current estimates of fair value may differ significantly from the amounts presented herein. 13 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 1. Description of Business and Summary of Significant Accounting Policies (continued) Stock Based Compensation The Company accounts for its stock-compensation arrangements at fair value in accordance with ASC 718 – Compensation – Stock Compensation. Compensation cost relating to share-based payment transactions is recognized in the Company’s condensed consolidated financial statements based on the estimated fair value of the instruments issued. The Company measures the cost of employees’ services in exchange for stock awards based on the grant-date fair value of the award using the Black Scholes model and recognizes the cost over the period the employee is required to provide services for the award, which is the vesting period. The Company accounts for forfeitures as they occur. Warrants Outstanding warrants were assumed at the Reverse Recapitalization. The fair value of the warrants was determined using the Monte Carlo analysis at the time of the transaction. The Company accounts for its Public and Private warrants as equity-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. It was determined with the Transaction date that there were no changes to the classes or language that would impact the original assessment that the public and private warrants should be classified as equity. Recent Accounting Pronouncements Management does not expect the adoption of recently issued accounting standards to have a significant impact on the Company’s reported financial position, results of operations, or cash flows. 14 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 2. Inventories, net Inventories were as follows: March 31, 2024 December 31, 2023 Raw materials $ 5,263,143 $ 5,190,811 Finished goods 1,771,421 1,942,850 Reserve for obsolete inventory ( 231,082 ) ( 188,633 ) $ 6,803,482 $ 6,945,028 3. Property, Plant and Equipment, net Property, plant and equipment were as follows: March 31, 2024 December 31, 2023 Building and improvements $ 10,108,916 $ 10,108,917 Furniture, fixtures and equipment 42,595,867 42,594,605 Construction in progress 5,627,827 5,078,103 58,332,610 57,781,625 Less: accumulated depreciation ( 12,367,288 ) ( 11,373,085 ) $ 45,965,322 $ 46,408,540 Depreciation expense recorded in the three month periods ended March 31, 2024 and 2023 was approximately $ 994,000 and $ 962,000 , respectively, which is included as a component of cost of goods sold. 4. Debt In 2022, the Company issued $ 20,000,000 of convertible notes payable that, after an extension was negotiated, mature in February 2024 (unless converted) and bear interest at 10 % annually. On or before the earlier of the maturity date or a “qualified financing event”, as defined in the note agreements, the outstanding principal and interest may be converted, at the option of the holder, into common shares of the Company. The number of shares of common stock received in the conversion will equal the quotient of (i) the outstanding principal and interest as of the date immediately before the completion of the qualified financing event, divided by (ii) an amount equal to the “valuation cap” divided by the “fully diluted basis” (terms as defined in the agreements) and discounted by five ( 5 %) percent. The notes and accrued interest were converted into 2,189,977 shares of common stock with the consummation of the Reverse Recapitalization with Oxus. 15 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 4. Debt (continued) In 2022, the Company issued $ 4,800,000 in convertible notes payable. During 2023, $ 4,500,000 of these notes matured without conversion and were repaid by the Company. The remaining $ 300,000 of convertible notes payable bear interest at 10 % annually and, after an extension was negotiated, mature in February 2024 (unless converted). The outstanding principal and interest under the remaining convertible notes may be converted, at the option of the holder, into the same equity as issued upon the Company’s issuance of preferred or common stock of at least $ 10,000,000 (“qualified financing event”), either as a single round or a lead round, at 80 % of the per share price paid during the qualified financing event. The notes and accrued interest were converted into 40,544 shares of common stock with the consummation of the Reverse Recapitalization with Oxus. In 2023, the Company issued $ 27,000,000 of convertible notes payable, of which $ 27,000,000 matures in 2024 (unless converted) and bear interest at 10 % annually. On or before the earlier of the maturity date or a “qualified financing event”, as defined in the note agreements, the outstanding principal and interest may be converted, at the option of the holder, into common shares of the Company. The number of shares of common stock received in the conversion will equal the quotient of (i) the outstanding principal and interest as of the date immediately before the completion of the qualified financing event, divided by (ii) an amount equal to the “valuation cap” divided by the “fully diluted basis” (terms as defined in the agreements) and discounted by five ( 5 %) percent. The notes and accrued interest were converted into 3,787,585 shares of common stock with the consummation of the Reverse Recapitalization with Oxus. In 2021, the Company issued a $ 3,000,000 convertible note that matures in 2026 (unless converted) and bears interest at 3 % annually. Accrued interest is payable monthly. The outstanding principal and interest under the convertible note may be converted, at the option of the holder, into the same equity as issued upon the Company’s issuance of preferred or common stock of at least $ 10,000,000 (“qualified financing event”), either as a single round or a lead round, at 85 % of the per share price paid during the qualified financing event. The note holder elected not to convert at the Reverse Recapitalization and therefore the note is due at maturity. In January 2024, the Company issued a $ 3,000,000 convertible note payable that matures in 2024 (unless converted) and bears interest at 10 % annually. Accrued interest is payable upon maturity, or converted into equity. The convertible note may be converted into securities, at the option of the holder, based upon a formula considering the outstanding principal and interest and the Company’s value, including a valuation cap. The note and accrued interest was converted into 375,925 shares of common stock with the consummation of the Reverse Recapitalization with Oxus. During 2023, the Company entered into a $ 25,000,000 financing agreement with a maturity date in August 2026. Under this agreement, the Company has a $ 15,000,000 term facility which was used to pay off the existing line of credit. In March 2024, the company entered into an amendment to extend the maturity date of the term facility to March 2028. Under the amendment, principal only payments of $ 83,000 are due monthly beginning in March 2025 with a lump sum payment of $ 12,167,000 due at maturity. Interest accrues at the prime rate plus an applicable margin of 4.75 % per annum and is payable monthly. 16 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 4. Debt (continued) In conjunction with this agreement, loan fees of approximately $ 931,000 were capitalized in 2023. Amortization expense of approximately $ 77,000 was recorded on the fees for the three month period ended March 31, 2024. In addition to the term facility, the Company obtained a $ 10,000,000 line of credit to fund working capital needs in support of its growth strategy. Interest accrues at the prime rate plus the applicable margin of 4.50 %. Interest is due and payable monthly beginning in September 2023. The line of credit includes an unused line fee of 0.25 % per annum beginning on closing date through six months and increases to 0.50 % per annum thereafter. As of March 31, 2024 and December 31 2023, the line of credit had $ 5,000,000 and $0 drawn upon it, respectively. In the period leading up to the Reverse Recapitalization, significant transaction costs were incurred by both parties. In total, four notes payable of $ 13,035,374 were issued for the transaction debt and mature in 2025. Details for the notes are as follows: Note A – Incurred by Borealis. The related expenses were recognized as incurred by Borealis and the trade payable was subsequently reclassified to notes payable. Note A was issued for $ 2,138,838 . The note matures in February 2025 , and bears interest at 10 % per annum. Note B – Incurred by Borealis. The related expenses were recognized as incurred by Borealis and the trade payable was subsequently reclassified to notes payable. Note B was issued for $ 1,314,875 . The note matures in February 2025 , and bears interest at 10 % per annum. Note C – Incurred by Oxus. The related expenses were recognized by Oxus and resulted in a reduction of contributed equity at the Reverse Recapitalization. Note C was issued for $ 1,980,000 . The note matures in February 2025 , and bears interest at 8 % per annum. Note D – Incurred by Oxus. The related expenses were recognized by Oxus and resulted in a reduction of contributed equity at the Reverse Recapitalization. Note D was issued for $ 7,601,661 . The note matures in February 2025 , and is non-interest bearing. Debt balances outstanding as of March 31, 2024 are due as follows: $ 13,868,000 in 2025; $ 9,000,000 in 2026; $ 1,000,000 in 2027; and $ 12,167,000 in 2028. 17 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 5. Income Taxes The Company accounts for income taxes using the liability method. Deferred income tax assets and liabilities are determined based on differences between the financial statement and income tax basis of the respective assets and liabilities, using enacted tax rates in effect for the years when the differences are expected to reverse. Borealis is taxed under Canadian tax laws at a rate of 26.5 %. Borealis does not file a consolidated tax return. PGF, PGF RE I, and PGF RE II (the “United States subsidiaries”) are taxed as C corporations, with a statutory rate of 21 %. The total income tax provision (benefit) expense recorded for the three month periods ended March 31, 2024 and 2023 was $ 0 and ($ 100 ), respectively, on consolidated pre-tax book loss of approximately $ 8,432,000 and $ 5,936,000 in the three-month periods ended March 31, 2024 and 2023, respectively. The Company’s tax provision is based on a projected effective rate based on annualized amounts applied to actual income to date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of capital loss and net operating loss (“NOL”) carryforwards is dependent upon the generation of future capital gains and taxable income in periods prior to their expiration. The Company currently provides a valuation allowance against the full amount of the NOLs since the Company is uncertain as to the realization of the full-amount of benefits in the future. The Company will continue to assess the need for, and the amount of, the valuation allowance at each reporting period. Transactions for which tax deductibility or the timing of tax deductibility is uncertain are analyzed by management based on their technical characteristics. The Company recognizes accrued interest and penalties, if any, related to uncertain tax positions in income tax expense. Management has determined that the Company does not have any uncertain tax positions or associated unrecognized tax benefits that materially impact the condensed consolidated financial statements or related disclosures. As a result, at March 31, 2024, the Company did not have a liability for unrecognized tax benefits, interest or penalties under United States or Canadian tax law. The Company paid no penalties during the three-month period ending March 31, 2024. The Company files income tax returns in the Canadian and U.S. federal jurisdictions, and in South Carolina. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2021. There are no tax examinations currently in progress. 18 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 6. Contingencies From time to time, the Company is involved in legal proceedings in the normal course of business. Management does not believe that the final resolution of any such legal proceedings will have a material effect on the consolidated financial position or results of operations of the Company. 7. Warrants The following represents a summary of warrants outstanding and exercisable on March 31, 2024: Description Issue Date Classification Exercise Price Expiration Date Outstanding Shares Exercisable Shares Private Placement Warrants 9/13/2021 Equity $ 11.50 2/7/2029 9,300,000 9,300,000 Public Warrants 9/13/2021 Equity $ 11.50 2/7/2029 17,250,000 17,250,000 26,550,000 26,550,000 Following the closing, New Borealis has the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $ 0.01 per warrant, provided that the last reported sales price of New Borealis Common Shares equals or exceeds $ 18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 days within a 30 trading day period commencing once the warrants become exercisable and ending on the third trading day prior to the date on which New Borealis gives proper notice of such redemption and provided certain other conditions are met. The public warrants are identical to the private placement warrants in material terms and provisions, except the private placement warrants were not be transferrable, assignable or salable until 30 days after the completion of the Reverse Recapitalization. 8. Stock Option Plan During 2022, the Company created a stock option plan (the “Plan”) that provides for the granting of options to certain employees for the purchase of the Company’s class D common stock. The Plan provides for the grant of stock options for eligible employees as determined by the Board of Directors and does not guarantee employment rights. During the three-month period ended March 31, 2024, the Company granted options to purchase 333,574 shares of the Company’s common stock at an exercise price of $ 0.0001 per share. The weighted-average grant date fair values of options granted was $ 0.60 per share. The fair values of the stock-based awards granted were calculated with the following assumptions: Risk-free interest rate 3.81 % Expected term (years) 5 - 10 Expected volatility 80.00 % Dividend yield 0.00 % 19 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 8. Stock Option Plan (continued) For the three-month periods ended March 31, 2024 and 2023, the Company recorded approximately $ 1,273,000 and $ 194,000 , respectively, of stock-based compensation expense. On February 7, 2024, as a result of the Reverse Recapitalization (Note 1), 4,000,000 stock options were exercised and converted at an exchange ratio of 0.0661 into 264,400 shares of Newco Class A common stock. Stock option activity for the three-month periods ended March 31, 2024 and 2023 is summarized as follows: Shares Weighted Average Exercise Price Weighted Remaining Contractual Life (Years) Options outstanding at December 31, 2022 3,468,760 0.0001 6.65 Granted 227,666 0.0001 6.65 Exercised -- -- -- Expired or forfeited -- -- -- Options outstanding at March 31, 2023 3,696,426 0.0001 -- Options outstanding at December 31, 2023 3,666,426 0.0001 8.10 Granted 333,574 0.0001 8.10 Exercised ( 4,000,000 ) 0.0001 -- Expired or forfeited -- -- -- Options outstanding at March 31, 2024 -- -- -- 9. Earnings per share Basic earnings or loss per share is based on the weighted average of number of common shares outstanding for the period. For the purposes of calculating diluted earnings per share, the number of shares outstanding has been adjusted for the dilutive effects of warrants. 20 Borealis Foods, Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2024 and 2023 9. Earnings per share (continued) Three Months Ended March 31, 2024 2023 Basic earnings (loss) per share calculation Net income (loss) available to common stockholders $ ( 8,431,622 ) $ ( 5,935,580 ) Weighted average common shares outstanding (basic) 17,079,576 10,731,583 Basic earnings (loss) per share from net income $ ( 0.49 ) $ ( 0.55 ) Diluted earnings (loss) per share calculation Net income (loss) available to common stockholders $ ( 8,431,622 ) $ ( 5,935,580 ) Weighted average common shares outstanding (basic) 17,079,576 10,731,583 Warrants 26,550,000 Weighted average common shares outstanding (diluted) 17,079,576 10,731,583 Diluted earnings (loss) per share from net income* $ ( 0.49 ) $ ( 0.55 ) * In periods where the Company has incurred a net loss, diluted earnings per share is based on the number of common shares issued and outstanding as including the effects of warrants would be anti-dilutive. 10. Subsequent Events The Company evaluated events and transactions after March 31, 2024 through May 20, 2024, the date the unaudited condensed consolidated financial statements were available to be issued, for subsequent events requiring disclosure in these condensed consolidated financial statements. The Company did not identify any subsequent events that required disclosure. 21 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report, and our audited consolidated financial statements and related notes included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2023 (“ Annual Report ”) and Form 8-K/A filed with the Securities and Exchange Commission (“ SEC ”) on April 15, 2024. This discussion and analysis may contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties, and assumptions, including, but not limited to, risks and uncertainties discussed under the heading ‘Cautionary Note on Forward-Looking Statements,’ in this Quarterly Report and in Part I, Item 1A “Risk Factors” included in our Annual Report. In this section, unless otherwise indicated or the context otherwise requires, references in this section to “Borealis,” the “Company,” “we,” “us,” “our” and other similar terms refer to Borealis Foods Inc. References to “Oxus” refer to Oxus Acquisition Corp. and “Sponsor” to Oxus Capital Pte Ltd. Overview 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. With its unique approach, Borealis has a significant opportunity to create a meaningful and profound impact on the world. Borealis has developed and launched mass-produced plant-based ramen meals with 20 grams of complete protein per serving. This achievement in the plant-based protein industry underscores Borealis’ commitment to developing cutting-edge solutions to tackle global food challenges. The Reverse Recapitalization 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 corporation and a wholly owned subsidiary of Oxus (“ Newco ”). On February 7, 2024, Legacy Borealis, Oxus, and Newco consummated the transactions (collectively, the “ Reverse Recapitalization ”) contemplated by the Business Combination Agreement by means of a statutory arrangement under the Canada Business Corporations Act and the Business Corporations Act (Ontario), implemented in accordance with the terms and conditions set forth in the Business Combination Agreement and the related plan of arrangement (as amended, amended and restated, supplemented, or otherwise modified from time to time, the “ Plan of Arrangement ”) following the approval at an extraordinary general meeting of the shareholders of Oxus held on February 2, 2024. Pursuant to the terms of the Business Combination Agreement, among other things: (i) Oxus domesticated and continued as a corporation under the laws of Ontario, Canada (“ New Oxus ”); and (ii) pursuant to the Plan of Arrangement, (a) Newco and Legacy Borealis amalgamated (the “ Legacy Borealis Amalgamation ”, and the amalgamated corporation resulting therefrom, “ Amalco ”), with Amalco surviving the Legacy Borealis Amalgamation as a wholly-owned subsidiary of New Oxus; and (b) following the Legacy Borealis Amalgamation, New Oxus and Amalco amalgamated (the “ Borealis Amalgamation ,” and together with the Legacy Borealis Amalgamation, the “Amalgamations,” and the corporation resulting therefrom, “Borealis,” as a corporation amalgamated under the Business Corporations Act (Ontario)), with Borealis surviving the Borealis Amalgamation. Borealis will continue under the name “Borealis Foods Inc.” 22 Accounting Impact of the Reverse Recapitalization The Reverse Recapitalization transaction was accounted for as a reverse recapitalization. Oxus Acquisition Corp. was deemed the accounting predecessor and Borealis is the successor 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 reverse 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. Basis of Presentation Borealis’ condensed consolidated financial statements were prepared in accordance with U.S. GAAP. See Note 1 to our condensed consolidated financial statements for a full description of our basis of presentation. Results of Operations Comparison of the Three Months Ended March 31, 2024 and 2023 The following sets forth a summary of our results of operations for the presented months (in $ thousands): For the Three Months Ended March 31, 2024 (Unaudited) 2023 (Unaudited) 2024 vs. 2023 Variance $ % of Revenues, net $ % of Revenues, net $ % of Prior Year Revenues 8,484 8,779 (295 ) Sales Allowances 589 (7 )% 424 (5 )% (165 ) (2 )% Revenues, net 7,895 8,355 (460 ) Cost of Goods Sold 7,652 97 % 8,699 104 % (1,047 ) (7 )% Gross profit (loss) 243 3 % (344 ) (4 )% 587 7 % Total Sales & Marketing 2,418 31 % 724 9 % 1,694 22 % Total Training 482 6 % 980 12 % (498 ) (6 )% Total General & Administrative Expenses 4,316 55 % 2,516 30 % 1,800 25 % 7,216 91 % 4,220 51 % 2,996 40 % Loss from Operations (6,973 ) (88 )% (4,564 ) (55 )% (2,409 ) (33 )% Total other income (expense) (1,459 ) (18 )% (1,372 ) (16 )% (87 ) (2 )% Loss before income taxes (8,432 ) (107 )% (5,936 ) (71 )% (2,496 ) (36 )% Income Tax Expense 0 0 % 0 0 % 0 0 % Net (loss) $ (8,432 ) (107 )% $ (5,936 ) (71 )% $ (2,496 ) (36 )% 23 Net Sales. We generate revenue from the sale of plant-based, ready-to-eat meals. Net Sales are reported net of discounts, returns, and allowances. In the three months ended March 31, 2024, net sales decreased by $0.5 million or 5% over the three months ended March 31, 2023 due to a delay in mod review associated with our international distribution and institutional sales. The first and second quarters of our fiscal years have historically been our slow seasons due to cultural practices of consuming soup products in fall and winter months. Our new retail distribution and institutional sales will commence in third and fourth quarters of 2024. Sales discounts and allowances increased to 7% of net sales in the first fiscal quarter of 2024 from 5% in the corresponding quarter of 2023. This increase can be attributed primarily to changes in product mix and decreased reliance on one single customer. Slotting fees increased as we reduced our concentration of credit risk by diversifying our customer mix. We anticipate that the impact of sales discounts and allowances, including slotting fees, will soften as we expand our distribution globally. Cost of Goods Sold. Our cost of goods sold decreased by $1.1 million in the three months ended March 31, 2024, representing a 7% improvement as a percentage of net sales compared to the three months ended March 31, 2023. Cost of goods sold is divided into five categories: raw material costs, direct and indirect labor, freight (including inbound and inter-company), overhead costs (primarily energy expenses) and depreciation. We are optimizing our supply chain with better pricing from suppliers as inflation pressures decrease. Notwithstanding the decrease in cost of goods sold, we experienced an increase in raw material costs, direct and indirect labor, and energy expenses as a percentage of net revenues that were disproportionately high due to plant capacity utilization under 20%. As we increase our plant utilization the labor and overhead rates, as a percentage of sales are expected to improve significantly. Gross Profit. Gross profit increased by $0.6 million or 171% for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. Additionally, gross profit of $0.2 million, or 3% of net sales, for the three months ended March 31, 2024 increased 7% from (4)% of net sales for the quarter ended March 31, 2023. Gross profits improvement is a direct result of customer diversification and product mix. During the first quarter of 2024, higher margin products accounted for 35% of net sales, for the three months ended March 31, 2024 compared to 10% for the three months ended March 31, 2023. By the end of the first quarter of 2023, raw material pricing began to stabilize from the peaks observed in 2022. Delays in modular reviews were experienced due to year-end customer inventory concerns., food service sales slated for 2023 were postponed to 2024 due to the timing of the school calendar. Numerous bids have been awarded which we anticipate will result in a significant increase in school orders for the 2024-2025 school year. Training. Training costs decreased by 6% as a percentage of net sales during the three months ended March 31, 2024, driven by enhanced operational efficiency as two production lines entered their second year. Personnel numbers are expected to fluctuate in response to demand and capacity requirements. Our emphasis on providing training and continuing education continues to have a positive impact on efficiency and productivity, allowing Borealis to compete in the highly competitive food sector on a global scale. Sales and Marketing. Sales and Marketing expenses increased by $1.7 million in the three months ended March 31, 2024, representing a 22% increase as a percentage of net sales compared to the Sales and Marketing expenses in the three months ended March 31, 2023. We allocate a significant portion of our Sales and Marketing budget to cover various expenses, including personnel costs, advertising expenditures, distribution costs, and associated occupancy expenses. The increase in Sales and Marketing expenses is primarily attributable to the addition of a brand ambassador to our team. Marketing spend will continue to focus on creating awareness of the food brands and supporting sales. Our strategic approach has balanced traditional and digital marketing tactics in support of our retail relationships. This has included retailer specific, digital advertising, e-commerce programs, social media content and ads, social media influencers as well as major celebrity alliances to drive sales. Our multi-platform approach is a competitive strategy that leverages advanced algorithmic and artificial intelligence (AI) tools to increase our speed of execution as well as being able to geo-target ads and content to specific customer markets. G&A. General and Administrative expenses increased by $1.8 million and represented 55% of net sales in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase is primarily due to professional fees incurred in connection with the Reverse Recapitalization of approximately $1.5 million. Salaries and benefits increased by $0.2 million, insurance increased $0.2 million due to additional insurance as a result of the Reverse Capitalization, and increase of $1.1 million in stock compensation expense during the first quarter of 2024 as a result of fully vesting and converting into shares of the Company in conjunction with the Reverse Recapitalization. 24 Depreciation Expense. Depreciation expense increased by less than $0.01 million in the three months ended March 31, 2024, although as a percentage of sales, it decreased by less than 1%, compared to the three months ended March 31, 2023. The increase in depreciation expense related to the in-service date of the two new production lines implemented at the end of the first quarter 2023. Other Expense (Income). Other expenses increased by $0.1 million in the three months ended March 31, 2024, with interest expenses accounting for a significant portion of the increase. Other expense increased by 2% as a percentage of sales over the three months ended March 31, 2023, resulting from higher aggregate principal amounts of indebtedness outstanding and increased interest accruals. Future increases in interest expense are expected to depend on market conditions as well as capital needs, availability, and financing decisions. Liquidity and Capital Resources On September 8, 2021, Oxus consummated its initial public offering of 15,000,000 units, at a price of $10.00 per unit, generating gross proceeds of $150.00 million. Simultaneously with the closing of the initial public offering, Oxus consummated the sale of 8,400,000 Private Warrants at a price of $1.00 per warrant in a private placement to Sponsor and the underwriters, generating gross proceeds of $8.40 million. On September 13, 2021, the underwriters exercised the over-allotment option in full and purchased an additional 2,250,000 units, generating gross proceeds of $22.50 million. In connection with the underwriters’ full exercise of the over-allotment option, Oxus issued an additional 900,000 Private Warrants at a price of $1.00 per warrant in a private placement to the Sponsor and the underwriters, generating gross proceeds of $0.90 million. Following the initial public offering and the private placement, a total of $175.95 million was placed in the Trust Account (at $10.20 per Unit). Oxus incurred $4.15 million in transaction costs, including $3.45 million of underwriting fees and $0.70 million of other offering costs in connection with the initial public offering and the private placement. On August 10, 2023, Legacy Borealis entered into a $25,000,000 financing agreement with a maturity date in July 2026. Under this agreement, Borealis (as successor-in-interest to Legacy Borealis) has a $15,000,000 term facility which was used to pay off amounts outstanding under, and to terminate, a then existing line of credit. In addition to the term facility, Legacy Borealis entered into a $10,000,000 revolving line of credit. The term facility and the revolving line of credit are secured by liens on substantially all of the assets of Borealis and its subsidiaries. Interest is payable under the term facility and the revolving line of credit at the annual rate of Prime + 4.75 % and Prime + 4.5%, respectively. As of March 31, 2024, $15 million principal amount was outstanding under the term facility and $5 million principal amount was outstanding under the revolving line of credit. In February 2024, Borealis completed its Reverse Recapitalization, resulting in approximately $50.3 million of convertible debt converting into equity. At the completion of the Reverse Recapitalization, Borealis had marketable securities in the Trust Account of $0.6 million. The reduction in Trust Account holdings resulted principally from shareholder redemptions. Borealis expects lower operating expenses in 2024 with the completion of the Reverse Recapitalization. Based on Borealis’ present business plan and taking into account its working capital and cash anticipated to be generated through operations, Borealis will require additional capital to obtain its anticipated funding needs through March 31, 2025. The amount of additional capital required to fund Borealis through March 31, 2025 has been reduced as a result of a change in its business plan that reduced the need for additional capital expenditures relating to the expansion of our production lines beyond the current four production lines. In addition, Borealis continues to seek additional financing. There can be no assurance that such additional financing will be available to Borealis on terms acceptable to it or at all. In the event Borealis’ additional financing efforts are not successful, Borealis may seek to pursue alternatives which may include, among other things, scaling down research and development, business develop investments, and global distribution expansion until such time that new capital has been secured. Going Concern The unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. In connection with Borealis’ assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ ASU ”) “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, management has determined that recurring losses and cash used in operations in both 2023 and continuing into 2024 raises substantial doubt about Borealis’ ability to continue as a going concern. See Item 1A “Risk Factors” in this Form 10-Q. 25 Cash Flows The following table sets forth our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2024 2023 Net cash (used in) provided by: Operating Activities $ (6,769 ) $ (5,915 ) Investing Activities (487 ) (922 ) Financing Activities 7,852 14,371 Cash Flows Used in Operating Activities Net cash used in operating activities during the three months ended March 31, 2024 was $6.8 million, resulting primarily from a net loss of $8.4 million, adjusted for non-cash charges of $1.1 million in depreciation and amortization, and $1.3 thousand in stock-based compensation. Net cash used in operating activities during the three months ended March 31, 2023 was $5.9 million, resulting primarily from a net loss of $5.9 million, adjusted for non-cash charges of $1.0 million in depreciation and amortization and $0.2 million in stock-based compensation. Cash Flows Used in Investing Activities Net cash used in investing activities during the three months ended March 31, 2024 was $0.5 million, representing $0.5 million in property and equipment purchases. Net cash used in investing activities during the three months ended March 31, 2023 was $0.9 million, representing additions of $0.9 million in property and equipment purchases. Cash Flows Provided by Financing Activities Net cash provided by financing activities during the three months ended March 31, 2024 was $7.9 million, representing proceeds from convertible debt of $3.0 million, $5.0 million in borrowing on line of credit, offset by $0.1 million in finance lease payments. Net cash provided by financing activities during the three months ended March 31, 2023 was $14.4 million, which represents $15.0 million in proceeds from convertible debt less $0.5 million in payments to related parties and $0.1 million in finance lease payments. Contractual Obligations and Commitments The following table summarizes our non-cancellable contractual obligations and other commitments as of March 31, 2024, and the effects that such obligations are expected to have on our liquidity and cash flow for future periods (in thousands): Payments due by period Total Less than 1 year 1 – 3 years 4 – 5 years More than 5 years Contractual obligations and other commitments (1) $ 53.0M $ 28.7M $ 11.2M $ 13.1M -- (1) Includes operating lease liabilities for certain of our offices and facilities, accounts payable, and accrued expenses including related party notes. The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty. 26 Off-Balance Sheet Arrangements As of March 31, 2024 and December 31, 2023, we did not engage in any off-balance sheet arrangements, including the use of structured finance, special purpose entities, or variable interest entities. Emerging Growth Company Status Section 102(b)(1) of the JOBS Act exempts “emerging growth companies” (as defined in Section 2(a) of the Securities Act) from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to not take advantage of the extended transition period is irrevocable. Oxus was an emerging growth company and elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. Following the consummation of the Reverse Recapitalization, Borealis expects to continue taking advantage of the benefits of the extended transition period, although it may decide to early adopt new or revised accounting standards to the extent permitted by such standards and relevant laws and regulations. This may make it difficult or impossible to compare Borealis’ financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Borealis will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which Borealis has total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which Borealis has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2026, which is the last day of the fiscal year following the fifth anniversary of Oxus’ initial public offering. Implications of being a Smaller Reporting Company Additionally, Borealis is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. Borealis will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of common stock held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) Borealis’ annual revenues exceeded $100 million during such completed fiscal year and the market value of common stock held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent Borealis takes advantage of such reduced disclosure obligations, it may also make comparison of its financial statements with other public companies difficult or impossible. How We Evaluate Our Operations Net Income/(Loss) We measure performance based on our overall return to shareholders based on consolidated net income or net loss. We do not review a measure of operating result at a lower level than the consolidated company and we only have one reportable segment. Adjusted EBITDA Our adjustments to EBITDA are related to expenses and gains that we believe are not indicative of normal, ongoing operations. While these items may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses and gains in the future, we believe that removing these items for purposes of calculating the Adjusted EBITDA financial measures provides a more focused presentation of our ongoing operating performance. 27 We view EBITDA as an important indicator of performance. We define EBITDA as net income/(loss) plus net interest expense, income taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA further adjusted for any foreign exchange gains/(losses), share-based compensation expense and non-recurring items if identified. EBITDA and Adjusted EBITDA are supplemental measures utilized by our management and other users of our financial statements such as investors, research analysts and others, to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis. Adjusted EBITDA is a key performance measure that our management uses to assess its operating performance. We facilitate internal comparisons of our operating performance on a more consistent basis. We use these performance measures for business planning purposes and forecasting. We believe that EBITDA and Adjusted EBITDA enhances an investor’s understanding of our financial performance as they are useful in assessing our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. “Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) interest expense, of $1.5 million, (3) depreciation and amortization, net, of $1.0 million (4) other non-operating items, net, of $0.1 million, (5) Training, of $0.5 million, (6) M&A due diligence costs, of $1.3 million, (7) new product launch of $0.8 million, (8) one-time formulation and product development costs, of $0.5 million all for the three months ended March 31, 2024. “Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) interest expense, of $1.6 million, (3) depreciation and amortization, net, of $1.0 million (4) other non-operating items, net, of $0.1 million, (5) Training, of $0.8 million, (6) M&A due diligence costs, of $1.5 million, (7) new product launch, of $0.2 million, (8) one-time formulation and product development costs, of $0.1 million all for the three months ended March 31, 2023. Management and our Board of Directors use this non-GAAP measure for purposes of evaluating our performance. Furthermore, the Leadership Development and Compensation Committee of our Board of Directors uses such measure to evaluate management’s performance. We, therefore, believe that the use of this non-GAAP measure provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. As noted above, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Recent Accounting Pronouncements See Note 1 to Borealis’ financial statements included elsewhere in this Quarterly Report for information about recent accounting pronouncements, the timing of their adoption, and Borealis’ assessment, if any, of their potential impact on Borealis’ financial condition and results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange rates. 28 Concentration Risk We extend unsecured credit to our customers in the ordinary course of business. Payment terms are generally net 30 days with discounts amounting to 2%. Accounts receivable are written off when they are determined to be uncollectible based on the financial stability of our customers and existing economic conditions. Sales to two customers accounted for approximately 58% of net revenues during the three months ended March 31, 2024 and three customers accounted for approximately 73% of net revenues during the three months ended March 31, 2023. Accounts receivable from two customers amounted to approximately 74% and 70% of total accounts receivable during the three months ended March 31, 2024 and 2023, respectively. Substantially all of our sales during the three months ended March 31, 2024 and 2023 occurred in the United States and Canada. Purchases from 10 vendors accounted for approximately 57% and 61% of purchases during the three months ended March 31, 2024 and 2023, respectively. Accounts payable to these vendors totaled approximately $1.9 million and $1.8 million as of March 31, 2024 and 2023, respectively. Foreign Currency Risk Our customers are primarily located in the United States, Japan, Germany, and Canada; therefore, foreign exchange risk exposures arise from transactions denominated in currencies other than our functional and reporting currency (United States dollars). To date, a majority of our sales have been denominated in United States dollars and a significant portion of our operating expenses are denominated in Canadian dollars. We also purchase certain of our key manufacturing inputs in Euros. As we expand our presence in international markets, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements to minimize the impact of these fluctuations in the exchange rates. We will periodically reassess our approach to manage our risk relating to fluctuations in currency rates. We do not believe that foreign currency risk had a material effect on our business, financial condition, or results of operations during the periods presented. Inflation Risk We do not believe that inflation had a significant impact on our results of operations for any periods presented in our consolidated financial statements. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs, and our inability or failure to do so could harm our business, financial condition, and results of operations. Matching Revenues with Costs Certain Selling, General and Administrative costs have been expensed in the period incurred. These costs, to include business development costs, transaction costs and research and development costs, consist primarily of personnel and related expenses including salaries, benefits, share-based compensation, scale-up expenses, depreciation and amortization expenses, and facility lease costs. Scale -up expenses includes material waste costs, production personnel costs and various related expenses. These costs are focused on enhancements to our existing product formulations and production processes, as well as the scientific development of new products and economic verticals. We believe continued innovation and these new verticals will capture a larger share of consumers. Monetization of future opportunities created by the above investment will be realized in future quarters. Utilizing the straight-line method of depreciation expense causes a disproportionate burden upon gross margin due to the current plant operating at less than 20% capacity. 29 Item 4. Controls and Procedures . Limitations on Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Evaluation of Disclosure Controls and Procedures Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our condensed consolidated financial statements for external purposes in accordance with US GAAP. Internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error or overriding of controls. Because of the inherent limitations, only reasonable assurance with respect to financial statement preparation and presentation can be provided and misstatements may not be prevented or detected. Management evaluated the design and effectiveness of the Company’s internal control over financial reporting as of March 31, 2024 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework 2013. Based on its evaluation, management concluded that our internal control over financial reporting was not effective as of March 31, 2024 due to material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Consistent with December 31, 2023, the Company did not effectively design, implement and operate effective process-level control activities related to inventory management and analysis of complex technical accounting matters. As a result of these deficiencies, material misstatements were identified and corrected in the consolidated financial statements as of and for the year ended December 31, 2023. Because there is a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis, we concluded the deficiencies represent material weaknesses in our internal control over financial reporting and our internal control over financial reporting was not effective as of March 31, 2024. Our Chief Executive Officer and Chief Financial Officer have taken additional steps to support that the condensed consolidated financial statements as of and for the three-month period ended March 31, 2024 are presented fairly in accordance with US GAAP. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a–15(f) and 15d-15(f)) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Remediation Plan Subsequent to the year ended December 31, 2023, and under the direction of our Chief Executive Officer and Chief Financial Officer, we have been developing a comprehensive plan to remediate the identified material weaknesses. We began implementing certain measures as part of the remediation plan including: (i) development of a detailed remediation plan addressing the material weaknesses related to the control environment, risk assessment and monitoring, (ii) institution of policies and processes to support the functioning of internal controls over financial reporting, (iii) design of a comprehensive risk assessment process, (iv) installation of new ERP system (v) hiring/outsourcing of individuals with appropriate skills and experience. The material weaknesses being addressed by the above-mentioned remediation plan will not be considered remediated until the applicable controls operate for a sufficient period of time, and management concludes, through testing, that these controls are operating effectively. This has not occurred to date. Although we have commenced the remediation process and intend to complete it as promptly as possible, we cannot estimate how long it will take to remediate these material weaknesses. In addition, new material weaknesses may be discovered that require additional time and resources to remediate. Until the remediation is complete, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with US GAAP. 30 PART II – OTHER INFORMATION Item 1. Legal Proceedings. We are not currently a party to any litigation or claims that, if determined adversely against us, would have a material adverse effect on our business operating results, financial condition, or cash flows. We may, from time to time, be party to litigation and subject to claims in the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of the defense and settlement costs, diversion of management resources, and other factors. Item 1A. Risk Factors. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business or results of operations. We have a limited operating history which makes it difficult to evaluate our business and prospects. We have a limited operating history, which makes it difficult to evaluate our business and prospects to forecast our future results. We were founded in 2019. Although we have experienced substantial revenue growth on an annual basis, we have incurred losses since inception. As of March 31, 2024, we had an approximate accumulated deficit of $73.9 million USD. There can be no assurance that revenue growth will continue in the future. In addition, we may experience substantial fluctuations in operating results in the future caused by various factors, including: ● general economic conditions; ● specific economic conditions in the food and agriculture industry; ● the impact of inflation and rising interest rates across the economy, including higher food, grocery, raw materials, transportation, energy, labor and fuel costs; ● increases in the price of raw materials, labor, wages or other inputs that our suppliers use in manufacturing and supplying products, along with logistics, transportation, shipping and other related costs, may lead to higher production and shipping costs for our products. Any increase in the cost of inputs to our production could lead to higher costs for products in retail channels and could negatively impact our operating results and future profitability; ● the introduction of new products by us or our competitors; and ● the mix of products sold and the mix of channels through which those products are sold. As a strategic response to a changing competitive environment, we may elect from time to time to make, among other things, certain pricing, product, or marketing decisions, and any such decisions could have a material adverse effect on our periodic results of operations, including revenue and profits from quarter to quarter. The war in Ukraine, and the sanctions in place, could adversely affect global energy and financial markets thus potentially affecting our business and customers. The outbreak of war in Ukraine has already affected global economic markets, including a dramatic increase in the price of oil and gas, and the uncertain resolution of this conflict could result in protracted and/or severe damage to the global economy. Russia’s military interventions in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union, and other countries against Russia. Russia’s military incursion and the resulting sanctions could adversely affect global energy and financial markets and thus could affect the global markets, our customers’ businesses and potentially our business. At this time, we (i) do not have any direct business or contracts with any Russian or Ukraine entity as a supplier or customer, (ii) do not have any knowledge whether any of our customers or suppliers have any direct business or contracts with any Russian entity, (iii) do not believe that our business segments, products, lines of service, projects or operations are materially impacted by supply chain disruptions resulted from the war in Ukraine, and (iv) have not been materially financially affected by the war in Ukraine. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in this section. 31 We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond their control. Prolonged unrest, intensified military activities, or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on our business, financial condition, results of operations, and prospects. We do not anticipate any new or heightened risk of potential cyberattacks by state actors or others since Russia’s invasion of Ukraine, and we have not taken any actions to mitigate such potential risks. Our management team will continue to monitor any potential risks that might arise due to the war in Ukraine which are specific to us, including but not limited to risks related to cybersecurity, sanctions, and supply chain, suppliers, or service providers in affected regions. Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. Our historical financial statements have been prepared under the assumption that it will continue as a going concern. Our registered public accounting firm has issued a report on our financial statements for the years ended December 31, 2023 and 2022, that includes an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to obtain additional equity or debt financing. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if adequate funds are not available to us when we need them, we could go into default on our outstanding indebtedness, which would, in turn, permit our creditors to enforce remedies against us and cause us to consider reducing, discontinuing, or selling operations or seeking protection from creditors, and further raise substantial doubt about our ability to continue as a going concern. The doubt regarding our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all. Additionally, if we are unable to continue as a going concern, our shareholders may lose some or all of their investment in Borealis Foods. We face market competition, and if we are unable to compete effectively with our competitors, our business and operating results could be materially adversely affected. The food and agriculture business is highly competitive, and faces increased competition as a result of consolidation, channel proliferation, and the growth of online food retailers and new market participants. Currently, the leading providers of food and agriculture products include large food and agriculture companies, as well as a number of smaller companies. Many of these companies possess financial resources significantly greater than those of ours, and accordingly, could initiate and support prolonged price competition to gain market share. In particular, the large food and agriculture companies could significantly undercut our pricing for our products. If significant price competition were to develop, we likely would be forced to lower our prices, possibly for a protracted period, which would have a material adverse effect on our financial results and could threaten our economic viability. In addition, many of these large competitors possess marketing, agricultural and food processing resources greater than those of ours. Smaller competitors, although often faced with financial barriers, typically compete on the basis of their ability to create niche markets by rapidly introducing products of interest to local customers and then expanding. The resulting price pressure and niche loyalties present substantial competitive challenges for us. A significant portion of our revenue is concentrated with a limited number of customers. A significant portion of our revenue is concentrated with a limited number of customers. Approximately 58% of our total revenue was derived from two customers during the three months ended March 31, 2024. A disruption in our relationship with any one of these customers could materially adversely affect our business, results of operations, cash flows, and financial position. We could experience fluctuations in our customer base or the mix of revenue by customers as markets and strategies evolve or are affected by changes in the general economy or the food industry among other things. Our customers’ demand for our products may fluctuate due to factors beyond our or any such customer’s control. For example, in 2023, our customer orders were not placed at the volume nor pace that was anticipated due to a number of factors that include, among others, the Ukraine conflict, increased transportation costs, warehouse availability at customer and retailer concerns about a potential shift in retail consumption patterns as the COVID-19 pandemic subsided, all of which negatively impacted our revenue growth. Even a meaningful change in a customers’ inventory strategy could impact the industries demand and growth for any our product. If these customers were to reduce their purchases, we would lose a material amount or most of our current revenue. This would result in lower margins and materially adversely impact our business, results of operations, cash flows, and financial position. 32 We may not continue to grow or maintain our active customer base, may not be able to achieve or maintain profitability, and may not be aligned with customer trends and preferences. There are a number of trends in consumer preferences which have an impact on us and the food industry as a whole. These include, among others, preferences for speed, convenience and ease of food preparation, natural, nutritious, and well-proportioned meals, products that are sustainably sourced and produced and are otherwise environmentally friendly, as well as a recent trend toward meat substitutes. Concerns as to the health impacts and nutritional value of certain foods may increasingly result in food producers being encouraged or required to produce products with reduced levels of salt, sugar, and fat and to eliminate trans-fatty acids and certain other ingredients. Consumer preferences are also shaped by concern over waste reduction and the environmental impact of products. Our success depends on both the continued appeal of our products and, given the varied backgrounds and tastes of our customer base, our ability to offer a sufficient range of products to satisfy a broad spectrum of preferences. Any shift in consumer preferences in the material markets in which we operate could have a material adverse effect on our business. Consumer tastes are also susceptible to change. In addition, the growing presence of alternative retail channels could negatively impact our sales if we fail to adapt. For example, consumers with increasingly busy lifestyles are choosing the online grocery channel as a more convenient and faster way of purchasing their food products, and are also increasingly using the internet for meal ideas. Our competitiveness, therefore, depends on our ability to predict and quickly adapt to consumer preferences and trends, exploiting profitable opportunities for product development without alienating our existing consumer base or focusing excessive resources or attention on unprofitable or short-lived trends. All of these efforts require significant research and development and marketing investments. If we are unable to respond on a timely and appropriate basis to changes in demand or consumer preferences and trends, our sales volumes and margins could be materially adversely affected. We will need to grow the size of our organization, and we may experience difficulties in managing this growth. We are currently experiencing rapid growth and expansion. This rapid growth has placed, and is expected to continue to place, a significant strain on our administrative, operational, and financial resources and increased demands on our systems and controls. While we believe that our operating and financial control systems and controls are adequate to address expansion plans for the next 12 months, there can be no assurance that such systems and controls will be adequate to maintain and effectively monitor future growth. Failure to continue to upgrade the operating and financial control systems or unexpected expansion difficulties could adversely affect our business, results of operations, and financial condition. We anticipate that our continued growth will require us to recruit and hire a substantial number of new managerial, agricultural and food processing, and sales and marketing personnel. If we fail to maintain adequate operational and financial resources, particularly if we continue to grow rapidly, we may be unable to execute our business plan or maintain our competitive position and high-level customer satisfaction. We must continue to expand in order to maintain our competitive position and continue to meet our customers’ increasing demands for product, variety, quality and availability, and price/performance targets. Our ability to grow depends, to a significant extent, on our ability to expand our food processing operations, which requires significant advance capital expenditures, as well as advance expenditures and commitments for facilities, personnel, and advertising. Timely access to capital markets is essential for us to achieve our business plan. We will need to raise additional capital from equity or debt sources in order to finance our growth and capital expenditures contemplated for future periods. There can be no assurance that we will be able to raise such capital on favorable terms or at all. In the event that we are unable to obtain such additional capital, we may be required to reduce the scope of our presently anticipated expansion. Our inability to achieve projected growth could have a material adverse effect on our results of operations and could adversely impact our ability to compete. 33 We run the risk of crop failures largely dependent on factors outside of our control. Our ability to ensure a continuing supply of ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow certain crops such as wheat, the vagaries of these farming businesses (including poor harvests impacting the quality of the peas grown), changes in national and world economic conditions, including as a result of COVID-19 or the outbreak of hostilities or war, tariffs and our ability to forecast our ingredient requirements. The high-quality ingredients used in many of our products are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes, and pestilence. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the available supply of, or increase the price of, quality ingredients. In addition, we purchase some ingredients and other materials offshore, and the price and availability of such ingredients and materials may be affected by political events or other conditions in these countries or tariffs, trade wars, or the outbreak of hostilities or war. We also compete with other food producers in the procurement of ingredients, and this competition may increase in the future if consumer demand for plant-based protein products increases. If supplies of quality ingredients are reduced or there is greater demand for such ingredients from us and others, we may not be able to obtain sufficient supply that meets our strict quality standards on favorable terms, or at all, which could materially adversely impact our ability to supply products and may materially adversely affect our business, results of operations, and financial condition. 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. Increasing concentrations of greenhouse gases in the atmosphere have generally been concluded to lead to increased ambient global temperatures, as well as changes in weather patterns and the frequency and severity of extreme weather and natural disasters. Adverse climate conditions, weather patterns, and the impact of such conditions and patterns such as drought, flood, wildfires, and rising ambient temperatures adversely impact product cultivation conditions for farmers and agricultural productivity, including by disrupting ecosystems and severely altering the growing conditions, nutrient levels, soil moisture, and water availability necessary for the growth and cultivation of crops, which would adversely affect the product quality, availability or cost of certain commodities that are necessary for our products, such as flour, paper, and edible oil. Due to climate change, we may also be subjected to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations. These and other changes to the physical environment may adversely impact our operations or those of the suppliers on whom we rely. While we may take various actions to mitigate our business risks associated with climate change, this may require us to incur substantial costs and may not be successful, due to, among other things, the uncertainty associated with managing climate risks. Such climate risks may materially adversely affect our business, results of operations and financial condition. The spread of contagious diseases, natural disasters, severe weather, actual or threatened hostilities or war, terrorist activity, political unrest, civil strife, and other geopolitical uncertainty may cause global economic disruption, and its impact on our business is uncertain. The global economy can be negatively impacted by a variety of factors such as the spread or fear of spread of contagious diseases (such as the COVID-19 pandemic, other pandemics, epidemics, or other public health crises) in locations where our products are sold, man-made or natural disasters, severe weather, actual or threatened hostilities or war, terrorist activity, political unrest, civil strife, and other geopolitical uncertainty. Such adverse and uncertain economic conditions may impact distributor, retailer, foodservice, and consumer demand for our products and may lead to material and volatile increases in commodity pricing of raw materials used by us and in other costs incurred by us. For example, in connection with the war in Ukraine, governments in the U.S., U.K. and the EU have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. The uncertainty resulting from the military conflict in Europe has given rise and may continue to give rise to increases in costs of goods and services, scarcity of certain ingredients, increased trade barriers or restrictions on global trade. Further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which could materially adversely affect our business and/or our supply chain, business partners or customers in the broader region, including potential destabilizing effects that such conflicts may pose for the European continent or the global oil and natural gas markets. In addition, our ability to manage normal commercial relationships with our suppliers, co-manufacturers, distributors, retailers, foodservice customers, consumers, and creditors may suffer. 34 As global economic conditions and commodity pricing of raw materials used by us continue to be volatile or uncertain and recessionary or inflationary pressures exist, trends in consumer discretionary spending also remain unpredictable and subject to changes. We have seen consumers shift purchases to lower-priced or other perceived value offerings during economic downturns as a result of various factors, including job losses, inflation, higher taxes, reduced access to credit, change in federal economic policy and recent international trade disputes. In particular, consumers have reduced the amount of plant-based food products that they purchase where there are conventional animal-based protein offerings, which generally have lower retail prices. In addition, consumers may choose to purchase private label products, rather than branded products, because they are generally less expensive. Distributors, retailers and foodservice customers have become more conservative in response to these conditions and have sought to reduce their inventories. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing distributors, retailer and foodservice customers, our ability to attract new consumers, the financial condition of our consumers and our ability to provide products that appeal to consumers at the right price. Decreases in demand for our products without a corresponding decrease in costs could put downward pressure on margins and may materially adversely impact our financial results and financial position. Prolonged unfavorable economic conditions or uncertainty would be expected to have an adverse effect on our sales and profitability, which could be material, and may result in consumers making long-lasting changes to their discretionary spending behavior on a more permanent basis. The loss of key personnel, or failure to attract and retain other highly qualified personnel in the future, could harm our business. Our success depends to a significant degree upon the continued contributions of our senior operating management, including our co-founders, Reza Soltanzadeh, Chief Executive Officer, and Barthelemy Helg, Non-Executive Chairman of the Board. The loss of the services of Mr. Soltanzadeh or Mr. Helg could have a material adverse effect on our business, results of operations, and financial condition. Our success and future growth also will depend on our ability to attract and retain qualified management, manufacturing, technical and sales and marketing personnel. Competition for such personnel in the industry is intense. There can be no assurance that we will be successful in attracting and retaining such personnel. Our dependence on suppliers may materially adversely affect our operating results and financial position. We have no long-term contracts with our suppliers. Although we attempt to maintain generally a minimum of two vendors for each required food ingredient, certain raw materials and products used by us in processing our products are currently acquired or available from only one source. We have from time-to-time experienced significant delays in the receipt of certain of these ingredients. For example, we have a preferred provider that we rely on for our pea protein, which is an ingredient in our ramen products. In the event of a disruption with our preferred provider, we would source our pea protein from one of our other providers. A failure by a supplier to deliver quality ingredients on a timely basis, or the inability to develop alternative sources if and as required, could result in delays which could 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 must accurately forecast demand for each of our products and inventory needs in order to ensure we have adequate available manufacturing capacity for each such product and to ensure we are effectively managing our inventory. Our forecasts are based on multiple assumptions which may cause our estimates to be inaccurate and affect our ability to obtain adequate manufacturing capacity and adequate inventory supply in order to meet the demand for our products, which could prevent us from meeting increased customer demand and harm our brand and our business and, in some cases, may result in fines or indemnification obligations we must pay customers or distributors if we are unable to fulfill orders placed by them in a timely manner or at all. 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. If demand for our products experiences a prolonged decrease, we may be required to terminate or make penalty-type payments under certain supply chain arrangements, close or idle facilities and write down our long-lived assets or shorten the useful lives of underutilized assets and accelerate depreciation, which would increase expenses. 35 If demand does not materialize at the rate forecasted, we may not be able to scale back our manufacturing expenses or overhead costs quickly enough to correspond to the lower than expected demand. Approximately 74% of our revenue was derived from three customers. If those customers reduce their purchases or cancel their contracts, we would lose most of our current revenue. This could result in lower margins and adversely impact our business, results of operations, and financial position. Additionally, if product demand decreases or we fail to forecast demand accurately, our results may be adversely impacted due to higher costs resulting from lower manufacturing utilization, causing higher fixed costs per unit produced. Further, we may be required to recognize excess or obsolete inventory write-off charges, or excess capacity charges, which would have a material negative impact on our results of operations and financial position. We may experience volatility in costs for ingredients and packaging due to conditions that are difficult to predict. We purchase large quantities of food ingredients. In addition, we purchase and use significant quantities of paper and film to package our products. Costs of food ingredients and packaging are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, weather conditions, consumer demand, and changes in governmental trade and agricultural programs. Volatility in the prices of ingredients and other supplies we purchase could increase our cost of sales and reduce our profitability. Moreover, we may not be able to implement price increases for our products to cover any increased costs, and any price increases we do implement may result in lower sales volumes. If we are not successful in managing our ingredient and packaging costs, if we are unable to increase our prices to cover increased costs or if such price increases reduce our sales volumes, then such increases in costs may materially adversely affect our business, results of operations and financial condition. 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. The market for processing our food products is characterized by rapidly changing technology, evolving industry standards, changes in customer needs and preferences and frequent new product introductions. 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. There can be no assurance that we will be successful in developing new food products or enhancing our existing food products on a timely basis, or that such new food products or enhancements will achieve market acceptance. In addition, there can be no assurance that food products or technologies developed by others will not render our food products or technology uncompetitive or obsolete. Our business depends on our use of proprietary technology relying heavily on laws to protect. Our success and ability to compete is dependent in part upon our technology, although we believe that our success is more dependent upon our development and distribution expertise than our proprietary rights. We rely on a combination of patent, copyright, trademark and trade secret laws, and contractual restrictions to establish and protect our technology. There can be no assurance that the steps taken by us will be adequate to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. 36 Inadequate technical and legal intellectual property (IP) protections could prevent us from defending or securing our proprietary technology and IP. Our commercial success depends in part on our ability to protect our intellectual property and proprietary technologies. We rely on a combination of patent protection, where appropriate and available, copyrights, trade secrets and trademark laws, as well as confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our proprietary technology or permit us to gain or keep a competitive advantage. Our intellectual property consists principally of patents, trademarks, and trade secrets. There can be no assurance about which, if any, patents will issue from these applications, the breadth of any such patents, or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or, if applicable in the future, licensed to us could deprive us of rights necessary for the successful commercialization of products that we may develop. Since patent applications in most countries are confidential for a period of time after filing (in most cases 18 months after the filing of the priority application), we cannot be certain that we were the first to file on the technologies covered in several of the patent applications related to our technologies or products. Patent law can be highly uncertain and involve complex legal and factual questions for which important principles remain unresolved. In the United States, and in many international jurisdictions, policy regarding the breadth of claims allowed in patents can be inconsistent or unclear. The U.S. Supreme Court and the Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, international courts and governments have made, and will continue to make, changes in how the patent laws in their respective countries are interpreted. We cannot predict future changes in the interpretation of patent laws by judicial bodies or changes to patent laws that might be enacted into law by legislative bodies. Any cybersecurity-related attack, significant data breach, or disruption of the information technology systems, infrastructure, network, third-party processors, or platforms on which we rely could damage our reputation and materially adversely affect our business, and financial results. Our operations rely on information technology systems for the use, storage, and transmission of sensitive and confidential information with respect to our customers, our employees, and other third parties. A malicious cybersecurity-related attack, intrusion, or disruption by either an internal or external source or other breach of the systems on which our platform and products operate, and on which our employees conduct business, could lead to unauthorized access to, use of, loss of, or unauthorized disclosure of sensitive and confidential information, disruption of our services, viruses, worms, spyware, or other malware being served from our platform, networks, or systems; and resulting regulatory enforcement actions, litigation, indemnity obligations, and other possible liabilities, as well as negative publicity, which could damage our reputation, impair sales, and harm our business. Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based platform providers of products and services have been and are expected to continue to be targeted. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), phishing, employee theft, or misuse and denial-of-service attacks, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). Cyberattacks may also gain publishing access to our customers’ accounts on our platform, using that access to publish content without authorization. Despite efforts to create security barriers to such threats, it is not feasible, as a practical matter, for us to entirely mitigate these risks. If our security measures are compromised as a result of third-party action, employee, customer, or user error, malfeasance, stolen, or fraudulently obtained log-in credentials or otherwise, our reputation would be damaged, our data, information or intellectual property, or those of our customers may be destroyed, stolen, or otherwise compromised, our business may be harmed and we could incur significant liability. We have not always been in the past and may be unable to in the future to anticipate or prevent techniques used to obtain unauthorized access to or compromise of our systems because they change frequently and are generally not detected until after an incident has occurred. We cannot be certain that we will be able to prevent vulnerabilities in our software or address vulnerabilities that we may become aware of in the future. In the past, we have experienced a cybersecurity-related incident. While it is believed that no information of ours or our customers was compromised as a result of the incident, we cannot be certain that will be the case in the future. Further, as we rely on third-party cloud infrastructure, we depend in part on third-party security measures to protect against unauthorized access, cyberattacks, and the mishandling of data and information. If these third parties fail to adhere to adequate data security procedures, or in the event of a breach of their networks, our own, and our customers’ data may be improperly accessed, used, or disclosed. Any cybersecurity event, including any vulnerability in our software, cyberattack, intrusion, or disruption or any failure or breach unrelated to our own action or inaction, could result in significant increases in costs, including costs for remediating the effects of such an event; lost revenue due to network downtime, a decrease in customer and user trust; increases in insurance premiums due to cybersecurity incidents; increased exposure to a risk of litigation and possible liability; increased costs to address cybersecurity issues and attempts to prevent future incidents; and harm to our business, or financial results, and our reputation because of any such incident. 37 Our existing general liability insurance coverage and coverage for cyber liability or errors or omissions may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims and our insurer may deny coverage with respect to future claims. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, would harm our business. Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of personal data. We are subject to government regulation and industry policy risks that may change and cause us to no longer comply. Our operations are subject to extensive regulation by the U.S. Food and Drug Administration, the U.S. Department of Agriculture and other national, state, and local authorities. Specifically, we are subject to the Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, packaging, and safety of food. Under this program the FDA regulates manufacturing practices for foods through its current good manufacturing practices (“ cGMPs ”) regulations and specifies the recipes for certain foods. Our processing facilities and products are subject to periodic inspection by federal, state, and local authorities. We seek to comply with applicable regulations through a combination of employing internal personnel to ensure quality-assurance compliance (for example, assuring that food packages contain only ingredients as specified on the package labeling) and contracting with third-party laboratories that conduct analyses of products for the nutritional-labeling requirements. Our failure to comply with applicable laws and regulations or maintain permits and licenses relating to our operations could subject us to civil remedies, including fines, injunctions, recalls, or seizures, as well as potential criminal sanctions, which could result in increased operating costs resulting in a material adverse effect on our results of operations and financial condition. We may be subject to changes in laws or regulations that can change on any given day. The manufacture and marketing of food products is highly regulated. We are subject to a variety of laws and regulations, which apply to many aspects of our business, including the sourcing of raw materials, manufacturing, packaging, labeling, distribution, advertising, sale, quality, and safety of our products. Laws and regulations are subject to change or to the adoption of new laws and regulations. Since the food industry is rapidly changing due to technological and other developments, there is a material likelihood that the laws and regulations applicable to us and our business will change or be newly adopted, particularly since we expect to be a developer or early adopter of technological and other developments in the food industry. For example, the FDA and the U.S. Department of Agriculture, other state regulators in the United States, and other similar international regulatory authorities could take action to further impact our ability to use or refer to certain terms to describe or advertise our products. In addition, a food may be deemed misbranded if our labeling is false or misleading in any particular way, and the FDA, CFIA, EU member state authorities or other regulators could interpret the use of a term to describe our plant-based products as false or misleading or likely to create an erroneous impression regarding their composition. Should regulatory authorities take action with respect to the use of a specific term, such that we are unable to use those terms with respect to our plant-based products, we could be subject to enforcement action or could be required to recall our products marketed using these terms. Thus, we may be required to modify our marketing strategy, and our business, financial condition, and results of operations could be adversely affected. Changes in or the adoption of laws and regulations could have a material effect on us, our business, results of operations and financial condition. 38 We are subject to multinational requirements beyond our control. A key component of our strategy is our planned expansion into international markets. There can be no assurance as to our ability to obtain the capital we require to finance our expansion into these markets. In addition, there can be no assurance as to our ability to obtain the permits and operating licenses required for us to operate or to hire and train employees or market, sell, and deliver high quality food products in these markets. In addition to the uncertainty as to our ability to expand our international presence, there are certain risks inherent to doing business on an international level, such as unexpected changes in regulatory requirements, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, political instability, fluctuations in currency exchange rates, seasonal reductions in business activity during the summer months in Europe and certain other parts of the world and potentially adverse tax consequences, which could adversely impact the success of, our international operations. There can be no assurance that such factors will not have a material adverse effect on our future international operations and, consequently, on our business, results of operations and financial condition. Shareholders may experience dilution of their ownership interests if we issue additional capital stock or make investments. We expect to issue additional capital stock in connection with potential future financings, acquisitions, investments, our stock incentive plans, or otherwise. Such issuances will result in dilution to all other shareholders. We expect to grant equity awards to employees, directors, and consultants under our stock incentive plans. We also may raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause shareholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Except as previously reported by Borealis in its Current Report on Form 8-K/A filed with the SEC on April 15, 2024, we did not sell any securities during the period covered by this Quarterly Report that were not registered under the Securities Act. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not Applicable. Item 5. Other Information. None . Item 6. Exhibits. Exhibit Number Description 3.1 Articles of Continuance, dated February 6, 2024. 3.2 By-Laws of Borealis Foods Inc. 3.3 Articles of Amalgamation by Arrangement and Plan of Arrangement, dated February 7, 2024. 3.4 Equity Incentive Plan of Borealis Foods Inc. 31.1 Certification of Principal Executive Officer Pursuant to Rules 13A-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rules 13A-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 39 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 hereunto duly authorized. BOREALIS FOODS INC. Date: May 20, 2024 By: /s/ Reza Soltanzadeh Reza Soltanzadeh Chief Executive Officer & Director Date: May 20, 2024 -and- By: /s/ Stephen Wegrzyn Stephen Wegrzyn Chief Financial Officer 40