Borealis Foods Inc. 10-Q

Item 1. Financial Statements. Borealis Foods, Inc. and Subsidiaries Unaudited Condensed Consolidated Balance Sheets March 31, 2025 December 31, 2024 (Audited) Assets Current Assets Cash $ 192,536 $ 652,965 Accounts receivable, net of allowance for credit losses of $ 200,000 and $ 247,653 as of March 31, 2025 and December 31, 2024, respectively 1,779,092 1,965,748 Inventories, net 7,751,394 8,046,259 Prepaid expenses and other current assets 848,349 1,134,611 Total current assets 10,571,371 11,799,583 Property, plant and equipment, net 45,272,000 45,736,326 Intangible assets 328,822 319,307 Right - of-use asset, net 53,323 63,826 Goodwill 1,917,356 1,917,356 Other non-current assets 254,685 169,685 Total assets $ 58,397,557 $ 60,006,083 Liabilities and Shareholders' (deficit) Current liabilities: Accounts payable and accrued expenses $ 13,047,438 $ 11,529,803 Due to related parties 16,512,453 7,825,792 Notes payable, current portion, net of capitalized loan costs 5,706,085 5,456,934 Operating lease payable, current portion 51,822 55,116 Finance leases payable, current portion 551,428 538,845 Total current liabilities 35,869,226 25,406,490 Due to related parties, net of current portion - 7,601,661 Line of credit 7,600,000 7,600,000 Convertible notes payable, net of current portion 3,000,000 3,000,000 Notes payable, net of current portion 14,305,366 14,478,051 Operating lease payable, net of current portion 4,183 12,015 Finance leases payable, net of current portion 984,167 1,143,829 Deferred tax liability 1,459,923 1,459,923 Total liabilities 63,222,865 60,701,969 Shareholders' (deficit) Common shares, no par value - - Additional paid-in capital 90,154,854 90,096,688 Accumulated deficit ( 94,980,162 ) ( 90,792,574 ) Total shareholders' (deficit) ( 4,825,308 ) ( 695,886 ) Total liabilities and shareholders' (deficit) $ 58,397,557 $ 60,006,083 See accompanying notes to the unaudited condensed consolidated financial statements. 1 Borealis Foods, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations For Three Months Ended March 31, 2025 2024 Gross sales 7,224,957 8,484,021 Sales discounts & allowances ( 379,287 ) ( 588,588 ) Revenue, net 6,845,670 7,895,433 Cost of goods sold 5,465,314 6,648,272 Depreciation and amortization 480,554 1,004,588 Total cost of goods sold 5,945,868 7,652,860 Gross profit 899,802 242,573 Total sales, general & administrative expenses 3,816,920 7,215,588 Loss from operations ( 2,917,118 ) ( 6,973,015 ) Other (expense): Loss on foreign exchange rates ( 11,047 ) - Interest expense, net ( 1,259,423 ) ( 1,458,607 ) Total other expense ( 1,270,470 ) ( 1,458,607 ) Loss before income taxes ( 4,187,588 ) ( 8,431,622 ) Net loss ( 4,187,588 ) ( 8,431,622 ) Loss per share from net loss Basic $ ( 0.20 ) $ ( 0.49 ) Diluted $ ( 0.20 ) $ ( 0.49 ) Weighted average shares outstanding Basic 21,379,347 17,079,576 Diluted 21,379,347 17,079,576 See accompanying notes to the unaudited condensed consolidated financial statements. 2 Borealis Foods, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) Three Months Ended March 31, 2025 and 2024 Class A Common Stock Class B Common Stock Class C Common Stock Additional Number of Common Number of Common Number of Common Paid-In Accumulated Shares Stock Shares Stock Shares Stock Capital Deficit Total Balance at January 1, 2024 100,000,000 $ - 57,117,774 $ - 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 -- -- -- -- -- -- 54,991,472 -- 54,991,472 from reverse recapitalization Assumption of debt from -- -- -- -- -- -- ( 10,285,918 ) -- ( 10,285,918 ) reverse recapitalization Conversion to Newco shares ( 78,621,110 ) -- ( 57,117,774 ) -- ( 6,345,000 ) -- -- -- -- from reverse recapitalization 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 Balance at January 1, 2025 21,378,890 -- -- -- -- -- $ 90,096,688 $ ( 90,792,574 ) $ ( 695,886 ) Exercise of restricted share units 2,962 -- -- -- -- -- 17,490 -- 17,490 Expense related to restricted share units 40,676 40,676 Net loss -- -- -- -- -- -- -- ( 4,187,588 ) ( 4,187,588 ) Balance at March 31, 2025 21,381,852 $ -- -- $ -- -- $ -- $ 90,154,854 $ ( 94,980,162 ) $ ( 4,825,308 ) Common shares, no par value, unlimited number of shares authorized (21,381,852 issued and outstanding) Class B shares, no par value, unlimited number of shares authorized Class C shares, no par value, unlimited number of shares authorized See accompanying notes to the unaudited condensed consolidated financial statements. 3 Borealis Foods Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2025 Three Months Ended March 31, 2024 Cash Flows from Operating Activities: Net loss $ ( 4,187,588 ) $ ( 8,431,622 ) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash compensation expense related to stock options 58,166 1,273,053 Depreciation and amortization 480,554 994,202 Amortization of loan costs 76,466 77,316 Provision for credit losses ( 47,653 ) 306,000 Provision for inventory reserve ( 126,323 ) 42,449 Changes in operating assets and liabilities: Accounts receivable 234,308 ( 3,300,756 ) Inventories 421,189 99,097 Operating lease ( 624 ) ( 7,395 ) Prepaid expenses and other current assets 201,262 ( 1,551,597 ) Accounts payable and accrued expenses 1,517,638 3,729,820 Net cash used in operating activities ( 1,372,605 ) ( 6,769,433 ) Cash flows from investing activities Purchases of intangible assets ( 9,515 ) - Proceeds from reverse capitalization - 63,575 Purchases of property, plant and equipment, net ( 16,229 ) ( 550,984 ) Net cash used in investing activities ( 25,744 ) ( 487,409 ) Cash flows from financing activities Proceeds from related parties 1,085,000 - Proceeds from convertible notes payable - 3,000,000 Payments on finance leases payable ( 147,080 ) ( 147,738 ) Borrowings on line of credit - 5,000,000 Net cash provided by financing activities 937,920 7,852,262 Net change in cash ( 460,429 ) 595,420 Cash, beginning of period 652,965 7,615,630 Cash, end of period $ 192,536 $ 8,211,050 Supplemental cash flow data Cash paid during the period for: Interest $ 243,500 $ 651,208 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 to the unaudited condensed consolidated financial statements. 4 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies Overview The accompanying unaudited condensed consolidated financial statements include the financial statements of Borealis Foods Inc. (“ Borealis ”), and its subsidiaries: Palmetto Gourmet Foods (Canada) Inc., (“ PGF Canada ”), Palmetto Gourmet Foods, Inc. (“ PGF ”), PGF Real Estate I, Inc. (“ PGF RE I ”), PGF Real Estate II, Inc. (“ PGF RE II ”), and Borealis IP (“ Borealis IP ”) (collectively, the “ Company ”). Borealis is a food technology integrator with a mission to address global food security challenges through the development and commercialization of tasty, affordable and sustainable functional foods. Borealis has developed a range of high-quality, affordable, sustainable, and nutritious premium, ready-to-eat meals sold in the United States, Canada, Central America, South America and Europe. PGF Canada is a holding company, holding the shares of PGF. PGF is a food manufacturing company with a BRC AA+ rated food grade facility. PGF RE I and PGF RE II are holding companies that rent their fixed assets to PGF. Borealis IP holds the intellectual property of the Company. 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, the “Business Combination Agreement”) 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 continues under the name “Borealis Foods Inc.” 5 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) Going Concern The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. For the three months ended March 31, 2025, the Company has incurred recurring losses from operations and negative cash flows from operating activities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after May 20, 2025. Management has implemented several strategic and operational initiatives aimed at improving sales and financial performance. For the three months ended March 31, 2025, the Company significantly reduced sales, general, and administrative expenses by 47 % year-over-year, driven by the conclusion of one-time transaction-related costs and a disciplined reduction in discretionary spending. Gross margin, excluding depreciation, a non GAAP measurement, improved to 20 % from 16 % in the prior year period, reflecting a shift toward higher-margin branded and institutional sales. The Company has not raised external capital in the first quarter of 2025 but is actively evaluating financing alternatives, including debt and equity issuances, to support ongoing operations and strengthen the balance sheet. Management is also aligning inventory and production levels with committed demand from stable institutional customers, which is expected to enhance working capital efficiency and cash flow conversion through the remainder of the year. While these measures represent meaningful progress toward operational stability, the Company’s ability to continue as a going concern remains subject to successful execution of its strategic plan and securing additional financing, if needed. Accordingly, substantial doubt remains about the Company’s ability to continue as a going concern within one year from the date these unaudited condensed consolidated financial statements are issued. 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 U.S. Dollar. We have condensed certain categories of information in our unaudited condensed 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 SEC. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “ 2024 Annual Report ”). 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 sheets and unaudited condensed consolidated statements of operations, changes in shareholders’ 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. 6 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) 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, 2025 and December 31, 2024. 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. The cost of finished goods is determined using the weighted average cost method. 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. Prepaid Expenses Prepaid expenses were approximately $ 848,000 and $ 1,135,000 , composed primarily of prepaid insurance, deposits on inventory purchases and property, plant and equipment purchases, as of March 31, 2025 and December 31, 2024, respectively. Property, Plant and Equipment, net Property, plant, and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets or, where applicable, based on actual machine hours utilized. Management has opted to depreciate the manufacturing lines and related assets using the machine hours method, as it provides a more accurate reflection of the actual utilization and wear of these assets. This approach ensures that the depreciation expense aligns more closely with the assets’ usage patterns, thereby improving the matching of costs with related revenues. 7 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) Property, Plant and Equipment, net (continued) This change in depreciation method was a change in estimate effected by a change in accounting principle and accordingly was accounted for prospectively in accordance with relevant guidance. The change in the method of calculating depreciation resulted in an increase in net income of $ 605,000 for the three months ended March 31, 2025. Since this adjustment is applied prospectively, it has no impact on the financial results for periods prior to June 30, 2024. The total cost basis of machinery subject to depreciation over machine hours was approximately $ 38,601,000 as of March 31, 2025 and December 31, 2024. Straight-line assets: Buildings and improvements 10 - 30 years Furniture, fixtures and equipment 3 - 15 years Machine hours assets: Furniture, fixtures and equipment 89,232 machine hours 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. Intangible Assets Patents are recorded at cost and are amortized on a straight-line basis over their estimated useful lives. The carrying value of patents is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 unaudited condensed consolidated statements of operations. Loan costs are shown as reduction of related debt balances for financial statement presentation. 8 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) 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 months ended March 31, 2025 and 2024. Amounts Due to Related Parties Amounts due to related parties (Company shareholders and entities controlled by Company shareholders) totaled $ 16,512,453 as of March 31, 2025 and $ 15,427,453 as of December 31, 2024. This related party liability is comprised of multiple notes payable to a shareholder in the amount of $ 8,025,790 and $ 7,325,790 as of March 31, 2025 and December 31, 2024, respectively, and is due on demand and bears interest at 10 % annually. An additional note payable to a shareholder in the amount of $ 500,000 as of March 31, 2025 and December 31, 2024, bears interest at 10 % annually and is due December 31, 2025. Additional notes payable to a shareholder in the amount of $ 385,000 as of March 31, 2025, bears interest at 10 % annually and are due on demand. The remaining $ 7,601,661 shareholder note payable was a result of expenses recognized by Oxus and resulted in reduction of contributed equity at the Reverse Recapitalization. This note matures in February 2026 after extension and is non-interest bearing. Related parties debt balances outstanding as of March 31, 2025 are due as follows: $ 8,911,000 in 2025 and $ 7,602,000 in 2026. The salary of the Company’s CEO was accrued and not paid during the first quarter. The Company recorded approximately $ 100,000 in accrued payroll expense to reflect compensation for services performed. 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. No impairment losses were recorded for three months ended March 31, 2025 and 2024. 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 were approximately $ 7,225,000 and $ 8,484,000 for the three months ended March 31, 2025 and 2024, respectively. Total payment discounts and promotions were approximately $ 379,000 and $ 589,000 resulting in net revenues of approximately $ 6,846,000 and $ 7,895,000 for the three months ended March 31, 2025 and 2024, respectively. 9 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) Revenue and Cost Recognition and Accounts Receivable (continued) 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. 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 months ended March 31, 2025 and 2024 totaling approximately $ 201,000 and $ 482,000 , due to PGF adding production capabilities during both periods. Such amounts are recorded in sales, general and administrative costs in the accompanying unaudited condensed consolidated statement of operations as these costs are 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 sales, general and administrative expenses. Advertising costs expensed for the three months ended March 31, 2025 and 2024 were approximately $ 566,000 and $ 1,526,000 , respectively. 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, 2025 and 2024 were approximately $ 52,000 and $ 37,000 , respectively, and are included in sales, general, and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. 10 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) 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 months ended March 31, 2025 and 2024 were approximately $ 607,000 and $ 759,000 , respectively. Business development expenses are included in sales, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. 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 the marketing representative’s 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. 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. Transaction Costs On February 23, 2023, Legacy Borealis entered into a definitive business combination agreement with Oxus, which was consummated on February 7, 2024 and is described further in Note 1. In connection with this agreement, the Company has incurred transaction costs of approximately $ 0 and $ 1,506,000 for the three months ended March 31, 2025 and 2024, respectively. Transaction costs have been expensed as incurred and are included in sales, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. Concentration of Risk At times the Company maintains cash balances at financial institutions in excess of federally insured limits. 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. 11 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) Concentration of Risk (continued) 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 10% 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 four customers accounted for approximately 60 % and sales to two customers accounted for approximately 58 % of net revenues for March 31, 2025 and 2024, respectively. Accounts receivable from two and three customers amounted to approximately 35 % and 37 % of total accounts receivable as of March 31, 2025 and December 31, 2024, respectively. Substantially all of the Company’s sales for the three months ended March 31, 2025 and 2024 occurred in the United States, Canada, Central America, South America, and Europe. Purchases from 10 vendors accounted for approximately 46 % and 57 % of purchases during the three months ended March 31, 2025 and 2024, respectively. Accounts payable to these vendors totaled approximately $ 2,678,000 and $ 1,880,000 as of March 31, 2025 and 2024, 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. The hierarchy is condensed 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. 12 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) Fair Value Measurements (continued) 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 unaudited condensed consolidated balance sheets for 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, 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, 2025 and December 31, 2024. 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. Stock Based Compensation The Company accounts for its stock compensation arrangements at fair value in accordance with Accounting Standards Codification (“ ASC ”) 718 - Compensation - Stock Compensation. Compensation cost relating to share-based payment transactions is recognized in the Company’s unaudited 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 date 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 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 year end date while the warrants are outstanding. It was determined at the date of completion of the Reverse Capitalization that there were no changes to the classes or language that would impact the original assessment that the warrants should be classified as equity. 13 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies (continued) Shipping and Handling Costs Shipping and handling costs are expensed as incurred and are included in sales, general and administrative expense in the unaudited condensed consolidated statements of operations. Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“ FASB ”) issued Accounting Standards Update (“ ASU ”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , to enhance transparency into income tax disclosures. The amendments require annual disclosure of certain information relating to the rate reconciliation, income taxes paid by jurisdiction, income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure relating to subsidiaries and corporate joint ventures. The ASU is effective for years beginning after December 15, 2024, and interim periods within years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures which requires entities to (i) disclose amounts of (a) purchase of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil-and gas-producing activities, (ii) include certain amounts that are already required to be disclosed under current U.S. GAAP in the same disclosures as other disaggregation requirements, (iii) disclose a qualitative description of the amounts remaining in relevant expense captions that are not necessarily disaggregated quantitatively, and (iv) disclose the total amount of selling expenses, in annual reporting periods, an entity’s definition of selling expense. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating ASU 2024-03 to determine the impact it may have on its condensed consolidated financial statements. 2. Inventories, net Inventories were as follows: March 31, 2025 December 31, 2024 Raw materials $ 6,101,780 $ 6,712,529 Finished goods 2,415,373 2,225,813 Reserve for obsolete inventory ( 765,759 ) ( 892,083 ) $ 7,751,394 $ 8,046,259 14 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 3. Property, Plant and Equipment, net Property, plant and equipment were as follows: March 31, 2025 December 31, 2024 Building and improvements $ 10,110,188 $ 10,110,188 Furniture, fixtures and equipment 48,512,919 48,517,228 Construction in progress 899,758 879,220 59,522,865 59,506,636 Less: accumulated depreciation ( 14,250,865 ) ( 13,770,310 ) $ 45,272,000 $ 45,736,326 Depreciation and amortization expense recorded in the three months ended March 31, 2025 and 2024 was approximately $ 481,000 and $ 994,000 , 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, had a stated maturity of February 2024 (unless converted) and bore 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 were convertible, at the option of the holder, into common shares of the Company. The notes and accrued interest were converted into 2,189,997 common shares with the consummation of the Reverse Recapitalization with Oxus. In 2022, the Company issued $ 4,800,000 in convertible notes payable. During 2023, $ 4,500,000 of the notes matured without conversion and were repaid by the Company. The remaining $ 300,000 of convertible notes payable bore interest at 10 % annually and, after an extension was negotiated, had a state maturity of February 2024 (unless converted). The outstanding principal and interest under the remaining convertible notes were convertible, at the option of the holder, into the same equity as issued upon the Company’s issuance of preferred or common shares of at least $ 10,000,000 . The notes and accrued interest thereon were converted into 40,544 common shares 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 had a maturity date in 2024 (unless converted) and bore 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 were convertible, at the option of the holder, into common shares of the Company. The notes and accrued interest were converted into 3,787,585 common shares in connection with the consummation of the Reverse Recapitalization with Oxus. 15 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 4. Debt (continued) 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 shares of at least $ 10,000,000 (a “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 had a maturity date in 2024 (unless converted) and bore interest at 10 % annually. The note was converted into 375,925 common shares 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 its then existing line of credit. In March 2024, the Company entered into an amendment that extended the date of the first principal payment to March 2025. In February 2025, a second amendment was executed that extended the first principal payment date to September 2025. Under the amendment, payments of $ 83,000 are due monthly beginning in September 2025 with a lump sum payment of $ 14,083,000 due at maturity. Interest accrues at the prime rate plus an applicable margin of 4.75 % per annum and is payable monthly. The financing agreement is secured by a collateral package that includes substantially all of the assets of PGF, PGF RE I, and PGF RE II. Amortization expense of approximately $ 76,000 and $ 77,000 was recorded on the capitalized loan fees for the three months ended March 31, 2025 and 2024, respectively. 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, 2025 and December 31, 2024 the line of credit had $ 7,600,000 drawn upon it. 16 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 4. Debt (continued) In the period leading up to the Reverse Recapitalization, significant transaction costs were incurred by both parties. In total, three notes payable of $ 5,433,713 were issued for the transaction debt. Details for the notes are as follows: Note 1 – Incurred by Borealis. The related expenses were recognized as incurred by Borealis and the trade payable was subsequently reclassified to notes payable. Note 1 was issued in the original principal amount of $ 2,138,838 . The note has been extended with a maturity date in July 2025 , and bears interest at 10 % per annum. Note 2 – Incurred by Borealis. The related expenses were recognized as incurred by Borealis and the trade payable was subsequently reclassified to notes payable. Note 2 was issued in the original principal amount of $ 1,314,875 . The note has been extended with a maturity date in July 2025 , and bears interest at 10 % per annum. Note 3 – Incurred by Oxus. The related expenses were recognized by Oxus and resulted in a reduction of contributed equity at the Reverse Recapitalization. Note 3 was issued in the original principal amount of $ 1,980,000 . The note has been extended with a maturity date in June 2025 , and bears interest at 8 % per annum. Debt balances outstanding as of March 31, 2025 are due as follows: $ 5,767,000 in 2025 and $ 25,267,000 in 2026; $ 0 in 2027; and $ 0 in 2028. 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 months ended March 31, 2025 and 2024 was $ 0 , respectively, on a consolidated pre-tax book loss of approximately $ 4,188,000 and $ 8,432,000 in the three months ended March 31, 2025 and 2024, 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. 17 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 5. Income Taxes (continued) 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 unaudited condensed consolidated financial statements or related disclosures. As a result, at March 31, 2025, and 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, 2025. 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. 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 as of March 31, 2025 and December 31, 2024: Description Issue Date Classification Exercise Price Expiration Date Outstanding Shares Exercisable Shares Private Placement Warrants 9/13/21 Equity $ 11.50 2/7/29 9,300,000 9,300,000 Public Warrants 9/13/21 Equity $ 11.50 2/7/29 17,250,000 17,250,000 26,550,000 26,550,000 Following the closing of the Reverse Recapitalization, 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 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 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 due to the expiration of the transfer of the private placement warrants 30 days after the completion of the Reverse Recapitalization. 18 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 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 common shares. 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 months ended March 31, 2025 and 2024, the Company granted options to purchase 0 and 333,574 shares, respectively, of the Company’s common shares 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 % For the three months ended March 31, 2025 and 2024, the Company recorded approximately $ 0 and $ 1,273,000 , respectively, of stock-based compensation expense under this plan. 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 common stock. This stock option plan was closed upon the business combination and a new equity incentive plan was approved and implemented as of February 7, 2024. Stock option activity for the three months ended March 31, 2024 is summarized as follows: Shares Weighted Average Exercise Price Weighted Remaining Contractual Life(Years) 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 — — — For the three months ended March 31, 2025, the Company issued 16,916 restricted stock units under the new equity incentive plan, that vest over a three-to-six-month period. The Company recognized approximately $ 58,000 of stock compensation related to such restricted stock units and 2,962 of such units were exercised during the three months ended March 31, 2025. 19 Borealis Foods Inc. and Subsidiaries Notes to the Unaudited Condensed Consolidated Financial Statements 9. Earnings per share Basic earnings or loss per share is based on the weighted average 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. Basic (loss) per share calculation For Three Months Ended March 31, 2025 March 31, 2024 Net (loss) available to common shareholders $ ( 4,187,588 ) $ ( 8,431,622 ) Weighted average common shares outstanding (basic) 21,379,347 17,079,576 Basis (loss) per share from net loss $ ( 0.20 ) $ ( 0.49 ) Diluted (loss) per share calculation Net (loss) available to common shareholders $ ( 4,187,588 ) $ ( 8,431,622 ) Weighted average common shares outstanding (basic) 21,379,347 17,079,576 Warrants — — Weighted average common shares outstanding (diluted) 21,379,347 17,079,576 Diluted (loss) per share from net loss * $ ( 0.20 ) $ ( 0.49 ) * 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. Segment Reporting The Company has a single reportable segment focused around the sale of similar products. This reportable segment derives revenues from the manufacture and sale of high quality, affordable and nutritious ready to eat meals. The Company’s chief operating decision-maker (the “ CODM ”), who is the chief executive officer, assesses performance for the reportable segment and decides how to allocate resources using net income (loss) as the primary measure of profitability. The CODM is not regularly provided with specific segment expenses, but focuses on revenue, gross profit, and net income (loss). Expense information, including cost of sales can be easily computed from the provided information. These segment (and consolidated) measures of profitability are shown in the unaudited condensed consolidated statements of operations. The measure of segment assets is reported on the consolidated balance sheets as total assets. 11. Subsequent Events The Company evaluated events and transactions after March 31, 2025 through May 20, 2025, the date the unaudited condensed consolidated financial statements were issued, for subsequent events requiring disclosure in these unaudited condensed consolidated financial statements. Subsequent to March 31, 2025, the Chairman and Chief Executive Officer advanced funds to the Company in the amounts of $ 1,500,000 and $ 200,000 , respectively. In addition, the Chief Executive Officer deferred approximately $ 69,000 in compensation through May 20, 2025. 20