Borealis Foods Inc. 10-Q

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. Concentration Risk 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 three customers accounted for approximately 52% and sales to two customers accounted for approximately 74% of net revenues for the three month periods ended June 30, 2024 and 2023, respectively. Sales to three customers accounted for approximately 53% and 74% of net revenues for both the six month periods ended June 30, 2024 and 2023, respectively. Accounts receivable from three and two customers amounted to approximately 55% and 84% of total accounts receivable as of June 30, 2024 and 2023, respectively. Substantially all of the Company’s sales for the six month periods ended June 30, 2024 and 2023 sales occurred in the United States and Canada. Purchases from 10 vendors accounted for approximately 51% and 55% of purchases during the three months ended and 48% and 55% of purchases for the six month periods ended June 30, 2024 and 2023, respectively. Accounts payable to these vendors totaled approximately $689,000 and $971,000 as of June 30, 2024 and 2023, respectively. 35 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 are expected to capture a larger share of consumers. Monetization of future opportunities created by the above investment are expected to be realized in future quarters.