What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-14 · 161 added, 175 removed, 99 unchanged (77% of the section changed)

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 our 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.

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 our Annual Report filed on Form 10-K for the year ended December 31, 2023 (“ Annual Report ”) and our Form 8-K/A filed with the Securities and Exchange Commission (“ SEC ”) on April 15, 2024.

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.

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.

Borealis Foods is a pioneering, integrated food manufacturing company with a mission to disrupt and elevate the ready-to-eat meal and dry soup categories by offering premium and super-premium, nutritious products.

Known for popular ramen noodle brands like the high protein Chef Woo, Ramen Express, and Woodles, Borealis Foods brings innovative fusion flavors from diverse culinary traditions, creating delicious and nutritious meal options for consumers.

With U.S.-based production facilities, the company’s portfolio reflects a commitment to quality, innovation, and sustainability.

An essential aspect of Borealis Foods' success is its strategic partnerships with prominent national and international food producers, retailers, and distributors.

Serving as an innovation partner to global food leaders, Borealis Foods leverages these collaborations to expand its offerings, enhance technological capabilities, and deliver food products that embody its values of healthy nutrition, innovation, and sustainability.

The Reverse Recapitalization

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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.

The Reverse Recapitalization (continued)

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.

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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.

For accounting purposes, Legacy Borealis was deemed to be the accounting acquirer 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.

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Results of Operations

Comparison of the Six Months Ended June 30, 2024 and 2023

Comparison of the Three Months Ended September 30, 2024 and 2023

The following sets forth a summary of our results of operations for the presented months ($ in thousands):

For the Six Months Ended, June 30,

Three Months Ended September 30,

2024 (Unaudited) 2023 (Unaudited) 2024 vs 2023

3 unchanged sentences

Revenue, net 7,688 7,726 (38) — %

Cost of goods sold 5,953 77 % 7,206 93 % (1,253) (16) %

Depreciation 462 6 % 997 13 % (535) (7) %

Total cost of goods sold 6,415 83 % 8,203 106 % (1,788) (23) %

Gross profit (loss) 1,273 17 % (477) (6) % 1,750 23 %

Total sales, marketing and business development 3,950 30% 1,896 13% 2,054 17%

Total training 887 7% 1,479 10% (592) (3)%

Total general & administrative expenses 7,990 60% 6,254 42% 1,736 18%

12,827 97% 9,629 65% 3,198 32%

Sales & marketing 1,123 15 % 312 4 % 811 11 %

Business development 1,307 17 % 196 3 % 1,111 14 %

Training 478 6 % 652 8 % (174) (2) %

General & administrative expenses 1,986 26 % 2,786 36 % (800) (10) %

Total sales, general & administrative expenses 4,894 64 % 3,946 51 % 948 13 %

Loss from operations (3,621) (47) % (4,423) (57) % 802 10 %

3 unchanged sentences

Net loss $ (4,832) (63) % $ (6,585) (85) % $ 1,753 22 %

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 six months ended June 30, 2024, net sales decreased by $1.6 million or 11%, over the six months ended June 30, 2023 due to pricing negotiations with our largest customer and significant price reductions.

At the end of 2023, management chose to seek to improve profitability through customer and product mix diversification.

Our strategic approach to product diversification and market adaptability is yielding positive results.

By balancing our portfolio, tapping into new segments, and re-engaging with existing products, we believe that we are well-positioned for sustained growth.

We believe this data underscores our resilience and strategic vision in navigating market dynamics and driving business success.

Our efforts in diversifying our client base and strengthening relationships have resulted in notable improvements, setting a positive trajectory for anticipated sustained growth.

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, strategic partnerships with major multi-national food companies and institutional sales are expected to commence in third and fourth quarters of 2024.

Sales discounts and allowances increased to 6% of net sales in the second fiscal quarter of 2024 from 5% in the corresponding quarter of 2023.

This increase can be attributed primarily to changes in product mix and a 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 $3.6 million in the six months ended June 30, 2024, representing a 14% improvement as a percentage of net sales compared to the six months ended June 30, 2023.

Cost of goods sold is divided into five categories:

raw material costs, direct and indirect labor, overhead costs (primarily energy expenses) and depreciation.

We are seeking to optimize our supply chain with better pricing from suppliers as inflation pressures decrease.

We experienced a decrease 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 12%.

As we increase our plant utilization the labor and overhead rates, as a percentage of sales are expected to improve.

Depreciation Expense.

Depreciation expense decreased by $0.5 million in the six months ended June 30, 2024, and as a percentage of sales, it decreased 2%, compared to the six months ended June 30, 2023.

Following a comprehensive review in the first quarter of 2024, management has decided to adopt a machine-hour-based depreciation method for its manufacturing lines and related assets.

We believe this new approach better aligns with the actual usage and utilization of the assets.

As a result, effective April 1, 2024, the Company changed its estimates of the useful lives of its machinery to better reflect the estimated periods during which these assets will remain in service.

The estimated useful lives of the machinery and equipment that was previously calculated in years were changed to hours of production method.

Gross Profit.

Gross profit increased by $2.0 million, or 14%, as a percentage of net sales for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Gross profit improvement is a direct result of customer diversification and product mix.

During the second quarter of 2024, higher margin products accounted for 55% of net sales, for the six months ended June 30, 2024 compared to 7% for the six months ended June 30, 2023.

By the end of the second quarter of 2023, raw material pricing began to stabilize from the peaks observed in 2022.

During the first quarter of 2024, a major retailer requested significant price deductions by way of promotions.

Management’s decision in not agreeing to price deductions resulted in our ability to manage customer and product mix which contributed to our gross profit improvement for the six month period.

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 costs decreased by 3% as a percentage of net sales during the six months ended June 30, 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, improving Borealis' competitive position to compete in the highly competitive food sector on a global scale.

Sales, Marketing and Business Development .

Sales, Marketing and Business Development expenses increased by $2.1 million in the six months ended June 30, 2024, representing a 17% increase as a percentage of net sales compared to the Sales and Marketing expenses in the six months ended June 30, 2023.

We allocate a significant portion of our Sales and Marketing budget to cover various expenses, including personnel costs, advertising expenditures, and associated occupancy expenses.

The increase in Sales, Marketing, Business Development expenses is primarily attributable to one time business development costs to Walmart and Sam’s Club of $1.4 million in the Second quarter, brand ambassador costs $0.8 million and Feeding America $0.2 million are included in the six months ended June 30, 2024.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.

General and Administrative expenses increased by $1.7 million and represented 60% of net sales in the six months ended June 30, 2024 compared to 42% in the six months ended June 30, 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 $0.7 million, insurance increased $0.1 million due to additional insurance as a result of the Reverse Recapitalization, and increase of $1.1 million in stock compensation expense during the first quarter of 2024 as a result of stock options fully vesting and converting into shares of the Company in conjunction with the Reverse Recapitalization.

Other Expense (Income).

Other expenses decreased by $0.7 million in the six months ended June 30, 2024, with interest expenses accounting for a significant portion of the decrease in conjunction with the Reverse Recapitalization.

Other expense decreased by 3% as a percentage of sales over the six months ended June 30, 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.

Comparison of the Three Months Ended June 30, 2024 and 2023

Other financial Data

Adjusted EBITDA

$ 17 — % $ (921) (12) % $ 939 12 %

Adjusted EBITDA is a non-GAAP financial metric.

See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Revenue Performance

In line with Borealis' strategy, we have concentrated our resources on high-margin, premium products like Chef Woo and Woodles, which together represented 39% of quarterly revenue during the third quarter of 2024.

This pivot, involving significant upfront investment in repositioning our product lineup, has improved our overall margin, with the monetization of related marketing and business development expenses expected to be realized over the next quarters.

For the three months ended September 30, 2024, Borealis reported gross sales of $8.08 million, a modest decrease of 2.3% from $8.27 million in the same period in 2023.

This decrease primarily reflects lower demand for Ramen Express noodles, driven by inflationary pressures and competitive dynamics dampening demand for these lower-margin offerings.

However, our premium products, which we believe hold a unique position within the noodle industry, have contributed to a 48% growth in gross revenue since the second quarter of 2024.

We believe that our premium products face limited competition and are well-positioned for long-term growth and profitability in a growing, health-focused market segment.

Cost of Goods Sold (COGS) and Gross Profit

Our strategic shift towards high-margin products has enabled a substantial improvement in cost efficiencies in the three months ended September 30, 2024.

COGS was $6.42 million during the third quarter of 2024, or 83% of net revenue, marking a reduction from 106% of net revenue in the comparable period of 2023.

This 23% improvement reflects a favorable product mix, notably with contributions from Chef Woo and Woodles, which benefit from top-line revenue growth and optimized supply chain efficiencies.

Consequently, Borealis reported a gross profit of $1.27 million for the quarter, achieving a 17% gross margin—up from a negative margin of (6%) in the third quarter 2023.

Our gross margin saw substantial growth of 201% in the three months ended September 30, 2024, compared to the previous three months ended June 30, 2024, with gross margins of $1.27 million versus $0.42 million, respectively.

Gross margin improved from 8% to 17% over this period, underscoring our continued focus on cost efficiency and operational improvements.This improvement is a direct result of our efforts to align product offerings with evolving consumer preferences for premium, protein-rich meals.

As our Chef Woo footprint expands within the United States and Canada advertising spend on brand development increases, while Woodles increase is associated with business development.

As brand awareness expands our footprint, the food industry has entered a time of aggressive promotions and discounts driving demand.

Operating Expenses

Operating expenses increased during the three months ended September 30, 2024 by 13% over the three months ended September 30, 2023, totaling $4.89 million or 64% of net revenue.

Key factors contributing to this increase include:

Operating Expenses (continued)

Sales & Marketing :

Expenditures in the quarter rose to $1.12 million (15% of net revenue), up from $0.31 million (4%) in the comparable period of 2023, primarily due to marketing and brand development efforts supporting Chef Woo and Woodles.

Significant expenses included social media advertising on platforms like Google and Facebook, in-store promotions at Walmart and Sam’s Club, and engagement of influencers and brand ambassadors.

Our multi-platform approach is designed to leverage AI-driven geotargeting and social media engagement to support product visibility, focusing on high-ROI channels.

Significant marketing spend was allocated to Chef Woo and Woodles, which we believe have shown strong consumer acceptance.

Business Development :

Expenses in the quarter rose to $1.32 million during the third quarter of 2024, reflecting our commitment to expanding distribution channels, conducting market research, and strengthening brand equity in key segments.

Investing in new sales channels such as Woodles, beginning in this quarter and the expansion into other highly nutritious meals drives our market expansion.

This represents 17% of net revenue during the third quarter of 2024, a 14% increase from the third quarter of 2023, as Borealis prioritizes growth in high-demand markets.

General and Administrative (G&A) :

G&A expenses improved to $1.99 million (26% of net revenue) during the third quarter of 2024 compared to $2.79 million (36%) in the previous year’s third quarter.

This decrease is primarily due to decreased professional fees as administrative expenses have been optimized to reflect the needs of a public company while controlling incremental costs.

Efforts are underway to refine organizational structure and streamline back-office functions to further support scalability.

For the three months ended September 30, 2024, Borealis reported a net loss of $4.83 million, a modest improvement from a net loss of $6.59 million in the prior year.

This improvement is driven by favorable product mix adjustments and effective cost management, particularly in areas of high-margin product lines.

The impact of interest expense of $1.20 million, or 25% of the net loss and depreciation expense of $0.47 million or 10%of the net loss, coupled with professional fees and other expenses of $0.26 million or 5% of the net loss are all associated with being a newly listed publicly traded entity.

Comparison of the Nine months ended September 30, 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, June 30,

Nine Months Ended September 30,

2024 (Unaudited) 2023 (Unaudited) 2024 vs 2023

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Revenue, net 20,909 22,527 (1,618)

Cost of goods sold 17,110 82 % 21,450 95 % (4,340) (13) %

Depreciation 1,861 9 % 2,938 13 % (1,077) (4) %

Total cost of goods sold 18,971 91 % 24,388 108 % (5,417) (17) %

Gross profit (loss) 1,938 9 % (1,861) (8) % 3,799 17 %

Total sales, marketing and business development 2,402 45% 1,606 25% 796 20%

Total training 405 8% 699 11% (294) (3)%

Total general & administrative expenses 2,805 53% 3,104 48% (299) 5%

Sales & marketing

5,074 24 % 1,677 7 % 3,397 17 %

Business development

2,476 12 % 435 2 % 2,041 10 %

Training 1,364 7 % 2,130 9 % (766) (2) %

General & administrative expenses

8,808 42 % 9,333 41 % (525) 1 %

Total sales, general & administrative expenses 17,722 85 % 13,575 60 % 4,147 25 %

Loss from operations (15,784) (75) % (15,436) (69) % (348) (5) %

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Income tax expense

(15) — % (15) — % — — %

Net loss $ (19,562) (94) % $ (20,823) (92) % 1,261 (2) %

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 June 30, 2024, net sales decreased by $1.1 million, or 17%, over the three months ended June 30, 2023 due to pricing negotiations with our largest customer and significant price reductions.

At the end of 2023, management chose to seek to improve profitability through customer and product mix diversification.

We believe that, despite the challenges over the past quarters, our customer revenue mix highlights resilience and strategic gains across key customer segments.

Our efforts in diversifying our client base and strengthening relationships have resulted in notable improvements, setting a positive trajectory for anticipated sustained growth.

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, strategic partnerships with major multi-national food companies and institutional sales are expected to commence in third and fourth quarters of 2024.

Sales discounts and allowances decreased to 3% of net sales in the second fiscal quarter of 2024 from 6% 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 $2.6 million in the three months ended June 30, 2024, representing a 24% improvement as a percentage of net sales compared to the three months ended June 30, 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 seeking to optimize our supply chain with better pricing from suppliers as inflation pressures decrease.

As we increase our plant utilization the labor and overhead rates, as a percentage of sales are expected to improve.

Depreciation Expense.

Depreciation expense decreased by $0.6 million in the three months ended June 30, 2024, and as a percentage of sales, it decreased 8%, compared to the three months ended June 30, 2023.

Following a comprehensive review in the first quarter of 2024, management has decided to adopt a machine-hour-based depreciation method for its manufacturing lines and related assets.

We believe that this new approach better aligns with the actual usage and utilization of the assets.

As a result, effective April 1.

2024, the Company changed its estimates of the useful lives of its machinery to better reflect the estimated periods during which these assets will remain in service.

The estimated useful lives of the machinery and equipment that was previously calculated in years were changed to hours of production method.

Gross Profit.

Gross profit increased by $1.5 million, or 24%, as a percentage of net sales for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Gross profit improvement is a direct result of customer diversification and product mix.

During the second quarter of 2024, higher margin products accounted for 22% of net sales, for the three months ended June 30, 2024 compared to 7% for the three months ended June 30 2023.

By the end of the second quarter of 2023, raw material pricing began to stabilize from the peaks observed in 2022.

During the first quarter of 2024, a major retailer requested significant price deductions by way of promotions.

Management’s decision in not agreeing to price deductions resulted in our ability to manage customer and product mix which contributed to our gross profit improvement for the quarter.

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 costs decreased by 3% as a percentage of net sales during the three months ended June 30, 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, improving Borealis' competitive position in the highly competitive food sector on a global scale.

Sales, Marketing and Business Development .

Sales, Marketing and Business Development expenses increased by $0.8 million in the three months ended June 30, 2024, representing a 20% increase as a percentage of net sales compared to the Sales and Marketing expenses in the three months ended June 30, 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, Marketing and Business Development expenses is primarily attributable to one time business development costs to Walmart and Sam’s Club of $1.2 million, brand ambassador costs $0.4 million and Feeding America $0.2 million are included in the three months ended June 30, 2024.

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 alliance to drive sales.

General and Administrative expenses decreased by $0.3 million and represented 53% of net sales in the three months ended June 30, 2024 compared to 48% in the three months ended June 30, 2023.

The increase is primarily due to professional fees incurred, in connection with now being publicly traded, of approximately $0.6 million.

Salaries and benefits increased by $0.5 million, insurance increased $0.5 million due to additional insurance as a result of the Reverse Recapitalization, and increased freight costs of $0.7 million as a result of customer diversification.

Other Expense (Income).

Other expenses decreased by $0.7 million in the three months ended June 30, 2024, with interest expenses accounting for a significant portion of the decrease in conjunction with the Reverse Recapitalization.

Other expense increased by 8% as a percentage of sales over the three months ended June 30, 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.

Other financial Data

Adjusted EBITDA

$ (1,961) (9) % $ (3,695) (16) % 1,734 7 %

Adjusted EBITDA is a non-GAAP financial metric.

See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Revenue Performance

In line with our strategy, Borealis has prioritized high-margin, premium products like Chef Woo and Woodles, which together contributed 41% of year-to-date revenue.

This pivot has strengthened profitability and supports Borealis’s gradual shift away from lower-margin categories.

For the nine months ended September 30, 2024, Borealis reported gross sales of $22.03 million, a slight decrease of 8% from $23.87 million in the comparable period of 2023.

This decline is largely due to reduced performance in Ramen Express noodles, as inflationary pressures and competitive dynamics dampened demand for these lower-margin offerings.

We believe that our premium products occupy a unique space within the noodle industry, facing limited competition in a growing, health-focused market segment.

We believe this positioning enhances our ability to capture long-term value and sustain profitable growth.

Cost of Goods Sold (COGS) and Gross Profit

Our strategic shift towards high-margin products has enabled a substantial improvement in cost efficiencies.

COGS was $18.97 million during the nine months ended September 30, 2024, or 91% of net revenue, marking a reduction from 108% of net revenue in the comparable period of 2023.

This 18% improvement reflects a favorable product mix, particularly with contributions from Chef Woo and Woodles, which benefit from lower raw material costs and optimized supply chain efficiencies.

Consequently, Borealis reported a gross profit of $1.94 million year-to-date, achieving a 9% gross margin—up from a negative margin of (8%) in the comparable period of 2023.

This improvement is a direct result of our efforts to align product offerings with evolving consumer preferences for premium, protein-rich meals.

As our Chef Woo footprint expands within the United States and Canada advertising spend on brand development increases, while Woodles increase is associated with business development.

As brand awareness expands our footprint, the food industry has entered a time of aggressive promotions and discounts driving demand.

Operating Expenses

Operating expenses increased during the nine months ended September 30, 2024 by 25% over the nine months ended September 30, 2023, totaling $17.72 million or 85% of net revenue.

Key factors contributing to this increase include:

Sales & Marketing:

Expenditures on sales and marketing rose to $5.07 million (24% of net revenue) during the nine months ended September 30, 2024, up from $1.68 million (7%) in the comparable 2023, primarily due to promotional efforts supporting Chef Woo noodles and Woodles.

Significant expenses included social media advertising on platforms like Google and Facebook, in-store promotions at Walmart and Sam’s Club, and engagement of influencers and brand ambassadors.

Our multi-platform approach is designed to leverage AI-driven geotargeting and social media engagement to support product visibility, focusing on high-ROI channels.

Significant marketing spend was allocated to Chef Woo and Woodles, which we believe have shown strong consumer acceptance .

Business Development:

Expenses rose to $2.48 million during the nine months ended September 30, 2024, reflecting our commitment to expanding distribution channels, conducting market research, and strengthening brand equity in key segments.

Investing in new sales channels such as Woodles, beginning in this quarter and the expansion into other highly nutritious meals drives our market expansion.

This represents 12% of net revenue, a 10% increase from 2023, as Borealis prioritizes growth in high-demand markets.

General and Administrative (G&A):

G&A expenses rose to $8.81 million (42% of net revenue) during the nine month ended September 30, 2024 compared to $9.33 million (41%) in the comparable period of previous year.

This increase is primarily due to staffing for expanded operations, professional fees linked to the Reverse Recapitalization, and incremental costs associated with being a publicly traded company.

Administrative expenses have been optimized to reflect the needs of a public company while controlling incremental costs.

Efforts are underway to refine organizational structure and streamline back-office functions to further support scalability.

For the nine months ended September 30, 2024, Borealis reported a net loss of $19.56 million, a modest improvement from a net loss of $20.82 million in the prior year.

This improvement is driven by favorable product mix adjustments and effective cost management, particularly in areas of high-margin product lines.

The impact of interest expense of $3.77 million, or 19%of the net loss and depreciation expense $1.86 million, or 10%of the net loss, coupled with professional fees and other expenses of $1.70 million, or 9%of the net loss are all associated with being a newly listed publicly traded entity.

Looking forward, Borealis is committed to scaling high-margin, premium products while managing the phased transition away from legacy offerings.

The company expects robust demand for Chef Woo and Woodles, with new retail partnerships and distribution channels expanding our market reach in the upcoming quarters.

While inflationary pressures and raw material costs remain a concern, we are confident in our ability to leverage cost efficiencies and strategic pricing to maintain margins.

Management remains focused on bolstering our market position through innovation, cost management, and disciplined growth initiatives.

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 the transaction 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’ 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 transaction 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 June 30, 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 meet its anticipated funding needs through June 30, 2025.

The amount of additional capital required to fund Borealis through June 30, 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.

Borealis has undergone significant changes in its capital structure, operational funding, and financial strategy following its Reverse Recapitalization with Oxus Acquisition Corp.

As of September 30, 2024, Borealis continues to pursue a growth-oriented approach to expand its market presence and product offerings in the high-demand, plant-based food sector.

The Company's liquidity and capital

Liquidity and Capital Resources (continued)

resources and operational and financing activities reflect a balance between maintaining liquidity and pursuing strategic growth investments and the Company expects to continue to monitor and adjust its operational and financing activities in response to its liquidity and capital resources available from time to time.

The following table sets forth our cash flows for the periods indicated ($ in thousands):

Six Months Ended June 30, Year Ended December 31,

Nine Months Ended September 30, Year Ended December 31,

2024 2023 2023 2022

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Financing Activities 9,085 23,396 24,940 29,624

Cash Flows Used in Operating Activities

Net cash used in operating activities during the six months ended June 30, 2024 was $11 million, resulting primarily from a net loss of $14.7 million, adjusted for non-cash charges of $1.4 million in depreciation and amortization, and $1.3 million in stock-based compensation.

Net cash used in operating activities during the six months ended June 30, 2023 was $11.2 million, resulting primarily from a net loss of $14.2 million, adjusted for non-cash charges of $1.9 million in depreciation and amortization and $0.3 million in stock-based compensation.

Cash Flows Used in Investing Activities

Net cash used in investing activities during the six months ended June 30, 2024 was $1.2 million, representing $1.1 million in property and equipment purchases.

Net cash used in investing activities during the six months ended June 30, 2023 was $2.9 million, representing additions of $2.9 million in property and equipment purchases.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2024 was $7.7 million, representing proceeds from convertible debt of $3.0 million, $5.0 million in borrowing on the line of credit, offset by $0.3 million in finance lease payments.

Net cash provided by financing activities during the six months ended June 30, 2023 was $21.6 million, which represents $25.0 million in proceeds from convertible debt less $0.5 million in payments to related parties, $2.6 million in note payments and $0.2 million in finance lease payments.

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2024, was $14.27 million, primarily driven by the net loss of $19.56 million, adjusted for non-cash charges of $1.86 million for depreciation and amortization, and $1.27 million for stock-based compensation.

This represents an improvement from the $16.06 million used in the same period of 2023, as Borealis benefited from enhanced gross profit due to the performance of high-margin products like Chef Woo and Woodles, which partially offset operational expenses.

Investing Activities

Net cash used in investing activities was $1.71 million for the nine months ended September 30, 2024, primarily reflecting property and equipment investments to support production scale and efficiency improvements.

This decrease from $3.52 million in 2023 aligns with Borealis' focused approach to capital expenditures, particularly as the company seeks to improve asset utilization and operational efficiencies without significant expansion of its production line.

Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2024, was $9.09 million, driven by proceeds from convertible debt and additional credit facility utilization.

In comparison, financing activities in the nine months ended September 30, 2023, were $23.40 million, largely attributable to the Reverse Recapitalization proceeds and debt restructuring efforts.

The financing activities in 2024 primarily support working capital needs and strategic investments in growth initiatives.

Balance Sheet and Contractual Obligations

The Company’s cash position, though lower than prior periods, reflects its active investment in operational scale-up and the expansion of high-margin product lines.

Borealis’ contractual obligations, including operating leases, accounts payable, and convertible notes, remain in line with planned financial commitments and reflect the Company’s strategic focus on sustainable growth.

Future Capital Requirements and Liquidity

This updated section reflects the latest financial performance metrics, emphasizing Borealis' current liquidity status, funding needs, and strategic financial adjustments aimed at sustaining operational growth.

Borealis anticipates needing additional capital to meet its funding requirements through fiscal 2025, particularly to support its expansion in retail and digital channels.

As of September 30, 2024, the Company had cash-on-hand of $721,542 and negative working capital of ($16.87 million).

The Company’s current business plan has mitigated some capital expenditure requirements, as operational efficiencies in existing production lines have reduced the need for immediate expansion.

Borealis is actively exploring additional financing options to strengthen liquidity;

however, there can be no assurance that such funding will be available on favorable terms or at all.

In the absence of sufficient financing, Borealis may adjust its spending on research, marketing, and distribution to align with available capital resources and take other measures that it deems appropriate to address its working capital deficiency and then available capital resources.

Going Concern

Management has identified recurring losses and negative cash flows from operations as factors raising substantial doubt about Borealis’ ability to continue as a going concern.

The Company is focused on executing its strategic initiatives to drive revenue growth, manage expenses, and secure additional financing to address these risks.

The unaudited condensed consolidated financial statements have been prepared under the assumption of ongoing operations, as Borealis seeks to navigate these challenges and achieve financial stability.

Contractual Obligations and Commitments

The following table summarizes our non-cancellable contractual obligations and other commitments as of June 30, 2024, and the effects that such obligations are expected to have on our liquidity and cash flow for future periods (in thousands):

The following table summarizes our non-cancellable contractual obligations and other commitments as of September 30, 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

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Off-Balance Sheet Arrangements

As of June 30, 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.

As of September 30, 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.

Section 102(b)(1) of the Jumpstart Our Business Startups Act (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.

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.

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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.

Emerging Growth Company Status (continued)

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 shares that are 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.

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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

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.

How We Evaluate Our Operations (continued)

We view EBITDA as an important indicator of performance.

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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 $2.6 million, (3) depreciation and amortization, of $1.4 million (4) other non-operating items, net, of $0.1 million, (5) Training, of $0.9 million, (6) M&A due diligence costs, of $1.5 million, (7) new product launch of $0.8 million, and (8) one-time formulation and product development costs, of $1.3 million, all for the six months ended June 30, 2024.

“Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) interest expense, of $1.1 million, (3) depreciation and amortization, of $0.4 million (4) other non-operating items, net, of $0.0 million, (5) Training, of $0.7 million, (6) M&A due diligence costs, of $0.0 million, (7) new product launch, of $0.4 million, and (8) one-time formulation and product development costs, of $0.4 million all for the three months ended June 30, 2024.

“Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, of $0.02 million, (2) interest expense, of $3.77 million, (3) depreciation and amortization, of $1.86 million (4) training, of $1.36 million, (5) business transaction costs, of $1.77 million, (6) new product launch of $5.07 million, (7) one-time formulation and product development costs, of $2.48 million, and (8) deferred stock compensation $1.27 million, all for the nine months ended September 30, 2024.

“Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) interest expense, of $1.21 million, (3) depreciation and amortization, of $0.47 million (4) other non-operating items, net, of $0.01 million, (5) training, of $0.48 million, (6) business transaction costs, of $0.26 million, (7) new product launch, of $1.12 million, (8) one-time formulation and product development costs, of $1.31 million all for the three months ended September 30, 2024.

Management and our Board of Directors use this non-GAAP measure for purposes of evaluating our performance.

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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.

“Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) interest expense, of $3.4 million, (3) depreciation and amortization, of $1.9 million (4) other non-operating items, (5) Training, of $1.5 million, (6) M&A due diligence costs, $2.9 million, (7) new product launch, $0.6 million, and (8) one-time formulation and product development costs, $0.3 million all for the six months ended June 30, 2023.

“Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, (2) interest expense, of $1.8 million, (3) depreciation and amortization, of $1.0 million (4) other non-operating items, net, of $0.0 million, (5) Training, of $0.7 million, (6) M&A due diligence costs, $1.3 million, (7) new product launch, of $0.3 million, and (8) one-time formulation and product development costs,

$0.0 million all for the three months ended June 30, 2023.

“Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, of $0.02 million, (2) interest expense, of $5.54 million, (3) depreciation and amortization, of $2.94 million (4) training, of $2.13 million, (5) business transaction costs, $4.01 million, (6) new product launch, $1.68 million, (7) one-time formulation and product development costs, $0.44 million, and (8) deferred stock compensation $0.39 million, all for the nine months ended September 30, 2023.

“Adjusted EBITDA,” a non-GAAP

How We Evaluate Our Operations (continued)

measure, is defined as net income attributable to us before (1) income taxes, (2) interest expense, of $2.17 million, (3) depreciation and amortization, of $1.00 million (4) training, of $0.65 million, (5) business transaction costs, $1.24 million, (6) new product launch, of $0.31 million, (7) one-time formulation and product development costs, $0.20 million, and (8) deferred stock compensation $0.10 million, all for the three months ended September 30, 2023.

Management and our Board of Directors use this non-GAAP measure for purposes of evaluating our performance.

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Recent Accounting Pronouncements

See Note 1 to Borealis’ financial statements included elsewhere in this Amended 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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis