Borealis Foods Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report, and our audited consolidated financial statements and related notes included in 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. 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 and this Quarterly Report. In this section, unless otherwise indicated or the context otherwise requires, references in this section to “ Borealis, ” the “Company,” “we,” “us,” “our” and other similar terms refer to Borealis Foods Inc. References to “ Oxus ” refer to Oxus Acquisition Corp. Overview 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 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. 23 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. Borealis continues under the name “ Borealis Foods Inc. ” Accounting Impact of the Reverse Recapitalization The Reverse Recapitalization transaction was accounted for as a reverse recapitalization. Oxus Acquisition Corp. was deemed the accounting predecessor and Borealis is the successor SEC registrant. Under this method of accounting, Oxus was treated as the acquired company for financial statement reporting purposes. For accounting purposes, Legacy Borealis was deemed to be the accounting 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. The net assets of Oxus were recognized at carrying value, with no goodwill or other intangible assets recorded. Basis of Presentation Borealis’ condensed consolidated financial statements were prepared in accordance with U.S. GAAP. See Note 1 to our condensed consolidated financial statements for a full description of our basis of presentation. Results of Operations Comparison of the Three Months Ended September 30, 2024 and 2023 The following sets forth a summary of our results of operations for the presented months ($ in thousands): 24 Three Months Ended September 30, 2024 (Unaudited) 2023 (Unaudited) 2024 vs 2023 Variance $ % of Revenues, net $ % of Revenues, net $ % of Prior Period Revenues Gross sales 8,076 8,265 (189) Sales discounts & allowances (388) (5) % (539) (7) % 151 2 % 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 % 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 % Total other expense (1,210) (16) % (2,162) (28) % 952 12 % Loss before income taxes (4,831) (63) % (6,585) (85) % 1,754 22 % Income tax expense (1) — % — — % (1) — % Net loss $ (4,832) (63) % $ (6,585) (85) % $ 1,753 22 % 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. 25 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: 26 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. Net Loss 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 $0.26 million or 5% of the net loss are all associated with being a newly listed publicly traded entity. 27 Comparison of the Nine months ended September 30, 2024 and 2023 The following sets forth a summary of our results of operations for the presented months ($ in thousands): Nine Months Ended September 30, 2024 (Unaudited) 2023 (Unaudited) 2024 vs 2023 Variance $ % of Revenues, net $ % of Revenues, net $ % of Prior Period Revenues Gross sales 22,036 23,870 (1,834) Sales discounts & allowances (1,127) (5) % (1,343) (6) % 216 1 % 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 % 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) % Total other expense (3,763) (18) % (5,372) (24) % 1,609 6 % Loss before income taxes (19,547) (93) % (20,808) (92) % 1,261 (1) % Income tax expense (15) — % (15) — % — — % Net loss $ (19,562) (94) % $ (20,823) (92) % 1,261 (2) % 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. 28 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 . 29 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. Net Loss 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 $1.70 million, or 9%of the net loss are all associated with being a newly listed publicly traded entity. Outlook Looking forward, Borealis is committed to scaling high-margin, premium products while managing the phased transition away from legacy offerings. The company expects robust demand for Chef Woo and Woodles, with new retail partnerships and distribution channels expanding our market reach in the upcoming quarters. While inflationary pressures and raw material costs remain a concern, we are confident in our ability to leverage cost efficiencies and strategic pricing to maintain margins. Management remains focused on bolstering our market position through innovation, cost management, and disciplined growth initiatives. Liquidity and Capital Resources Borealis has undergone significant changes in its capital structure, operational funding, and financial strategy following its Reverse Recapitalization with Oxus Acquisition Corp. As of September 30, 2024, Borealis continues to pursue a growth-oriented approach to expand its market presence and product offerings in the high-demand, plant-based food sector. The Company's liquidity and capital 30 Liquidity and Capital Resources (continued) resources and operational and financing activities reflect a balance between maintaining liquidity and pursuing strategic growth investments and the Company expects to continue to monitor and adjust its operational and financing activities in response to its liquidity and capital resources available from time to time. Cash Flows The following table sets forth our cash flows for the periods indicated ($ in thousands): Nine Months Ended September 30, Year Ended December 31, 2024 2023 2023 2022 Net cash (used in) provided by: Operating Activities $ (14,270) $ (16,055) $ (18,005) $ (24,053) Investing Activities (1,709) (3,516) (4,466) (3,329) Financing Activities 9,085 23,396 24,940 29,624 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. 31 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. 32 Contractual Obligations and Commitments 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 Total Less than 1 year 1-3 years 4-5 years More than 5 years Contractual obligations and other commitments * $ 55,276 $ 30,076 $ 12,783 $ 12,417 $ — (*) Includes operating lease liabilities for certain of our offices and facilities, accounts payable, and accrued expenses including related party notes The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty. Off-Balance Sheet Arrangements 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 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. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to not take advantage of the extended transition period is irrevocable. Oxus was an emerging growth company and elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. Following the consummation of the Reverse Recapitalization, Borealis expects to continue taking advantage of the benefits of the extended transition period, although it may decide to early adopt new or revised accounting standards to the extent permitted by such standards and relevant laws and regulations. This may make it difficult or impossible to compare Borealis’ financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. 33 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. Implications of being a Smaller Reporting Company Additionally, Borealis is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. Borealis will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of common shares held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) Borealis’ annual revenues exceeded $100 million during such completed fiscal year and the market value of common shares held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent Borealis takes advantage of such reduced disclosure obligations, it may also make comparison of its financial statements with other public companies difficult or impossible. How We Evaluate Our Operations Net Income/(Loss) We measure performance based on our overall return to shareholders based on consolidated net income or net loss. We do not review a measure of operating result at a lower level than the consolidated company and we only have one reportable segment. Adjusted EBITDA Our adjustments to EBITDA are related to expenses and gains that we believe are not indicative of normal, ongoing operations. While these items may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses and gains in the future, we believe that removing these items for purposes of calculating the Adjusted EBITDA financial measures provides a more focused presentation of our ongoing operating performance. 34 How We Evaluate Our Operations (continued) We view EBITDA as an important indicator of performance. We define EBITDA as net income/(loss) plus net interest expense, income taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA further adjusted for any foreign exchange gains/(losses), share-based compensation expense and non-recurring items if identified. EBITDA and Adjusted EBITDA are supplemental measures utilized by our management and other users of our financial statements such as investors, research analysts and others, to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis. Adjusted EBITDA is a key performance measure that our management uses to assess its operating performance. We facilitate internal comparisons of our operating performance on a more consistent basis. We use these performance measures for business planning purposes and forecasting. We believe that EBITDA and Adjusted EBITDA enhances an investor’s understanding of our financial performance as they are useful in assessing our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. “Adjusted EBITDA,” a non-GAAP measure, is defined as net income attributable to us before (1) income taxes, 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. Furthermore, the Compensation Committee of our Board of Directors uses such measure to evaluate management’s performance. We, therefore, believe that the use of this non-GAAP measure provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. As noted above, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. “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 35 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. Furthermore, the Compensation Committee of our Board of Directors uses such measure to evaluate management’s performance. We, therefore, believe that the use of this non-GAAP measure provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. As noted above, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Recent Accounting Pronouncements See Note 1 to Borealis’ financial statements included elsewhere in this Quarterly Report for information about recent accounting pronouncements, the timing of their adoption, and Borealis’ assessment, if any, of their potential impact on Borealis’ financial condition and results of operations. 36