Item 1. Business
ITEM
1. BUSINESS
History
We
were incorporated on October 17, 2017 in the State of Delaware as a blank check company to be used as a vehicle to pursue a business
combination with an unidentified target. Following the Merger (as described below), we changed our name from “AG Acquisition Group
II, Inc.” to “Blue Star Foods Corp.” and succeeded to the business of Keeler & Co.
Merger
On
November 8, 2018 (the “Closing Date”), we entered into an Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”), with Keeler & Co., Blue Star Acquisition Corp., our newly formed, wholly-owned Florida subsidiary (“Acquisition
Sub”), and John Keeler, Keeler & Co’s sole stockholder (the “Sole Stockholder”). Pursuant to the terms of
the Merger Agreement, Acquisition Sub merged with and into Keeler & Co, which was the surviving corporation and thus became our wholly-owned
subsidiary (the “Merger”).
At
the Closing Date, each of the 25 shares of common stock of Keeler & Co issued and outstanding immediately prior to the closing of
the Merger were converted into 1,500 shares of our common stock. As a result, an aggregate of 750,000 shares of our common stock
were issued to the Sole Stockholder.
At
the effective time of the Merger, the Company redeemed an aggregate of 462,500 shares of common stock from the pre-Merger stockholders
of the Company (the “Pre-Merger Holders”) for cancellation by the Company (the “Share Redemption”) and, as a
result, the Pre-Merger Holders retained an aggregate of 37,500 shares of common stock after the Merger, representing a value of $1.5
million. The shares were redeemed in consideration for the direct benefit the Pre-Merger Holders will receive in connection with the
consummation of the Merger.
Offering
Concurrently
with the closing of the Merger, we closed a private placement offering (the “Offering”) in which we sold an aggregate of
36 units of our securities (the “Units”) at a purchase price of $20,000 per Unit, for aggregate gross proceeds of $725,000.
Each Unit consisted of one share of the Company’s 8% Series A convertible preferred stock, par value $0.0001 per share (the “Series
A Stock”) and a three-year warrant (the “Warrant”) to purchase one-half of one share of common stock for every share
of common stock that would be received upon conversion of a share of Series A Stock (the “Warrant Shares”), at an exercise
price of $48.00. The Series A Stock is convertible into shares (the “Conversion Shares”) of the Company’s common stock,
at a conversion rate of $40.00 per share (the “Conversion Rate”). We issued 17,663 Warrant Shares in the Offering, which
Warrant Shares are exercisable independently of any conversion of Series A Stock. The net proceeds of the Offering were used by the Company
for general corporate purposes. All of the Series A Stock have been converted to shares of the Company’s common stock.
Company
Settlement
Effective
upon the closing of the Merger, we issued an aggregate of 34 Units to eleven “accredited investors” (the “Settlement
Parties”) for each such individual or entity entering into a settlement and mutual general release agreement (the “Settlement
Agreement”) with the Company in full and complete settlement and satisfaction and release of claims such Settlement Parties may
have against the Company (the “Company Settlement”).
Upon
the closing of the Merger, (i) options to purchase an aggregate of 5 shares of Keeler & Co’s common stock at an exercise
price of $200,000 per share, which were outstanding immediately prior to the closing of the Merger, were converted into a ten-year immediately
exercisable options to purchase an aggregate of 156,000 shares of common stock at an exercise price of $6.66 (which option was subsequently
terminated unexercised), and (ii) a ten-year option to purchase 156,000 shares of common stock at an exercise price of $40.00, which
vested one-year from the date of grant.
4
Changes
to the Board of Directors and Executive Officers
On
the Closing Date of the Merger, the then-current directors and Chief Financial Officer and Chief Executive Officer of the Company resigned
from all such positions as directors and officers of the Company and were replaced by new officers and directors.
Lock-ups
In
connection with the Merger, each of our executive officers and directors after giving effect to the Merger (the “Restricted Holders”)
and each of the Pre-Merger Holders, holding at the closing date of the Merger an aggregate of 37,500 shares of our common stock, entered
into lock-up agreements (the “Lock-Up Agreements”), whereby the Restricted Holders were restricted for a period of 18 months
and the Pre-Merger Holders were restricted for 12 months, after the Merger (the “Restricted Period”), from sales or dispositions
(including pledges) in excess of 50% of all of the common stock held by (or issuable to) them and at a price below $44.0 per share (such
restrictions together the “Lock-Up”). Notwithstanding such restrictions, during the Restricted Period (i) the Restricted
Holders may transfer up to 10% of their shares to a charitable organization which agrees to be bound by such Lock-Up restrictions and
(ii) the Pre-Merger Holders may transfer up to 10% of their shares to a third party which agrees to be bound by such Lock-Up restrictions.
From and after the Restricted Period, neither the Restricted Holders nor the Pre-Merger Holders may sell, dispose or otherwise transfer
more than one-third of the common stock held by such Holder in any two-month period.
Redemption
from Pre-Merger Holders
In
connection with the Merger, the Company redeemed an aggregate of 462,500 shares of common stock from the Company’s Pre-Merger
Holders for cancellation by the Company (the “Share Redemption”) and, as a result, the stockholders retained an aggregate
of 37,500 shares of common stock after the Merger (the “Retained Shares”), representing a value of $1.5 million. The shares
were redeemed in consideration for the direct benefit the Pre-Merger Holders will receive in connection with the consummation of the
Merger.
Our
authorized capital stock currently consists of 100,000,000 shares of common stock, and 5,000,000 shares of the preferred stock, of which
10,000 shares have been designated as Series A Stock. Our common stock is not traded on any exchange. Our common stock was quoted on
the OTC pink sheets under the symbol “BSFC” since February 18, 2020. Our common stock was approved for listing on NASDAQ
under the symbol “BSFC” and began trading on November 3, 2021.
Coastal
Pride Acquisition
On
November 26, 2019, Keeler & Co., Inc. (the “Purchaser”) entered into an Agreement and Plan of Merger and Reorganization
(the “Coastal Merger Agreement”) with Coastal Pride Company, Inc., a South Carolina corporation, Coastal Pride Seafood, LLC,
a Florida limited liability company and newly-formed, wholly-owned subsidiary of Keeler & Co. (the “Acquisition Subsidiary”
and, upon the effective date of the Coastal Merger, the “Surviving Company), and The Walter F. Lubkin, Jr. Irrevocable Trust dated
1/8/03 (the “Trust”), Walter F. Lubkin III (“Lubkin III”), Tracy Lubkin Greco (“Greco”) and John
C. Lubkin (“Lubkin”), constituting all of the shareholders of Coastal Pride Company, Inc. immediately prior to the Coastal
Merger (collectively, the “Coastal Sellers”). Pursuant to the terms of the Coastal Merger Agreement, Coastal Pride Company,
Inc. merged with and into the Acquisition Subsidiary, with the Acquisition Subsidiary being the surviving company (the “Coastal
Merger”).
Coastal
Pride is a seafood company, based in Beaufort, South Carolina, that imports pasteurized and fresh crabmeat sourced primarily from Mexico
and Latin America and sells premium branded label crabmeat throughout North America.
Pursuant
to the terms of the Coastal Merger Agreement, the following consideration was paid by Keeler & Co.: (i) an aggregate of $394,622
in cash; (ii) a five-year 4% promissory note in the principal amount of $500,000 (the “Lubkin Note), issued by Keeler & Co.
to Walter Lubkin Jr. (“Walter Jr.”); (iii) three-year 4% convertible promissory notes in the aggregate principal amount of
$210,000 (collectively, the “Sellers Notes” and together with the Lubkin Note, the “Notes”), issued by Keeler
& Co. to Greco, Lubkin III and Lubkin, pro rata to their ownership of Coastal Pride Company, Inc. immediately prior to the Coastal
Merger; (iii) 25,000 shares of common stock of the Company, issued to Walter Lubkin, Jr. (the “Walter Jr. Shares”); and
(iii) an aggregate of 39,750 shares of common stock of the Company, issued to Greco, Lubkin III and Lubkin, pro rata to their ownership
of Coastal Pride Company, Inc. immediately prior to the Coastal Merger (together with the Walter Jr. Shares, the “Consideration
Shares”).
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The
Notes are subject to a right of offset against the Coastal Sellers’ indemnification obligations as described in the Coastal Merger
Agreement and are subordinate and subject to prior payment of all indebtedness of John Keeler under the Loan Agreement with Lighthouse
Financial Corp., a North Carolina corporation (“Lighthouse”).
Principal
and interest under the Lubkin Note are payable quarterly, commencing February 26, 2020, in an amount equal to the lesser of (i) $25,000
and (i) 25% of the Surviving Company’s quarterly earnings before interest, tax, depreciation and amortization.
One-sixth
of the principal and interest under the Sellers Notes are payable quarterly commencing on August 26, 2021. The Sellers Notes are convertible
into shares of common stock of the Company at the Seller’s option, at any time after the first anniversary of the date of the Note,
at the rate of 0.05 share for each $40.00 of principal and/or interest so converted (the “Conversion Shares”).
Keeler
& Co. has the right to prepay the Notes in whole or in part at any time without penalty or premium.
At
the effective time of the Coastal Merger, the Coastal Sellers entered into leak-out agreements (each, a “Leak-Out Agreement”)
pursuant to which the Coastal Sellers and Walter Jr. may not directly or indirectly pledge, sell, or transfer any of the Consideration
Shares or Conversion Shares, or enter into any swap or other arrangement that transfers any of the economic consequences of ownership
of any such shares for one year from the date of the Coastal Merger. Thereafter, each Seller and Walter Jr. may transfer up to 25% of
the aggregate of the Consideration Shares and the Conversion Shares held by such person, in each successive six-month period.
In
connection with the Coastal Merger, Lubkin III and Greco agreed to serve as president and chief financial officer, respectively, of the
Surviving Company.
ACF
Finco I, LP (“ACF”) and Keeler & Co. were parties to a loan and security agreement, originally dated as of August 31,
2016. As a condition to ACF’s waiver of certain events of default under the Loan Agreement, and consent to the formation of the
Acquisition Subsidiary and the Coastal Merger, the Acquisition Subsidiary and Keeler & Co. entered into the Joinder and Seventh Amendment
to the Loan Agreement which resulted, among other things, in Coastal Pride becoming an additional borrower under the Loan Agreement.
On March 31, 2021, Keeler & Co. and Coastal Pride entered into a loan and security agreement (the “Loan Agreement”) with
Lighthouse, and the loan with ACF was extinguished.
On
April 15, 2021, the Company issued an aggregate of 823 shares of common stock to the Coastal Seller in lieu of payment in cash of
accrued interest in the aggregate amount of $39,504 under the Sellers’ Notes.
A
combination of cash and shares of common stock were issued on the notes by the Company totaling an aggregate of $180,989 on the Walter
Lubkin III Convertible Note, Tracy Greco Convertible Note and John Lubkin Convertible Note and such notes were extinguished on December
31, 2022.
Taste
of BC Aquafarms Acquisition
On
April 27, 2021, we entered into a stock purchase agreement (the “SPA”) with TOBC, and Steve Atkinson and Janet Atkinson (the
“TOBC Sellers”), the owners of all of the capital stock of TOBC (the “TOBC Shares”) pursuant to which we acquired
all of the TOBC Shares from the TOBC Sellers for an aggregate purchase price of CAD$4,000,000, subject to adjustment based upon the amount
of TOBC’s working capital on the closing date (the “Purchase Price”) as follows: (i) CAD$1,000,000 in cash, pro rata
with each TOBC Seller’s ownership of TOBC (ii) by the issuance to each TOBC Seller of a non-interest bearing promissory note in
the aggregate principal amount of CAD$200,000, with a maturity date of November 30, 2021, with the principal amount of each note to be
pro rata with each TOBC Seller’s ownership of TOBC, and secured by a Company guarantee and a general security agreement creating
a security interest over certain assets of the Company, and (iii) 49,387 shares of common stock, (representing CAD$2,800,000 of shares
based on USD$46.00 per share) with each TOBC Seller receiving a pro rata portion of such shares based upon the total number of TOBC shares
held by such TOBC Seller.
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On
June 24, 2021, the SPA was amended to increase the purchase price to an aggregate of CAD$5,000,000 and the TOBC acquisition closed. Pursuant
to the amendment, on August 3, 2021, an aggregate of 17,248 shares of common stock (representing CAD$1,000,000 of additional shares
calculated at USD$46.00 per share) was put in escrow until the 24-month anniversary of the closing. If, within 24 months of the closing,
TOBC has cumulative revenue of at least CAD$1,300,000, the TOBC Sellers will receive all of the escrowed shares. If, as of the 24-month
anniversary of the closing, TOBC has cumulative revenue of less than CAD$1,300,000, the TOBC Sellers will receive a prorated number of
the escrowed shares based on the actual cumulative revenue of TOBC as of such date.
In
addition to the foregoing consideration, at the time of the closing, the Company provided CAD$488,334 to TOBC for the extinguishment
of certain of TOBC’s existing debt.
The
shares of common stock received by the TOBC Sellers are subject to a leak-out restriction commencing on the date of issuance, as follows:
(i) up to 25% may be sold after 12 months; (ii) up to 50% may be sold after 18 months; (iii) up to 75% may be sold after 24 months; and
(iv) up to 100% may be sold after 30 months.
The
TOBC Seller’s non-interest-bearing promissory notes were paid in full at maturity.
In
connection with the TOBC acquisition, the TOBC Sellers entered into four-year confidentiality, non-competition and non-solicitation agreements
with the Company.
On
July 6, 2023, the Company, TOBC and Steve Atkinson and Janet Atkinson agreed to waive a requirement in the First Amendment to the SPA
entered into as of June 24, 2021, that an aggregate of 17,247 shares of common stock of the Company (“Additional Shares”)
held in escrow be released if at June 24, 2023, the twenty-four month anniversary of the closing of the acquisition of TOBC by the Company,
TOBC had cumulative revenues of at least CAD$1,300,000, or if TOBC’s cumulative revenue had not reached CAD$1,300,000, a prorated
number of Additional Shares be released. Accordingly, on July 6, 2023, the Company authorized the release of 8,451 Additional Shares
to Steve Atkinson and 8,796 Additional Shares to Janet Atkinson.
Gault
Seafood Asset Acquisition
On
February 3, 2022, Coastal Pride entered into an asset purchase agreement with Gault Seafood, LLC, a South Carolina limited liability
company ( “Gault Seafood”), and Robert J. Gault II, President of the Seller (“Gault”) pursuant to which Coastal
Pride acquired all of Gault Seafood’s right, title and interest in and to assets relating to Gault Seafood’s soft-shell crab
operations, including intellectual property, equipment, vehicles and other assets used in connection with the soft-shell crab operations.
Coastal Pride did not assume any liabilities in connection with the acquisition. The purchase price for the assets consisted of a cash
payment in the amount of $359,250 and the issuance of 8,355 shares of common stock of the Company with a fair value of $359,250.
Coastal
Pride also entered into a consulting agreement with Gault under the terms of which Gault will provide consulting services to Coastal
Pride at the rate of $100 per hour, however, the first 45 days of services will be provided at no cost. Gault also agreed not to compete
with Coastal Pride and its affiliates for a period of five years in any market in which Coastal Pride is operating or is considering
operating or solicit employees, consultants, customers or suppliers or in any way interfere with Coastal Pride’s business relationships
for a five-year period, Gault is also bound by customary confidentiality provisions. The Consulting Agreement may be terminated by either
party upon five days written notice and by Costal Pride immediately for cause.
In
connection with the asset acquisition, Coastal Pride will lease 9,050 square feet from Gault for $1,000 per month under a one-year lease
agreement and will continue to operate the acquired soft-shell crab operations at such location in Beaufort, South Carolina unless a
new facility is earlier completed.
Our website address is www.bluestarfoods.com .
The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report and
is intended for informational purposes only.
7
Overview
We
are an international seafood company based in Miami, Florida that imports, packages and sells refrigerated pasteurized crab meat, and
other premium seafood products. Our current source of revenue is from importing blue and red swimming crab meat primarily from Indonesia,
the Philippines and China and distributing it in the United States and Canada under several brand names such as Blue Star, Oceanica,
Pacifika, Crab & Go, First Choice, Good Stuff and Coastal Pride Fresh, and steelhead salmon and rainbow trout fingerlings produced
under the brand name Little Cedar Farms for distribution in Canada. The crab meat which we import is processed in 13 plants throughout
Southeast Asia. Our suppliers are primarily via co-packing relationships, including two affiliated suppliers. We sell primarily to food
service distributors. We also sell our products to wholesalers, retail establishments and seafood distributors.
Strategy
Our
long-term strategy is to create a vertically integrated seafood company that offers customers high quality products while maintaining
a focus on our core values of delivering food safety, traceability and certified resource sustainability.
We
plan to grow the Company organically by continuing to increase our customer base and by introducing new high-value product lines and
categories, as well as strategically acquiring companies that focus on additional species and proprietary technologies that we believe
we can integrate into a larger, diversified company.
Operating
Companies
We
operate through the following subsidiary companies:
Keeler
& Co. , doing business as Blue Star Foods, is an international seafood company that imports, packages and sells refrigerated pasteurized
crab meat sourced primarily from Southeast Asia and other premium seafood products.
Keeler
& Co. purchases the majority of our crab product (Portunus Pelagicus and Portunus Haanii) from processors which source the crab meat
from local fishermen in Indonesia, the Philippines, Thailand, Vietnam and India, to whom we pay a premium in order to outfit their boats
with a proprietary GPS-based system. This system allows us to trace where the crab product originates and ensure that only mature crabs
are being harvested by the use of collapsible traps and not gill nets.
The
crab meat is purchased directly from processors with whom we have long-standing relationships, that have agreed to source their product
in a sustainable manner. All crab meat is sourced under the Company’s U.S Food & Drug Administration (“FDA”) approved
Hazard Analysis Critical Control Point (“HACCP”) Plan. Additionally, all suppliers are certified by the British Retail Consortium
(the “BRC”) and are audited annually to ensure safety and quality of our product.
The
imported crab meat is processed in six out of the ten plants available throughout Southeast Asia. Our suppliers are primarily via co-packing
relationships, including two affiliated suppliers. We sell primarily to food service distributors. We also sell our products to wholesalers,
retail establishments and seafood distributors.
We
have created a technology platform that tracks the product through its entire chain of custody and collects and transmits various data
to the Company in real-time, from the loading site to the packing plant, through the sorting and pasteurization process and the exporting
process to the end customer. Our technology allows our customers access to their “Scan on Demand” QR code-enabled traceability
application.
Our
premium proprietary brands, Blue Star, Pacifika and Oceanica are differentiated in terms of quality and price point.
We
believe that we utilize best-in-class technology, in both resource sustainability management and ecological packaging.
Coastal
Pride is a seafood company, based in Beaufort, South Carolina, that imports pasteurized and fresh crab meat (Portunus Pelagicus,
Portunus Haanii and Callinectes) sourced primarily from Mexico and Latin America and sells premium branded label crab meat throughout
North America.
8
It
has three premium branded label products, First Choice, Good Stuff and Coastal Pride Fresh.
TOBC
is a land-based recirculating aquaculture system (“RAS”) farming operation located in Nanaimo, British Columbia, Canada
with an annual production capacity of approximately 100 tons. It produces steelhead salmon and rainbow trout fingerlings under the brand
name Little Cedar Farms for distribution in Canada.
TOBC’s
RAS facility has been operated as a model farm for the development of salmon RAS technology. We currently intend to refine this model
farm into a 150-ton standardized module that will be replicated in the development of future farms. The next facility we hope to build,
subject to sufficient resources, will have 10 such modules, for a total production capacity of 1,500 tons.
The
current RAS facility is in an insulated, bio-secure structure in which culture conditions are controlled. The primary RAS system is composed
of thirteen culture tanks, a drum filter, a fluidized sand bed biofilter and a low head oxygenator and employs an efficient gravity fed
low head arrangement which reduces energy use as compared to other RAS designs. Additionally, there are two independent partial reuse
finishing tank systems.
Weekly
harvests of approximately two tons of salmon are stunned and bled at the farm and then processed as fresh iced head on gutted (“HOG”)
fish at a Canadian Food Inspection Agency approved processing facility. Currently, TOBC sells its salmon mainly to two wholesale seafood
distributors in Canada.
Eggs
are purchased from two primary suppliers and are hatched approximately every eight weeks. TOBC’s hatchery is composed of a recirculating
system that utilizes an upwelling “heath stack” incubator and five tanks with moving bed biofiltration. The fish are then
transferred to the main RAS system approximately 12 weeks post hatch. TOBC’s feed is largely terrestrial based from grains and
other non-marine ingredients.
We
believe that the faster life cycle from birth to harvesting of our salmon, as compared to conventional salmon, allows it to be produced
more economically in contained, land-based RAS farms. Although RAS farms require greater capital investment than the sea cage approach,
we believe that the higher costs are offset by more efficient growth and a shorter transportation distance to market.
Branded
Products
We
distribute our imported blue and red swimming crabmeat in the United States under the brand names Blue Star, Pacifika, Oceanica, Crab
& Go Premium Seafood, First Choice, Good Stuff and Coastal Pride Fresh and steelhead salmon and rainbow trout fingerlings produced
by TOBC under the brand name Little Cedar Falls.
Blue
Star is packed with only high quality Portunus Pelagicus species crab and is produced under exacting specifications and quality control
requirements.
Pacifika
is a quality brand for the price conscious end user. The Portunus Haanii crab meat is packed in China and is ideal for upscale plate
presentations.
Oceanica
is made from the Portunus Haanii crab, which is caught and processed in Vietnam. It is an affordable choice to help reduce food cost
without sacrificing the look/taste of dishes.
Crab
+ Go Premium Seafood is geared towards millennials as part of the trend toward pre-packaged, grab-and-go items. The product is packaged
in flexible foil pouches.
Lubkin
Brand is packed with quality Portunus Pelagicus species crab in the Philippines and Indonesia.
First
Choice is a quality brand packed with Portunus Haanii crab meat from Malaysia.
Good
Stuff is a premium brand packed with high quality Callinectes species crab from Mexico.
Coastal
Pride Fresh is packed with Callinectes Sapidus from Venezuela and the United States.
Steelhead
salmon and rainbow trout fingerlings are produced by TOBC under the Little Cedar Falls brand. The fish are sashimi grade and only sold
as a fresh item, usually reaching end users within days of harvest.
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Competitive
Strengths
Sustainable
and Traceable Product Sourcing. We believe that our greatest point of differentiation from other seafood companies is our efforts
to ensure that our seafood products are ethically sourced in a method that is consistent with our core values and those of our customers.
Proprietary
Brands. We have created several brands of crab meat that are well regarded amongst our customers and are differentiated by product
quality and price point.
Eco-Friendly
Packaging. Another major point of differentiation from our competitors is our use of sustainable and ethical packaging. Our green
pouches for Eco-Fresh crab meat are patented in the United States, Europe, Thailand, the Philippines and Indonesia under patent Nos.1526091
B1 and US Patents 8,337,922 and 8,445,046. We believe since their introduction in 2003, these pouches have saved in excess of a million
metric tons of carbon dioxide emissions versus metal can packaging material.
Growth
Strategy
We
intend to grow our business in several ways, including:
Growing
our existing businesses. The three current existing businesses each have different pathways to organic growth, including by increasing
their reliable access to sustainably sourced marine product and supplying to a larger and more diversified customer base. Our key objective
is to optimize the management of the companies across all companies, specifically in the marketing, sourcing and financing departments.
Strategic
Acquisitions. We will continue to seek opportunities to acquire companies that allow us to expand into new territories, diversify
our species product categories, and where operational synergies with our existing companies may exist. We believe that we may have the
ability to layer on a sustainability model to certain companies that operate in a more traditional way, with an opportunity to increase
margins by selling a more premium product.
Scaling
the RAS Business. We have an internal goal to reach production of 21,000 metric tons of steelhead salmon by 2028. If we can successfully
access the necessary funding through the equity capital markets and through certain debt facilities, we hope to build a series of 1,500
metric ton and 3,000 metric ton facilities throughout strategic locations in British Columbia, Canada, where TOBC is currently based.
Industry
Overview
The
international seafood industry is going through a period of rapid change as it strives to meet the needs of a growing population around
the world, where food consumption habits are evolving. We believe there are powerful trends emerging in the developing world (including
a growing demand for animal-based protein) as well as in the developed world (where there is an increased awareness and focus on sustainable
sourcing and protecting marine ecosystems).
Changes
in Population Growth and Global Seafood Consumption:
The
United Nations latest projections suggest that the global population could grow to around 8.5 billion in 2030, 9.7 billion in 2050 and
10.4 billion in 2100 (1) .
As
the population has grown, so has per capita fish consumption. Per capita food fish consumption grew from 9.0 kg (live weight equivalent)
in the 1960s to 20.2 kg in 2020, at an average annual rate of 3% compared with a population growth rate of 1.6% (2) .
Rising
incomes and urbanization, improvements in post-harvest practices and changes in dietary trends are projected to drive a 15% increase
in aquatic food consumption, to supply on average 21.4 kg per capita in 2030 (3) .
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Aquaculture
Has Developed as a Major Source to Meet Global Seafood Demand:
In
2020, fisheries and aquaculture production reached an all-time record of 214 million tons, worth about $424 billion. Production of aquatic
animals in 2020 was more than 60% higher than the average in the 1990s, considerably outpacing world population growth, largely due to
increasing aquaculture production (4) .
Total
production of aquatic animals is expected to reach 202 million tons in 2030, mainly due to sustained growth of aquaculture, projected
to reach 100 million tons for the first time in 2027 and 106 million tons in 2030 (5) .
We
believe that the growth in consumption drives the increased growth of aquaculture and the need for recirculatory aquatic systems.
(1)
United Nations – Department of Economic and Social Affairs – World Population Prospects (2022)
(2)(3)(4)(5)
Food and Agriculture Organization of the United Nations “The State of the World Fisheries and Aquaculture – 2022.
Suppliers
We
purchase crab meat directly from six processors with which we have long-standing relationships, that have agreed to source their product
in a sustainable manner. All crab meat is sourced under the Company’s FDA approved HACCP Plan. Additionally, all suppliers are
certified grade A by the BRC and are audited annually to ensure safety and quality.
The
Company had four major suppliers located in the United States, Canada and China which accounted for approximately 82%
of the Company’s total purchases during the year ended December 31, 2023. The Company’s largest supplier is located in Miami
and accounted for 35% of the Company’s total purchases in the year ended December 31, 2023.
Sales,
Marketing and Distribution
The
Company’s products are sold in the United States and Canada. Its primary current source of revenue is importing blue and red swimming
crab meat primarily from Indonesia, the Philippines and China and distributing it in the United States and Canada under several brand
names such as Blue Star, Oceanica, Pacifika, Crab & Go, Lubkin’s Coastal Pride, First Choice, Good Stuff, Coastal Pride Fresh
and TOBC steelhead salmon and rainbow trout fingerlings produced under the brand name Little Cedar Falls.
The
Company stores its crab meat inventory at a third-party facility in Miami, Florida and distribution takes place from this facility.
The
Company has a sales team based throughout the United States who sell directly to customers, most of whom are in the food service and
retail industry and also manage a network of regional and national brokers, that cover both the retail and wholesale segments. The sales
team and brokers help to pull the products through the system by creating demand at the end user level and pulling the demand through
our distributor customers. The Company sells to retail customers either directly or via distributors that specialize in the retail segment.
The
Company does not own its own fleet of trucks and utilizes less than truckload freight shipping (“LTL”) national freight carriers
to deliver its products to its customers. LTL is used for the transportation of small freight or when freight does not require the use
of an entire trailer. When shipping LTL, the Company pays for a portion of a standard truck trailer, and other shippers and their shipments
fill the unoccupied space.
Customers
Our
customer base is comprised of some of the largest companies in the food service and retail industry throughout the United States. We
sell our crab meat to our customers through purchase orders. For the year ended December 31, 2023, sales to food distributors and retail
and wholesale clubs accounted for 52% of our revenue. The balance of our revenue is derived from smaller seafood distributors and value-added
processors.
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The
Company had nine customers which accounted for approximately 52% of revenue during the year ended December 31, 2023. Two customers accounted
for 22% of revenue during the year ended December 31, 2023. The loss of any major customer could have a material adverse impact on the
Company’s results of operations, cash flows and financial position.
Competition
In
general, the international seafood industry is intensely competitive and highly fragmented. We compete with local and overseas manufacturers
and importers engaged in similar products.
The
Company’s primary competitors in its traditional sustainable seafood businesses are Tri Union Frozen Products, Inc. (Chicken of
the Sea Frozen Foods), Phillips Foods, Inc., Harbor Seafood, Inc., Newport International and Twin Tails Seafood Corp.
The
Company’s primary competitors in its RAS business are Aquabounty, Atlantic Sapphire, Aquaco, Nordic Aquafarms, Whole Oceans, West
Coast Salmon and Pure Salmon.
Intellectual
Property
Our
intellectual property is an essential element of our business. We use a combination of patent, trademark, copyright, trade secret and
other intellectual property laws and confidentiality agreements to protect our intellectual property. Our policy is to seek patent protection
in the United States and in certain foreign jurisdictions for our products, processes and other technology where available and when appropriate.
We also in-license technology, inventions and improvements we consider important to the development of our business.
In
addition to our patents, we also rely upon trade secrets, know-how, trademarks, copyright protection and continuing technological and
licensing opportunities to develop and maintain our competitive position. We monitor the activities of our competitors and other third
parties with respect to their use of intellectual property. We require our employees to execute confidentiality and non-competition agreements
upon commencing employment with us. Despite these safeguards, any of our know-how or trade secrets not protected by a patent could be
disclosed to, or independently developed by, a competitor.
It
is our standard practice to require our employees to sign agreements acknowledging that all inventions, trade secrets, works of authorship,
developments and other processes generated by them on our behalf are our property, and assigning to us any ownership in those works.
Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own. Unauthorized
use of our intellectual property by third parties and the expenses incurred in protecting our intellectual property rights, may adversely
affect our business.
Borrowings
under our loan and security agreement with Lighthouse are secured by substantially all of our personal property, including our intellectual
property.
The
following is a list of our patents:
Title
Country
Patent
No. OR
Publication
No
Issue
Date
Application
No.
Application
Date
POUCH-PACKAGED
CRABMEAT PRODUCT AND METHOD
US
2015/0257426
A1
14/205,742
3/12/2014
METHOD
FOR PACKAGING CRABMEAT
US
8445046
B2
5/21/2013
13/681,027
11/19/2012
METHOD
FOR PACKAGING CRABMEAT
US
8337922
B2
12/25/2012
10/691,480
10/21/2003
METHOD
FOR PACKAGING CRABMEAT
EPC
1526091
B1
10/21/2004
TH
28,256
PH
1-2005-000216
ID
20261
Our
patents expire 20 years from the date of issuance which range from year 2007 to 2015.
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The
following is a list of our registered trademarks and trademarks for which we have filed applications.
Mark
Registration
No
Registration
Date
Application
No.
Application
Date
AMERICA’S
FAVORITE CRABMEAT
2961590
6/7/05
78344059
12/22/03
ECO-FRESH
4525998
5/6/14
77922376
1/28/10
3858522
10/5/10
77885209
12/3/09
3818057
7/13/10
77885203
12/3/09
OCEANICA
3711200
11/17/09
77595180
10/17/08
2419060
1/9/01
75855876
11/19/19
Lubkin’s
Coastal Pride
2879531
8/31/04
78289067
8/19/03
Lubkin’s
Good Stuff
N/A
N/A
87919629
5/14/18
Lubkin’s
First Choice
H/A
N/A
88645685
10/8/19
Canadian
Intellectual Property Office registered trademarks:
Little
Cedar Falls – Registration #1766337- Expiration: June 20, 2032
Taste
of BC – Registration #1561871 - Expiration: January 31, 2034
Government
Regulation
Our
third-party distribution facilities and our international suppliers are certified in accordance with the HACCP, standards for exporting
aquatic products to the United States. The HACCP standards are developed by the FDA, pursuant to the FDA’s HACCP regulation, Title
21, Code of Federal Regulations, part 123, and are used by the FDA to help ensure food safety and control sanitary standards.
Food
Safety and Labeling
We
are subject to extensive regulation, including, among other things, the Food, Drug and Cosmetic Act, as amended by the Food Safety Modernization
Act (“FSMA”), the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, and the rules and regulations
promulgated thereunder by the FDA. The FSMA was enacted in order to aid the effective prevention of food safety issues in the food supply.
This comprehensive and evolving regulatory program impacts how food is grown, packed, processed, shipped and imported into the United
States and it governs compliance with Good Manufacturing Practices regulations. The FDA has finalized seven major rules to implement
FSMA, recognizing that ensuring the safety of the food supply is a shared responsibility among many different points in the global supply
chain. The FSMA rules are designed to make clear specific actions that must be taken at each of these points to prevent contamination.
Some aspects of these laws use a strict liability standard for imposing sanctions on corporate behavior. If we fail to comply with applicable
laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls, or seizures, and criminal sanctions,
any of which could impact our results of operations.
In
addition, the Nutrition Labeling and Education Act of 1990 prescribes the format and content of certain information required to appear
on the labels of food products.
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Our
operations and products are also subject to state and local regulation, including the registration and licensing of plants, enforcement
by state health agencies of various state standards, and the registration and inspection of facilities. Compliance with federal, state
and local regulation is costly and time-consuming. Enforcement actions for violations of federal, state, and local regulations may include
seizure and condemnation of products, cease and desist orders, injunctions or monetary penalties. We believe that our practices are sufficient
to maintain compliance with applicable government regulations.
Trade
For
the purchase of products harvested or manufactured outside of the United States, and for the shipment of products to customers located
outside of the United States, we are subject to customs laws regarding the import and export of shipments. Our activities, including
working with customs brokers and freight forwarders, are subject to regulation by U.S. Customs and Border Protection, part of the Department
of Homeland Security.
TOBC
TOBC’s
aquafarms facility in Nanaimo, British Columbia, Canada with an annual production capacity of approximately 100 tons are licensed under
the Canadian Department of Fisheries and Oceans. Harvests of steelhead salmon and rainbow trout fingerlings are processed as iced HOG
fish locally at a Canadian Food Inspection Agency approved processing facility.
Federal
Trade Commission
We
are subject to certain regulations by the U.S. Federal Trade Commission. Advertising of our products is subject to such regulation pursuant
to the Federal Trade Commission Act and the regulations promulgated thereunder.
Employee
Safety Regulations
We
are subject to certain health and safety regulations, including regulations issued pursuant to the Occupational Safety and Health Act.
These regulations require us to comply with certain manufacturing, health, and safety standards to protect our employees from accidents.
Anticorruption
Because
we are organized under the laws of a state and our principal place of business is in the United States, we are considered a “domestic
concern” under the Foreign Corrupt Practices Act (“FCPA”) and are covered by the anti-bribery provisions of the FCPA.
The provisions prohibit any domestic concern and any officer, director, employee, or agent, acting on behalf of the domestic concern
from paying or authorizing payment of anything of value to (i) influence any act or decision by a foreign official; (ii) induce a foreign
official to do or omit to do any act in violation of his/her lawful duty; (iii) secure any improper advantage; or (iv) induce a foreign
official to use his/her influence to assist the payor in obtaining or retaining business, or directing business to another person.
Environmental
Regulation
We
are subject to a number of federal, state, and local laws and other requirements relating to the protection of the environment and the
safety and health of personnel and the public. These requirements relate to a broad range of our activities, including the discharge
of pollutants into the air and water; the identification, generation, storage, handling, transportation, disposal, recordkeeping, labeling,
and reporting of, and emergency response in connection with, hazardous materials (including asbestos) associated with our operations;
noise emissions from our facilities; and safety and health standards, practices, and procedures that apply to the workplace and the operation
of our facilities.
Employees
As
of March 28, 2024, we had thirty-nine full time employees and no part-time employees. We believe that our future success will depend, in
part, on our continued ability to attract, hire and retain qualified personnel.
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